Heartland Financial USA, Inc. (NASDAQ: HTLF):

       
Quarter Nine Months
Ended Ended
September 30, September 30,
2014     2013 2014     2013
Net income (in millions) $ 12.0 $ 6.8 $ 29.6 $ 28.9
Net income available to common stockholders (in millions) 11.8 6.5 29.0 28.0
Diluted earnings per common share 0.63 0.38 1.55 1.63
 
Return on average assets 0.79 % 0.53 % 0.67 % 0.76 %
Return on average common equity 11.86 8.38 10.21 11.63
Net interest margin 3.96 3.81 3.97 3.77
 
 
“Heartland reported an excellent third quarter, with net income available to common stockholders of $11.8 million, an 80 percent increase over earnings of $6.5 million in the third quarter last year.”

 

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

 

Heartland Financial USA, Inc. (NASDAQ: HTLF) today reported net income available to common stockholders of $11.8 million, or $0.63 per diluted common share, for the quarter ended September 30, 2014, compared to $6.5 million, or $0.38 per diluted common share, for the third quarter of 2013. Return on average common equity was 11.86% and return on average assets was 0.79% for the third quarter of 2014, compared to 8.38% and 0.53%, respectively, for the same quarter in 2013.

Positively affecting net income for the quarter as compared to the same quarter last year was a $11.6 million increase in net interest income, largely due to strong loan growth and the acquisition of Morrill & Janes Bank and Trust Company completed during the last quarter of 2013. This improvement was partially offset by a $7.4 million increase in noninterest expenses, primarily due to the added expenses at Morrill & Janes Bank and Trust Company.

Commenting on Heartland’s third quarter results, Lynn B. Fuller, Heartland’s chairman, president and chief executive officer said, “Heartland reported an excellent third quarter, with net income available to common stockholders of $11.8 million, an 80 percent increase over earnings of $6.5 million in the third quarter last year.”

Net income available to common stockholders for the first nine months of 2014 was $29.0 million, or $1.55 per diluted common share, compared to $28.0 million, or $1.63 per diluted common share, recorded during the first nine months of 2013. Return on average common equity was 10.21% and return on average assets was 0.67% for the first nine months of 2014, compared to 11.63% and 0.76%, respectively, for the same period in 2013.

Subsequent to the quarter-end, Heartland entered into a merger agreement with Community Banc-Corp of Sheboygan, Inc., the parent company of Community Bank & Trust in Sheboygan, Wisconsin. Under the agreement, Heartland will acquire Community Banc-Corp in an all stock transaction expected to close during the first quarter of 2015. Simultaneous with the closing, Community Bank & Trust will be merged into Heartland's Wisconsin Bank & Trust subsidiary. Community Bank & Trust had total assets of $525 million as of September 30, 2014. Upon completion of this merger, Wisconsin will become Heartland's third state with banking assets greater than $1 billion.

Net Interest Margin Increases in Dollars; Net Interest Margin As Percentage Remains Steady

Net interest margin, expressed as a percentage of average earning assets, was 3.96% during the third quarter of 2014 compared to 4.04% during the second quarter of 2014 and 3.81% during the third quarter of 2013.

Fuller said, “Heartland’s net interest margin of 3.96 percent for the quarter was 15 basis points higher than the 3.81 percent reported for the same quarter last year, reflecting solid loan growth and a decline in our cost of funds.”

Interest income increased $11.7 million or 24% to $60.1 million in the third quarter of 2014 from the $48.4 million recorded in the third quarter of 2013. After adjustment to add $2.6 million for the third quarter of 2014 and $2.4 million for the third quarter of 2013 for income taxes saved on the interest earned on nontaxable securities and loans, on a tax-equivalent basis, interest income in the third quarter of 2014 was $62.7 million compared to $50.8 million in the third quarter of 2013. The increase in interest income in the third quarter of 2014, as compared to the third quarter of 2013, was primarily due to an increase in average earning assets combined with a small increase in the interest rate earned on those assets. The average interest rate earned on total earning assets was 4.59% during the third quarter of 2014 compared to 4.58% during the third quarter of 2013. Average earning assets increased $1.03 billion or 23% during the third quarter of 2014 compared to the third quarter of 2013, with approximately $810.7 million attributable to the Morrill & Janes Bank and Trust Company acquisition completed during the fourth quarter of 2013.

