Highlights
  • Quarterly net income available to common stockholders of $18.0 million in comparison with $19.8 million for the first quarter of the prior year
  • Diluted earnings per common share of $0.68 in comparison with $0.82 for the first quarter of the prior year
  • Net interest margin of 3.95%, fully tax-equivalent (non-GAAP) (1) of 4.16%
  • Return on average common equity of 9.71% and return on average tangible common equity (non-GAAP) (2) of 12.25%
  • Non-time deposits increased $269.3 million or 4% since December 31, 2016, and included $111.6 million of organic growth
  • Tangible capital ratio (non-GAAP) (3) of 7.50%
  • Completed acquisition of Founders Bancorp and systems conversion of Founders Community Bank
  • Announced definitive merger agreement with Citywide Banks of Colorado, Inc.
  Quarter Ended March 31,
  2017   2016
Net income (in millions) $ 18.0     $ 20.0  
Net income available to common stockholders (in millions) 18.0     19.8  
Diluted earnings per common share 0.68     0.82  
       
Return on average assets 0.89 %   0.99 %
Return on average common equity 9.71     12.68  
Return on average tangible common equity (non-GAAP) (2) 12.25     16.45  
Net interest margin 3.95     4.02  
Net interest margin, fully tax-equivalent (non-GAAP) (1) 4.16     4.19  

"Heartland reported first quarter net income of $18 million, or $0.68 per diluted common share, reflective of results that were somewhat mixed. We experienced strong non-time deposit growth, a solid net interest margin and an improved tangible common equity ratio; however, weakness in loan growth and lower mortgage loan activity led to earnings that were a bit short of our expectations. "

              Lynn B. Fuller, chairman and chief executive officer, Heartland Financial USA, Inc.

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

DUBUQUE, Iowa, April 24, 2017 (GLOBE NEWSWIRE) -- Heartland Financial USA, Inc. (NASDAQ:HTLF) today reported net income available to common stockholders of $18.0 million, or $0.68 per diluted common share, for the quarter ended March 31, 2017, compared to $19.8 million, or $0.82 per diluted common share, for the first quarter of 2016. Return on average common equity was 9.71% and return on average assets was 0.89% for the first quarter of 2017, compared to 12.68% and 0.99%, respectively, for the same quarter in 2016.

Commenting on Heartland's first quarter 2017 results, Lynn B. Fuller, Heartland's chairman and chief executive officer said, "Heartland reported first quarter net income of $18 million, or $0.68 per diluted common share, reflective of results that were somewhat mixed. We experienced strong non-time deposit growth, a solid net interest margin and an improved tangible common equity ratio; however, weakness in loan growth and lower mortgage loan activity led to earnings that were a bit short of our expectations."

On February 28, 2017, Heartland completed the acquisition of Founders Bancorp, parent company of Founders Community Bank, based in San Luis Obispo, California. Based on Heartland's closing common stock price of $49.55 per share as of February 28, 2017, the aggregate consideration was $31.0 million, with 30% of the consideration paid in cash and 70% by delivery of Heartland common stock. Simultaneous with the closing of the transaction, Founders Community Bank merged into Heartland's Premier Valley Bank subsidiary. As of the close date, Founders Community Bank had, at fair value, total assets of $213.3 million, total loans of $96.4 million and total deposits of $181.5 million. The systems conversion for this transaction occurred two weeks after the closing.

On February 13, 2017, Heartland entered into a definitive merger agreement with Citywide Banks of Colorado, Inc., parent company of Citywide Banks, headquartered in Aurora, Colorado. Under the terms of the definitive merger agreement, Heartland will acquire Citywide Banks of Colorado Inc., in a transaction valued at approximately $203.0 million as of the announcement date, subject to certain adjustments. Citywide Banks of Colorado, Inc. common shareholders will receive a combination of Heartland common stock and cash. The transaction is subject to customary closing conditions, including approval by the shareholders of Citywide Banks of Colorado, Inc., and bank regulatory authorities. The transaction is also subject to Heartland shareholders' approval of an increase in the number of authorized shares of common stock. The transaction is expected to close in the third quarter of 2017, and simultaneous with the close, Citywide Banks will merge into Heartland's Centennial Bank and Trust subsidiary. The combined entity will operate as Citywide Banks. As of December 31, 2016, Citywide Banks had total assets of $1.38 billion, including $977.6 million in net loans outstanding, and $1.20 billion of deposits.

Fuller commented, "Expansion of our banking franchise through mergers and acquisitions remains a high priority for Heartland. In the first quarter, we announced the signing of a definitive agreement to acquire Citywide Banks of Colorado, Inc. When the merger is completed, Citywide will join with Centennial Bank and Trust to create a premier community banking organization in Colorado with assets of $2.3 billion and 29 banking centers in one of the country's best growth markets."

Fully Tax-Equivalent Net Interest Margin Remains Above 4.00%

Net interest margin, expressed as a percentage of average earning assets, was 3.95% (4.16% on a fully tax-equivalent basis) during the first quarter of 2017, compared to 3.96% (4.14% on a fully tax-equivalent basis) during the fourth quarter of 2016 and 4.02% (4.19% on a fully tax-equivalent basis) during the first quarter of 2016.

Fuller said, "We are very pleased with our net interest margin, which reached 4.16% on a fully tax-equivalent basis for the quarter, reflecting our continued pricing discipline. We remain among the leaders in our peer group on this significant financial metric."

Interest income for the first quarter of 2017 was $80.6 million compared to the $80.7 million recorded in the first quarter of 2016. The taxable equivalent adjustment for income taxes saved on the interest earned on nontaxable securities and loans was $3.9 million for the first quarter of 2017 and $3.0 million for the first quarter of 2016. With these adjustments, interest income on a tax-equivalent basis was $84.4 million for the first quarter of 2017, an increase of $686,000 or 1%, compared to $83.7 million for the first quarter of 2016. The increase in interest income on a fully tax-equivalent basis in the first quarter of 2017, as compared to the first quarter of 2016, was primarily due to an increase in average earning assets, which totaled $7.50 billion during the first quarter of 2017 compared to $7.28 billion during the first quarter of 2016, a $225.8 million or 3% increase.  A majority of this growth was attributable to the CIC Bancshares, Inc. acquisition completed on February 5, 2016, and the Founders Bancorp acquisition completed on February 28, 2017.

Interest expense for the first quarter of 2017 was $7.5 million, a decrease of $454,000 or 6% from $8.0 million in the first quarter of 2016. Average interest bearing liabilities decreased $82.2 million or 2% for the quarter ended March 31, 2017, from $5.27 billion in the same quarter in 2016, while the average interest rate paid on Heartland's interest bearing deposits and borrowings declined 2 basis points from 0.61% in the first quarter of 2016 to 0.59% in the first quarter of 2017.

Net interest income was $73.0 million during the first quarter of 2017 compared to $72.7 million during the first quarter of 2016, an increase of $321,000 or less than 1%. After the tax-equivalent adjustment discussed above, net interest income on a tax-equivalent basis totaled $76.9 million during the first quarter of 2017 compared to $75.7 million during the first quarter of 2016, an increase of $1.1 million or 2%.

Noninterest Income Decreases and Noninterest Expenses Increase From Same Quarter Last Year

Noninterest income totaled $25.9 million during the first quarter of 2017 compared to $29.6 million during the first quarter of 2016, a decrease of $3.7 million or 12%. Service charges and fees totaled $9.5 million during the first quarter of 2017 compared to $7.2 million during the first quarter of 2016, an increase of $2.3 million or 32%. This increase was primarily attributable to a larger demand deposit customer base, a portion of which was the result of the CIC Bancshares, Inc. acquisition completed during the first quarter of 2016, and increased interchange revenue from commercial card activity. Gains on sale of loans held for sale totaled $6.1 million during the first quarter of 2017 compared to $11.1 million during the first quarter of 2016, a decrease of $4.9 million or 44%, due to lower mortgage loan activity.

For the first quarter of 2017, noninterest expenses totaled $71.7 million compared to $70.3 million during the first quarter of 2016, an increase of $1.4 million or 2%. The categories with the most significant increases were professional fees, which increased $1.3 million or 19%, and advertising, which increased $1.1 million or 89%.

Heartland's effective tax rate was 23.49% for the first quarter of 2017 compared to 33.10% for the first quarter of 2016. Federal low-income housing tax credits included in the determination of Heartland's income taxes totaled $304,000 during the first quarter of both 2017 and 2016. Heartland's effective tax rate was also affected by the level of tax-exempt interest income which, as a percentage of pre-tax income, was 30.46% during the first quarter of 2017 compared to 18.88% during the first quarter of 2016. As a result of the adoption of ASU 2016-09, "Compensation-Stock Compensation (Topic 718)" on January 1, 2017, Heartland's income taxes during the first quarter of 2017 included a tax benefit of $888,000 upon the vesting of outstanding restricted stock unit awards. The majority of Heartland's restricted stock unit awards vest annually in the first quarter. Exclusive of the effect of this tax benefit, Heartland's effective tax rate for the first quarter of 2017 was 27.26%.

Loans and Deposits Increase Since December 31, 2016

Total assets were $8.36 billion at March 31, 2017, an increase of $114.8 million or 1% from $8.25 billion at year-end 2016. Included in this growth, at fair value, were $213.3 million of assets acquired in the Founders Bancorp transaction. Securities represented 26% of total assets at both March 31, 2017, and December 31, 2016.

Total loans held to maturity were $5.36 billion at March 31, 2017, compared to $5.35 billion at year-end 2016, an increase of $9.9 million or less than 1%. This increase includes $96.4 million of total loans held to maturity, at fair value, acquired in the Founders Bancorp transaction. Exclusive of this transaction, total loans held to maturity decreased $86.6 million or 2% during the first quarter of 2017.

Total deposits were $7.09 billion as of March 31, 2017, compared to $6.85 billion at year-end 2016, an increase of $242.5 million or 4%. This increase included $181.5 million of deposits, at fair value, acquired in the Founders Bancorp transaction. Exclusive of this transaction, total deposits increased $61.0 million during the first quarter of 2017. Non-time deposits totaled $6.26 billion at March 31, 2017, an increase of $269.3 million or 4% from $5.99 billion at year-end 2016, with $157.7 million of the increase attributable to the Founders Bancorp transaction. Exclusive of this transaction, non-time deposits increased $111.6 million or 2% during the first quarter of 2017.

Fuller said, "In addition to solid growth in non-time deposits, we are delighted to see a continuing favorable shift in our deposit mix with non-time funding representing 88% of total deposits, up from 83.5% one year ago. Likewise, our demand deposits now constitute almost 33% of the mix, up from 30% one year ago."