Interest expense for the third quarter of 2014 was $8.6 million, an increase of $100,000 or 1% from $8.5 million in the third quarter of 2013. Even though average interest bearing liabilities increased $686.3 million or 20% for the quarter ended September 30, 2014, as compared to the same quarter in 2013, the average interest rate paid on Heartland's interest bearing deposits and borrowings declined 16 basis points decreasing from 0.99% in the third quarter of 2013 to 0.83% in the third quarter of 2014. Contributing to this improvement in interest expense was a continued favorable change in the mix of deposits. Average savings balances, the lowest cost interest-bearing deposits, as a percentage of total average interest bearing deposits were 75% during the third quarter of 2014, compared to 71% for the third quarter of 2013. The average interest rate paid on savings deposits was 0.31% during the third quarter of 2014 compared to 0.30% during the third quarter of 2013 and the average interest rate paid on time deposits was 1.22% during the third quarter of 2014 compared to 1.59% during the third quarter of 2013.

Net interest income increased $11.6 million or 29% to $51.5 million in the third quarter of 2014 from the $39.9 million recorded in the third quarter of 2013. Net interest income on a tax-equivalent basis totaled $54.1 million during the third quarter of 2014, an increase of $11.8 million or 28% from the $42.3 million recorded during the third quarter of 2013.

Noninterest Income Remains Steady; Noninterest Expenses Increase

Noninterest income of $20.2 million during the third quarter of 2014 was consistent with the $20.4 million recorded during the third quarter of 2013.

For the third quarter of 2014, noninterest expense totaled $54.2 million, an increase of $7.4 million or 16% from the same quarter of 2013, partially due to $4.9 million of expenses at the Morrill & Janes Bank and Trust Company, which was acquired during the last quarter of 2013. Included in the 2014 third quarter noninterest expenses were $1.4 million in costs associated with partnership investments in a commercial and a residential real estate project, both of which qualify for historic rehabilitation tax credits. These credits are included as a reduction to income tax expense as further described below. The net result of these transactions positively impacted net income and negatively impacted the efficiency ratio. Excluding the effect of the acquisition and the costs associated with tax credit investments, noninterest expenses increased $1.1 million or 2% during the third quarter of 2014 in comparison to the third quarter of 2013.

Heartland's effective tax rate was 19.58% for the third quarter of 2014 compared to 17.97% for the third quarter of 2013. Included in Heartland's income taxes for the third quarter of 2014 were federal historic rehabilitation tax credits totaling $1.8 million associated with Heartland's ownership interest in qualifying real estate projects. Federal low-income housing tax credits included in Heartland's income taxes totaled $166,000 during the third quarter of 2014 compared to $200,000 during the third quarter of 2013. Heartland's effective tax rate is also affected by the level of tax-exempt interest income which, as a percentage of pre-tax income, was 32.59% during the third quarter of 2014 compared to 53.31% during the third quarter of 2013. The tax-equivalent adjustment for this tax-exempt interest income was $2.6 million during the third quarter of 2014 compared to $2.4 million during the third quarter of 2013.

Increase in Loans and Deposits

Total assets were $5.93 billion at September 30, 2014, an increase of $11.1 million since year-end 2013. Securities represented 28% of total assets at September 30, 2014, compared to 32% at year-end 2013.

Total loans and leases held to maturity were $3.80 billion at September 30, 2014, compared to $3.50 billion at year-end 2013, an increase of $301.4 million or 11% annualized, with $103.6 million of this growth occurring in the third quarter, $117.0 million in the second quarter and $80.8 million during the first quarter. A majority of the year-to-date growth occurred in the commercial and commercial real estate loan portfolio, which increased $229.7 million or 12% annualized since year-end 2013, with $59.0 million of this growth occurring during the third quarter, $102.9 million during the second quarter and $67.8 million during the first quarter.

Fuller commented, “For the quarter, loans increased by $104 million, growing at an annualized rate of 11 percent. Over the last five quarters, Heartland has experienced organic loan growth of $549 million. Considering our peers have been reporting significantly lower loan growth, we are very gratified by our results. With loan growth as our top priority, we are very pleased with both the quality and quantity of loan growth and commend our commercial and business banking teams for these excellent results.”

Total deposits were $4.73 billion as of September 30, 2014, compared to $4.67 billion at year-end 2013, an increase of $60.2 million or 2% annualized. Demand deposits totaled $1.27 billion at September 30, 2014, an increase of $35.9 million or 4% annualized since year-end 2013. Also increasing during the first nine months of 2014, savings deposits grew to $2.60 billion, an increase of $64.6 million or 3% annualized. Certificates of deposit totaled $852.4 million at September 30, 2014, a decrease of $40.2 million or 6% annualized.