Nonperforming Assets Increase Since December 31, 2016

Nonperforming assets were $75.7 million or 0.90% of total assets at March 31, 2017, compared to $74.8 million or 0.91% of total assets at December 31, 2016. Nonperforming loans were $63.7 million or 1.19% of total loans at March 31, 2017, compared to $64.4 million or 1.20% of total loans at December 31, 2016.

The allowance for loan losses at March 31, 2017, was 1.03% of loans and 86.29% of nonperforming loans, compared to 1.02% of loans and 84.37% of nonperforming loans at December 31, 2016. The provision for loan losses was $3.6 million for the first quarter of 2017 compared to $2.1 million for the first quarter of 2016.

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 23, 2018, by logging on to www.htlf.com. 

About Heartland Financial USA, Inc. Heartland Financial USA, Inc. is a diversified financial services company with assets exceeding $8 billion. The company provides banking, mortgage, private client, investment, insurance and consumer finance services to individuals and businesses. Heartland currently has 110 banking locations serving 87 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 included in Heartland's Annual Report on Form 10-K filed with the Securities and Exchange Commission, include, 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 concerning 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; (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,
  2017   2016
Interest Income      
Interest and fees on loans $ 66,898     $ 68,425  
Interest on securities:      
Taxable 8,253     8,644  
Nontaxable 5,191     3,510  
Interest on federal funds sold     10  
Interest bearing deposits with the Federal Reserve Bank and other banks and other short-term investments 209     95  
Total Interest Income 80,551     80,684  
Interest Expense      
Interest on deposits 3,730     4,173  
Interest on short-term borrowings 137     329  
Interest on other borrowings 3,656     3,475  
Total Interest Expense 7,523     7,977  
Net Interest Income 73,028     72,707  
Provision for loan losses 3,641     2,067  
Net Interest Income After Provision for Loan Losses 69,387     70,640  
Noninterest Income      
Service charges and fees 9,457     7,162  
Loan servicing income 1,724     1,268  
Trust fees 3,631     3,813  
Brokerage and insurance commissions 1,036     1,022  
Securities gains, net 2,482     3,526  
Net gains on sale of loans held for sale 6,147     11,065  
Valuation adjustment on commercial servicing rights 5      
Income on bank owned life insurance 617     522  
Other noninterest income 794     1,200  
Total Noninterest Income 25,893     29,578  
Noninterest Expense      
Salaries and employee benefits 41,767     41,714  
Occupancy 5,073     5,003  
Furniture and equipment 2,501     2,113  
Professional fees 8,309     7,010  
FDIC insurance assessments 807     1,168  
Advertising 2,424     1,284  
Core deposit intangibles and customer relationship intangibles amortization 1,171     1,895  
Other real estate and loan collection expenses 828     572  
(Gain)/loss on sales/valuations of assets, net 412     313  
Other noninterest expenses 8,448     9,237  
Total Noninterest Expense 71,740     70,309  
Income Before Income Taxes 23,540     29,909  
Income taxes 5,530     9,900  
Net Income 18,010     20,009  
Preferred dividends (19 )   (168 )
Interest expense on convertible preferred debt 5      
Net Income Available to Common Stockholders $ 17,996     $ 19,841  
Earnings per common share-diluted $ 0.68     $ 0.82  
Weighted average shares outstanding-diluted 26,627,830     24,117,384  

HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
  For the Quarter Ended
  3/31/2017   12/31/2016   9/30/2016   6/30/2016   3/31/2016
Interest Income                  
Interest and fees on loans $ 66,898     $ 69,848     $ 70,046     $ 69,809     $ 68,425  
Interest on securities:                  
Taxable 8,253     8,480     7,831     7,903     8,644  
Nontaxable 5,191     4,292     3,717     3,566     3,510  
Interest on federal funds sold         1     1     10  
Interest bearing deposits with the Federal Reserve Bank and other banks and other short-term investments 209     157     92     52     95  
Total Interest Income 80,551     82,777     81,687     81,331     80,684  
Interest Expense                  
Interest on deposits 3,730     3,744     4,001     4,021     4,173  
Interest on short-term borrowings 137     119     235     519     329  
Interest on other borrowings 3,656     3,754     3,770     3,673     3,475  
Total Interest Expense 7,523     7,617     8,006     8,213     7,977  
Net Interest Income 73,028     75,160     73,681     73,118     72,707  
Provision for loan losses 3,641     2,181     5,328     2,118     2,067  
Net Interest Income After Provision for Loan Losses 69,387     72,979     68,353     71,000     70,640  
Noninterest Income                  
Service charges and fees 9,457     8,128     8,278     8,022     7,162  
Loan servicing income 1,724     1,068     873     1,292     1,268  
Trust fees 3,631     3,718     3,689     3,625     3,813  
Brokerage and insurance commissions 1,036     955     1,006     886     1,022  
Securities gains, net 2,482     1,608     1,584     4,622     3,526  
Net gains on sale of loans held for sale 6,147     5,840     11,459     11,270     11,065  
Valuation adjustment on commercial servicing rights 5     8     5     (46 )    
Income on bank owned life insurance 617     542     620     591     522  
Other noninterest income 794     2,588     1,028     764     1,200  
Total Noninterest Income 25,893     24,455     28,542     31,026     29,578  
Noninterest Expense                  
Salaries and employee benefits 41,767     39,115     40,733     41,985     41,714  
Occupancy 5,073     5,076     5,099     5,220     5,003  
Furniture and equipment 2,501     2,944     2,746     2,442     2,113  
Professional fees 8,309     7,195     5,985     7,486     7,010  
FDIC insurance assessments 807     717     1,180     1,120     1,168  
Advertising 2,424     2,274     1,339     1,551     1,284  
Core deposit intangibles and customer relationship intangibles amortization 1,171     1,147     1,291     1,297     1,895  
Other real estate and loan collection expenses 828     572     640     659     572  
(Gain)/loss on sales/valuations of assets, net 412     414     794     (43 )   313  
Other noninterest expenses 8,448     10,458     8,620     9,303     9,237  
Total Noninterest Expense 71,740     69,912     68,427     71,020     70,309  
Income Before Income Taxes 23,540     27,522     28,468     31,006     29,909  
Income taxes 5,530     8,360     8,260     10,036     9,900  
Net Income 18,010     19,162     20,208     20,970     20,009  
Preferred dividends (19 )   (19 )   (53 )   (52 )   (168 )
Interest expense on convertible preferred debt 5     3     17     31      
Net Income Available to Common Stockholders $ 17,996     $ 19,146     $ 20,172     $ 20,949     $ 19,841  
Earnings per common share-diluted $ 0.68     $ 0.74     $ 0.81     $ 0.84     $ 0.82  
Weighted average shares outstanding-diluted 26,627,830     25,800,472     24,922,946     24,974,995     24,117,384  

HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
  As Of
  3/31/2017   12/31/2016   9/30/2016   6/30/2016   3/31/2016
Assets                  
Cash and due from banks $ 129,386     $ 151,290     $ 196,234     $ 222,718     $ 124,060  
Interest bearing deposits with the Federal Reserve Bank and other banks and other short-term investments 43,765     7,434     5,855     7,232     9,168  
Cash and cash equivalents 173,151     158,724     202,089     229,950     133,228  
Time deposits in other financial institutions 41,539     2,105     2,105     2,105     2,355  
Securities:                  
Available for sale, at fair value 1,893,528     1,845,864     1,655,696     1,566,592     1,690,516  
Held to maturity, at cost 260,616     263,662     265,302     270,423     271,300  
Other investments, at cost 21,557     21,560     22,082     22,680     22,325  
Loans held for sale 49,009     61,261     78,317     82,538     76,565  
Loans:                  
Held to maturity 5,361,604     5,351,719     5,438,715     5,482,258     5,503,005  
 Allowance for loan losses (54,999 )   (54,324 )   (54,653 )   (51,756 )   (49,738 )
Loans, net 5,306,605     5,297,395     5,384,062     5,430,502     5,453,267  
Premises, furniture and equipment, net 165,425     164,028     165,841     168,701     164,788  
Goodwill 141,461     127,699     127,699     127,699     127,699  
Core deposit intangibles and customer relationship intangibles, net 24,068     22,775     23,922     25,213     26,510  
Servicing rights, net 35,441     35,778     35,906     35,654     34,910  
Cash surrender value on life insurance 117,613     112,615     112,060     111,425     110,834  
Other real estate, net 11,188     9,744     10,740     11,003     11,338  
Other assets 120,644     123,869     116,394     119,916     128,144  
Total Assets $ 8,361,845     $ 8,247,079     $ 8,202,215     $ 8,204,401     $ 8,253,779  
Liabilities and Equity                  
Liabilities                  
Deposits:                  
 Demand $ 2,319,256     $ 2,202,036     $ 2,238,736     $ 2,149,911     $ 2,079,521  
 Savings 3,940,146     3,788,089     3,753,300     3,691,791     3,702,431  
 Time 830,459     857,286     920,657     995,870     1,142,368  
Total deposits 7,089,861     6,847,411     6,912,693     6,837,572     6,924,320  
Short-term borrowings 155,025     306,459     214,105     303,707     325,741  
Other borrowings 282,051     288,534     294,493     296,895     265,760  
Accrued expenses and other liabilities 53,596     63,759     76,536     78,264     68,415  
Total Liabilities 7,580,533     7,506,163     7,497,827     7,516,438     7,584,236  
Stockholders' Equity                  
Preferred equity 938     1,357     1,357     3,777     3,777  
Common stock 26,674     26,120     24,683     24,544     24,520  
Capital surplus 351,423     328,376     279,316     274,682     273,310  
Retained earnings 431,219     416,109     402,179     384,479     366,014  
Accumulated other comprehensive income (loss) (28,942 )   (31,046 )   (3,079 )   513     1,924  
Treasury stock at cost         (68 )   (32 )   (2 )
Total Equity 781,312     740,916     704,388     687,963     669,543  
Total Liabilities and Equity $ 8,361,845     $ 8,247,079     $ 8,202,215     $ 8,204,401     $ 8,253,779  

HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
  For the Quarter Ended
  3/31/2017   12/31/2016   9/30/2016   6/30/2016   3/31/2016
Average Balances                  
Assets $ 8,233,510     $ 8,280,042     $ 8,172,683     $ 8,211,326     $ 8,025,070  
Loans, net of unearned 5,365,654     5,473,001     5,538,088     5,582,878     5,358,102  
Deposits 6,896,821     6,928,978     6,839,334     6,806,259     6,679,010  
Earning assets 7,502,496     7,551,997     7,382,860     7,446,849     7,276,703  
Interest bearing liabilities 5,190,955     5,206,393     5,224,172     5,363,477     5,273,164  
Common stockholders' equity 751,671     726,455     689,637     669,930     629,294  
Total stockholders' equity 752,958     727,812     692,404     673,707     695,771  
Tangible common stockholders' equity (1) 596,006     575,412     537,375     516,347     485,108  
                   