“We continue to see growth in no-cost checking and low-cost savings and money market deposits. The favorable shift in deposit mix continues with these non-time categories now representing 82 percent of total deposits,” Fuller added.

Decrease in Nonperforming Assets; Decrease in Provision for Loan Losses

Nonperforming loans, exclusive of those covered under the loss sharing agreements, were $30.1 million or 0.79% of total loans and leases at September 30, 2014, compared to $42.4 million or 1.21% of total loans and leases at December 31, 2013. Approximately 34%, or $10.1 million, of Heartland's nonperforming loans have individual loan balances exceeding $1.0 million, the largest of which is $3.8 million. These nonperforming loans, to an aggregate of four borrowers, are spread over three different industry classifications with 66% located in Heartland's Western markets and the remainder in the Midwest.

Other real estate owned was $20.5 million at September 30, 2014, compared to $29.9 million at December 31, 2013. Liquidation strategies have been identified for all the assets held in other real estate owned. Management continues to market these properties through an orderly liquidation process instead of a quick liquidation process in order to avoid discounts greater than the projected carrying costs.

The allowance for loan and lease losses at September 30, 2014, was 1.10% of loans and leases and 138.40% of nonperforming loans compared to 1.19% of loans and leases and 98.27% of nonperforming loans at December 31, 2013. The provision for loan losses was $2.6 million for the third quarter of 2014 compared to $5.1 million for the third quarter of 2013.

Net charge-offs on loans during the third quarter of 2014 were $1.7 million compared to $1.5 million during the third quarter of 2013.

“We are also very pleased with the steady improvement in our level of nonperforming assets over the past year. Since last year’s third quarter, we have seen a decline of nearly $30 million in nonperforming assets. Over the last twelve months we’ve reduced nonperforming assets by 78 basis points, falling to .85 percent of total assets and approaching the lowest level we’ve seen in nearly seven years,” Fuller concluded.

Conference Call Details
Heartland will host a conference call for investors at 5:00 p.m. EDT today. To participate, dial 877-407-0781 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. If you are unable to participate on the call, a replay will be available until October 26, 2015, by logging on to www.htlf.com.

About Heartland Financial USA, Inc.
Heartland Financial USA, Inc. is a $5.9 billion diversified financial services company providing banking, mortgage, wealth management, investment, insurance and consumer finance services to individuals and businesses. Heartland currently has 77 banking locations in 57 communities in Iowa, Illinois, Wisconsin, New Mexico, Arizona, Montana, Colorado, Minnesota, Kansas and Missouri and loan production offices in California, Nevada, Wyoming, Idaho, North Dakota, Oregon, Washington and Nebraska. 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.