Key Performance Ratios                  
Annualized return on average assets 0.89 %   0.92 %   0.98 %   1.03 %   0.99 %
Annualized return on average common equity (GAAP) 9.71 %   10.48 %   11.64 %   12.58 %   12.68 %
Annualized return on average common tangible equity (non-GAAP) (2) 12.25 %   13.24 %   14.93 %   16.32 %   16.45 %
Annualized ratio of net charge-offs to average loans 0.22 %   0.18 %   0.17 %   0.01 %   0.08 %
Annualized net interest margin (GAAP) 3.95 %   3.96 %   3.97 %   3.95 %   4.02 %
Annualized net interest margin, fully tax-equivalent (non-GAAP) (3) 4.16 %   4.14 %   4.14 %   4.12 %   4.19 %
Efficiency ratio, fully tax-equivalent (4) 69.95 %   66.29 %   63.88 %   67.95 %   66.90 %
                   
Reconciliation of Return on Average Common Tangible Equity (non-GAAP) (5)                  
Net income available to common shareholders (GAAP) $ 17,996     $ 19,146     $ 20,172     $ 20,949     $ 19,841  
                   
Average common stockholders' equity (GAAP) $ 751,671     $ 726,455     $ 689,637     $ 669,930     $ 629,294  
   Less average goodwill 132,440     127,699     127,699     127,699     119,750  
Less average core deposit intangibles and customer relationship intangibles, net 23,225     23,344     24,563     25,884     24,436  
Average common tangible equity (non-GAAP) $ 596,006     $ 575,412     $ 537,375     $ 516,347     $ 485,108  
Annualized return on average common equity (GAAP) 9.71 %   10.48 %   11.64 %   12.58 %   12.68 %
Annualized return on average common tangible equity (non-GAAP) 12.25 %   13.24 %   14.93 %   16.32 %   16.45 %
                   
Reconciliation of Annualized Net Interest Margin, Fully Tax-Equivalent (non-GAAP) (6)                  
Net Interest Income (GAAP) $ 73,028     $ 75,160     $ 73,681     $ 73,118     $ 72,707  
   Plus taxable equivalent adjustment (7) 3,860     3,511     3,221     3,146     3,041  
Net interest income, fully tax-equivalent (non-GAAP) $ 76,888     $ 78,671     $ 76,902     $ 76,264     $ 75,748  
                   
Average earning assets $ 7,502,496     $ 7,551,997     $ 7,382,860     $ 7,446,849     $ 7,276,703  
                   
Annualized net interest margin (GAAP) 3.95 %   3.96 %   3.97 %   3.95 %   4.02 %
Annualized net interest margin, fully tax-equivalent (non-GAAP) 4.16 %   4.14 %   4.14 %   4.12 %   4.19 %
 
(1) Calculated as common stockholders' equity less goodwill and core deposit intangibles and customer relationship intangibles, net.
(2) Refer to the "Reconciliation of Return on Average Common Tangible Equity (non-GAAP)" table.
(3) Refer to the "Reconciliation of Annualized Net Interest Margin, Fully Tax-Equivalent (non-GAAP)" table.
(4) Refer to the "Reconciliation of Non-GAAP Measure-Efficiency Ratio" table that follows for details of this non-GAAP measure.
(5) Return on average common tangible equity is net income available to common stockholders divided by average common stockholders' equity less goodwill and core deposit intangibles and customer relationship intangibles, net. This financial measure is included as it is considered to be a critical metric to analyze and evaluate financial condition and capital strength. This measure should not be considered a substitute for operating results determined in accordance with GAAP.
(6) Annualized net interest margin, fully tax-equivalent is a non-GAAP measure, which adjusts net interest income for the tax-favored status of certain loans and securities. Management believes this measure enhances the comparability of net interest income arising from taxable and tax-exempt sources. This measure should not be considered a substitute for operating results determined in accordance with GAAP.
(7) Computed on a tax-equivalent basis using an effective tax rate of 35%.

HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
  For the Quarter Ended
Reconciliation of Non-GAAP Measure-Efficiency Ratio (1) 3/31/2017   12/31/2016   9/30/2016   6/30/2016   3/31/2016
Net interest income $ 73,028     $ 75,160     $ 73,681     $ 73,118     $ 72,707  
Tax-equivalent adjustment (2) 3,860     3,511     3,221     3,146     3,041  
Fully tax-equivalent net interest income 76,888     78,671     76,902     76,264     75,748  
Noninterest income 25,893     24,455     28,542     31,026     29,578  
Securities gains, net (2,482 )   (1,608 )   (1,584 )   (4,622 )   (3,526 )
Adjusted income $ 100,299     $ 101,518     $ 103,860     $ 102,668     $ 101,800  
                   
Total noninterest expenses $ 71,740     $ 69,912     $ 68,427     $ 71,020     $ 70,309  
Less:                  
Core deposit intangibles and customer relationship intangibles amortization 1,171     1,147     1,291     1,297     1,895  
Partnership investment in historic rehabilitation tax credits     1,051              
(Gain)/loss on sales/valuation of assets, net 412     414     794     (43 )   313  
Adjusted noninterest expenses $ 70,157     $ 67,300     $ 66,342     $ 69,766     $ 68,101  
                   
Efficiency ratio, fully tax-equivalent (non-GAAP) 69.95 %   66.29 %   63.88 %   67.95 %   66.90 %
                   
(1) Efficiency ratio, fully tax-equivalent, expresses noninterest expenses as a percentage of fully tax-equivalent net interest income and noninterest income. This efficiency ratio is presented on a tax-equivalent basis, which adjusts net interest income and noninterest expenses for the tax favored status of certain loans, securities and historic rehabilitation tax credits. Management believes the presentation of this non-GAAP measure provides supplemental useful information for proper understanding of the financial results as it enhances the comparability of income and expenses arising from taxable and nontaxable sources and excludes specific items, as noted in the table. This measure should not be considered a substitute for operating results determined in accordance with GAAP.
(2) Computed on a tax-equivalent basis using an effective tax rate of 35%.

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
  3/31/2017   12/31/2016   9/30/2016   6/30/2016   3/31/2016
Common Share Data                  
Book value per common share $ 29.26     $ 28.31     $ 28.48     $ 27.88     $ 27.15  
Tangible book value per common share (non-GAAP) (1) $ 23.05     $ 22.55     $ 22.34     $ 21.65     $ 20.86  
ASC 320 effect on book value per common share $ (1.06 )   $ (1.15 )   $ 0.03     $ 0.21     $ 0.23  
Common shares outstanding, net of treasury stock 26,674,121     26,119,929     24,681,380     24,543,376     24,519,928  
Tangible capital ratio (non-GAAP) (2) 7.50 %   7.28 %   6.85 %   6.60 %   6.32 %
                   
Reconciliation of Tangible Book Value Per Common Share (non-GAAP) (3)                  
Common stockholders' equity (GAAP) $ 780,374     $ 739,559     $ 703,031     $ 684,186     $ 665,766  
Less goodwill 141,461     127,699     127,699     127,699     127,699  
Less core deposit intangibles and customer relationship intangibles, net 24,068     22,775     23,922     25,213     26,510  
Tangible common stockholders' equity (non-GAAP) $ 614,845     $ 589,085     $ 551,410     $ 531,274     $ 511,557  
                   
Common shares outstanding, net of treasury stock 26,674,121     26,119,929     24,681,380     24,543,376     24,519,928  
Common stockholders' equity (book value) per share (GAAP) $ 29.26     $ 28.31     $ 28.48     $ 27.88     $ 27.15  
Tangible book value per common share (non-GAAP) $ 23.05     $ 22.55     $ 22.34     $ 21.65     $ 20.86  
                   
Reconciliation of Tangible Capital Ratio (non-GAAP) (4)                  
Total assets (GAAP) $ 8,361,845     $ 8,247,079     $ 8,202,215     $ 8,204,401     $ 8,253,779  
   Less goodwill 141,461     127,699     127,699     127,699     127,699  
Less core deposit intangibles and customer relationship intangibles, net 24,068     22,775     23,922     25,213     26,510  
Total tangible assets (non-GAAP) $ 8,196,316     $ 8,096,605     $ 8,050,594     $ 8,051,489     $ 8,099,570  
Tangible capital ratio (non-GAAP) 7.50 %   7.28 %   6.85 %   6.60 %   6.32 %
                   
Loan Data                  
Loans held to maturity:                  
Commercial and commercial real estate $ 3,849,748     $ 3,825,847     $ 3,900,612     $ 3,930,879     $ 3,951,839  
Residential mortgage 604,902     617,924     625,965     644,267     666,184  
Agricultural and agricultural real estate 481,125     489,318     489,387     480,883     471,271  
Consumer 427,962     420,613     425,582     428,730     417,114  
Unearned discount and deferred loan fees (2,133 )   (1,983 )   (2,831 )   (2,501 )   (3,403 )
Total loans held to maturity $ 5,361,604     $ 5,351,719     $ 5,438,715     $ 5,482,258     $ 5,503,005  
                   
Other Selected Trend Information                  
Effective tax rate 23.49 %   30.38 %   29.02 %   32.37 %   33.10 %
Full time equivalent employees 1,896     1,864     1,846     1,888     1,907  
Total residential mortgage loan applications $ 248,614     $ 304,018     $ 445,107     $ 440,907     $ 406,999  
Residential mortgage loans originated $ 161,851     $ 278,065     $ 324,337     $ 324,633     $ 238,266  
Residential mortgage loans sold $ 172,521     $ 269,333     $ 315,917     $ 302,448     $ 220,381  
Residential mortgage loan servicing portfolio $ 4,338,311     $ 4,308,580     $ 4,259,459     $ 4,203,429     $ 4,112,519  
                   
(1) Refer to the "Reconciliation of Tangible Book Value Per Common Share (non-GAAP)" table.
(2) Refer to the "Reconciliation of Tangible Capital Ratio (non-GAAP)" table.
(3) Tangible book value per common share is total common stockholders' equity less goodwill and core deposit intangibles and customer relationship intangibles, net, divided by common shares outstanding, net of treasury. This is a non-GAAP financial measure but has been included as it is considered to be a critical metric with which to analyze and evaluate financial condition and capital strength. This measure should not be considered a substitute for operating results determined in accordance with GAAP.
(4) The tangible capital ratio is total common stockholders' equity less goodwill and core deposit intangibles and customer relationship intangibles, net, divided by total assets less goodwill and core deposit intangibles and customer relationship intangibles, net. This is a non-GAAP financial measure but has been included as it is considered to be a critical metric with which to analyze and evaluate financial condition and capital strength. This measure should not be considered a substitute for operating results determined in accordance with GAAP.

HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
  As of and for the Quarter Ended
  3/31/2017   12/31/2016   9/30/2016   6/30/2016   3/31/2016
Allowance for Loan Losses                  
Balance, beginning of period $ 54,324     $ 54,653     $ 51,756     $ 49,738     $ 48,685  
Provision for loan losses 3,641     2,181     5,328     2,118     2,067  
Charge-offs (3,718 )   (3,555 )   (3,283 )   (2,951 )   (1,605 )
Recoveries 752     1,045     852     2,851     591  
Balance, end of period $ 54,999     $ 54,324     $ 54,653     $ 51,756     $ 49,738  
                   
Asset Quality                  
Nonaccrual loans $ 62,868     $ 64,299     $ 57,799     $ 57,053     $ 47,750  
Loans past due ninety days or more as to interest or principal payments 872     86     105         639  
Other real estate owned 11,188     9,744     10,740     11,003     11,338  
Other repossessed assets 739     663     821     564     426  
Total nonperforming assets $ 75,667     $ 74,792     $ 69,465     $ 68,620     $ 60,153  
                   
Performing troubled debt restructured loans $ 11,010     $ 10,380     $ 10,281     $ 9,923     $ 10,711  
                   
Nonperforming Assets Activity                  
Balance, beginning of period $ 74,792     $ 69,465     $ 68,620     $ 60,153     $ 51,664  
Net loan charge offs (2,966 )   (2,510 )   (2,431 )   (100 )   (1,014 )
New nonperforming loans 14,819     23,035     10,884     19,994     12,171  
Acquired nonperforming assets                 3,516  
Reduction of nonperforming loans (1) (10,037 )   (13,707 )   (6,983 )   (10,313 )   (3,563 )
OREO/Repossessed assets sales proceeds (715 )   (1,037 )   (343 )   (918 )   (2,411 )
OREO/Repossessed assets writedowns, net (279 )   (274 )   (521 )   (337 )   (182 )
Net activity at Citizens Finance Co. 53     (180 )   239     141     (28 )
Balance, end of period $ 75,667     $ 74,792     $ 69,465     $ 68,620     $ 60,153  
 
Asset Quality Ratios                  
Ratio of nonperforming loans to total loans 1.19 %   1.20 %   1.06 %   1.04 %   0.88 %
Ratio of nonperforming assets to total assets 0.90 %   0.91 %   0.85 %   0.84 %   0.73 %
Annualized ratio of net loan charge-offs to average loans 0.22 %   0.18 %   0.17 %   0.01 %   0.08 %
Allowance for loan losses as a percent of loans 1.03 %   1.02 %   1.00 %   0.94 %   0.90 %
Allowance for loan losses as a percent of nonperforming loans 86.29 %   84.37 %   94.39 %   90.72 %   102.79 %
Loans delinquent 30-89 days as a percent of total loans 0.44 %   0.37 %   0.40 %   0.73 %   0.45 %
                   
(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, 2017   March 31, 2016
  Average Balance   Interest   Rate   Average Balance   Interest   Rate
Earning Assets                      
Securities:                      
Taxable $ 1,449,054     $ 8,253     2.31 %   $ 1,508,432     $ 8,735     2.33 %
Nontaxable (1) 645,534     7,986     5.02     417,224     5,400     5.21  
Total securities 2,094,588     16,239     3.14     1,925,656     14,135     2.95  
Interest bearing deposits with the Federal Reserve Bank and other banks and other short-term investments 96,270     209     0.88     11,634     4     0.14  
Federal funds sold 314             31,126     10     0.13  
Loans: (2)                      
Commercial and commercial real estate (1) 3,813,258     45,913     4.88     3,743,940     46,754     5.02  
Residential mortgage 646,532     6,683     4.19     734,134     7,599     4.16  
Agricultural and agricultural real estate (1) 483,079     5,554     4.66     467,978     5,729     4.92  
Consumer 422,785     8,053     7.72     412,050     7,923     7.73  
Fees on loans     1,760             1,571      
Less: allowance for loan losses (54,330 )           (49,815 )        
Net loans 5,311,324     67,963     5.19     5,308,287     69,576     5.27  
Total earning assets 7,502,496     84,411     4.56 %   7,276,703     83,725     4.63 %
Nonearning Assets 731,014             748,367          
Total Assets $ 8,233,510             $ 8,025,070          
Interest Bearing Liabilities                      
Savings $ 3,838,001     $ 2,105     0.22 %   $ 3,556,207     $ 1,894     0.21 %
Time, $100,000 and over 348,782     725     0.84     498,620     871     0.70  
Other time deposits 484,336     900     0.75     642,301     1,408     0.88  
Short-term borrowings 235,432     137     0.24     311,161     329     0.43  
Other borrowings 284,404     3,656     5.21     264,875     3,475     5.28  
Total interest bearing liabilities 5,190,955     7,523     0.59 %   5,273,164     7,977     0.61 %
Noninterest Bearing Liabilities                      
Noninterest bearing deposits 2,225,702             1,981,882          
Accrued interest and other liabilities 63,895             74,253          
Total noninterest bearing liabilities 2,289,597             2,056,135          
Stockholders' Equity 752,958             695,771          
Total Liabilities and Stockholders' Equity $ 8,233,510             $ 8,025,070          
Net interest income, fully tax-equivalent (non-GAAP) (1)     $ 76,888             $ 75,748      
Net interest spread (1)         3.97 %           4.02 %
Net interest income, fully tax-equivalent (non-GAAP) to total earning assets (3)         4.16 %           4.19 %
Interest bearing liabilities to earning assets 69.19 %           72.47 %        
                       
Reconciliation of annualized net interest margin, fully tax-equivalent (non-GAAP) 3                      
Net interest income, fully taxable equivalent (non-GAAP)     $ 76,888             $ 75,748      
Adjustments for tax-equivalent interest (1)     (3,860 )           (3,041 )    
Net interest income (GAAP)     $ 73,028             $ 72,707      
                       
Average earning assets $ 7,502,496             $ 7,276,703          
Annualized net interest margin (GAAP)     3.95 %           4.02 %    
Annualized net interest margin, fully tax-equivalent (non-GAAP)     4.16 %           4.19 %    
                       
(1) Computed on a tax-equivalent basis using an effective tax rate of 35%.
(2) Nonaccrual loans are included in the average loans outstanding.
(3) Annualized net interest margin, fully tax-equivalent is a non-GAAP measure, which adjusts net interest income for the tax-favored status of certain loans and securities. Management believes this measure enhances the comparability of net interest income arising from taxable and tax exempt sources. This measure should not be considered a substitute for operating results determined in accordance with GAAP.

HEARTLAND FINANCIAL USA, INC.
SELECTED FINANCIAL DATA - SUBSIDIARY BANKS (Unaudited)
DOLLARS IN THOUSANDS
  As of and For the Quarter Ended
  3/31/2017 12/31/2016 9/30/2016 6/30/2016 3/31/2016
Total Assets          
Dubuque Bank and Trust Company $ 1,436,038   $ 1,497,775   $ 1,448,796   $ 1,473,461   $ 1,498,771  
New Mexico Bank & Trust 1,382,480   1,374,647   1,318,203   1,321,113   1,304,886  
Wisconsin Bank & Trust 1,033,633   1,065,715   1,068,288   1,080,224   1,094,872  
Morrill & Janes Bank and Trust Company 871,819   863,544   862,767   843,069   872,274  
Premier Valley Bank 854,838   640,684   635,620   629,423   751,137  
Centennial Bank and Trust 839,505   901,782   892,723   909,697   927,040  
Illinois Bank & Trust 746,669   742,173   748,801   742,697   718,074  
Arizona Bank & Trust 578,597   582,266   574,561   577,002   558,369  
Rocky Mountain Bank 479,121   477,063   481,346   473,583   479,010  
Minnesota Bank & Trust 213,789   229,114   238,745   230,004   220,955  
Total Portfolio Loans          
Dubuque Bank and Trust Company $ 903,617   $ 905,242   $ 906,347   $ 928,869   $ 941,683  
New Mexico Bank & Trust 906,477   924,249   917,679   870,109   815,739  
Wisconsin Bank & Trust 644,380   650,254   711,714   732,503   758,789  
Morrill & Janes Bank and Trust Company 546,123   548,544   538,666   522,518   536,738  
Premier Valley Bank 440,406   348,879   354,610   376,275   376,840  
Centennial Bank and Trust 572,254   609,760   638,006   668,547   683,085  
Illinois Bank & Trust 469,105   473,008   469,236   466,983   465,783  
Arizona Bank & Trust 384,028   384,706   385,926   390,078   402,431  
Rocky Mountain Bank 330,921   347,839   357,346   362,475   364,189  
Minnesota Bank & Trust 142,736   144,098   139,581   144,009   137,412  
Total Deposits          
Dubuque Bank and Trust Company $ 1,212,899   $ 1,231,016   $ 1,182,947   $ 1,159,942   $ 1,144,470  
New Mexico Bank & Trust 1,184,675   1,091,436   1,101,550   1,062,410   1,066,076  
Wisconsin Bank & Trust 868,033   899,676   889,957   911,915   921,071  
Morrill & Janes Bank and Trust Company 721,075   738,036   676,176   696,073   698,365  
Premier Valley Bank 708,226   510,142   520,814   514,522   635,188  
Centennial Bank and Trust 712,377   733,449   767,128   775,417   779,607  
Illinois Bank & Trust 641,750   636,419   671,104   653,582   629,235  
Arizona Bank & Trust 501,111   477,213   493,331   497,599   468,312  
Rocky Mountain Bank 420,067   414,344   420,581   405,888   409,787  
Minnesota Bank & Trust 189,324   194,368   214,651   207,228   200,343  
Net Income          
Dubuque Bank and Trust Company $ 2,056   $ 806   $ 5,112   $ 4,475   $ 6,073  
New Mexico Bank & Trust 4,419   4,061   3,824   5,642   4,094  
Wisconsin Bank & Trust 1,968   2,970   3,368   3,399   3,379  
Morrill & Janes Bank and Trust Company 2,227   2,519   1,707   2,133   2,525  
Premier Valley Bank 1,306   2,969   1,804   1,695   1,960  
Centennial Bank and Trust 1,366   1,572   925   256   824  
Illinois Bank & Trust 1,991   1,917   2,179   2,397   2,027  
Arizona Bank & Trust 1,486   1,305   2,034   2,121   1,841  
Rocky Mountain Bank 1,521   1,229   1,456   1,484   1,064  
Minnesota Bank & Trust 591   888   675   559   531  
Bryan R. McKeagExecutive Vice PresidentChief Financial Officer(563) 589-1994bmckeag@htlf.com

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