 
HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
    For the Quarter Ended     For the Nine Months Ended
September 30, September 30,
      2014     2013     2014     2013
Interest Income        
Interest and fees on loans and leases $ 49,311 $ 40,154 $ 143,796 $ 119,707
Interest on securities:
Taxable 7,547 4,803 22,755 14,174
Nontaxable 3,249 3,443 10,079 10,001
Interest on federal funds sold 1 — 1 —
Interest on deposits in other financial institutions 6   3   20   9  
Total Interest Income 60,114   48,403   176,651   143,891  
Interest Expense
Interest on deposits 4,655 4,769 14,010 14,911
Interest on short-term borrowings 227 131 655 387
Interest on other borrowings 3,741   3,623   11,084   11,122  
Total Interest Expense 8,623   8,523   25,749   26,420  
Net Interest Income 51,491 39,880 150,902 117,471
Provision for loan and lease losses 2,553   5,149   11,635   7,648  
Net Interest Income After Provision for Loan and Lease Losses 48,938   34,731   139,267   109,823  
Noninterest Income
Service charges and fees 4,857 4,487 15,007 12,775
Loan servicing income 1,319 598 4,223 865
Trust fees 3,194 2,918 9,747 8,764
Brokerage and insurance commissions 1,044 1,277 3,325 3,315
Securities gains, net 825 1,118 2,460 6,612
Gain (loss) on trading account securities — 263 (38 ) 839
Gains on sale of loans held for sale 8,384 8,637 23,559 34,842
Loss on sales/valuations of repossessed assets, net (444 ) (339 ) (1,365 ) (2,440 )
Valuation adjustment on mortgage servicing rights — — — 496
Income on bank owned life insurance 371 409 1,073 1,129
Other noninterest income 612   1,011   1,635   2,407  
Total Noninterest Income 20,162   20,379   59,626   69,604  
Noninterest Expense
Salaries and employee benefits 33,546 28,847 98,428 88,103
Occupancy 3,807 3,387 11,841 9,796
Furniture and equipment 2,033 1,917 6,008 6,033
Professional fees 4,429 4,486 13,169 12,262
FDIC insurance assessments 888 745 2,848 2,508
Advertising 1,383 1,360 4,082 3,836
Intangible assets amortization 521 196 1,736 594
Other real estate and loan collection expenses 215 730 1,785 2,446
Other noninterest expenses 7,389   5,140   20,590   14,642  
Total Noninterest Expense 54,211   46,808   160,487   140,220  
Income Before Income Taxes 14,889 8,302 38,406 39,207
Income taxes 2,916   1,492   8,769   10,289  
Net Income 11,973 6,810 29,637 28,918
Net income attributable to noncontrolling interest, net of tax —   —   —   (64 )
Net Income Attributable to Heartland 11,973 6,810 29,637 28,854
Preferred dividends and discount (205 ) (276 ) (613 ) (889 )
Net Income Available to Common Stockholders $ 11,768   $ 6,534   $ 29,024   $ 27,965  
Earnings per common share-diluted $ 0.63 $ 0.38 $ 1.55 $ 1.63
Weighted average shares outstanding-diluted 18,752,748 17,221,154 18,742,950 17,183,219
 
 
HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
    For the Quarter Ended
      9/30/2014     6/30/2014     3/31/2014     12/31/2013     9/30/2013
Interest Income                
Interest and fees on loans and leases $ 49,311 $ 48,101 $ 46,384 $ 44,995 $ 40,154
Interest on securities:
Taxable 7,547 7,447 7,761 7,327 4,803
Nontaxable 3,249 3,708 3,122 3,294 3,443
Interest on federal funds sold 1 — — 1 —
Interest on deposits in other financial institutions 6   7   7   3   3  
Total Interest Income 60,114   59,263   57,274   55,620   48,403  
Interest Expense
Interest on deposits 4,655 4,577 4,778 5,057 4,769
Interest on short-term borrowings 227 202 226 421 131
Interest on other borrowings 3,741   3,685   3,658   3,785   3,623  
Total Interest Expense 8,623   8,464   8,662   9,263   8,523  
Net Interest Income 51,491 50,799 48,612 46,357 39,880
Provision for loan and lease losses 2,553   2,751   6,331   2,049   5,149  
Net Interest Income After Provision for Loan and Lease Losses 48,938   48,048   42,281   44,308   34,731  
Noninterest Income
Service charges and fees 4,857 5,254 4,896 4,885 4,487
Loan servicing income 1,319 1,393 1,511 783 598
Trust fees 3,194 3,343 3,210 2,944 2,918
Brokerage and insurance commissions 1,044 1,158 1,123 1,246 1,277
Securities gains, net 825 854 781 509 1,118
Gain (loss) on trading account securities — — (38 ) 582 263
Gains on sale of loans held for sale 8,384 8,796 6,379 5,353 8,637
Loss on sales/valuations of repossessed assets, net (444 ) (798 ) (123 ) (359 ) (339 )
Valuation adjustment on mortgage servicing rights — — — — —
Income on bank owned life insurance 371 339 363 426 409
Other noninterest income 612   398   625   846   1,011  
Total Noninterest Income 20,162   20,737   18,727   17,215   20,379  
Noninterest Expense
Salaries and employee benefits 33,546 32,563 32,319 30,121 28,847
Occupancy 3,807 3,984 4,050 3,663 3,387
Furniture and equipment 2,033 2,085 1,890 2,007 1,917
Professional fees 4,429 4,214 4,526 5,270 4,486
FDIC insurance assessments 888 980 980 1,036 745
Advertising 1,383 1,511 1,188 1,458 1,360
Intangible assets amortization 521 591 624 469 196
Other real estate and loan collection expenses 215 518 1,052 1,999 730
Other noninterest expenses 7,389   7,415   5,786   7,519   5,140  
Total Noninterest Expense 54,211   53,861   52,415   53,542   46,808  
Income Before Income Taxes 14,889 14,924 8,593 7,981 8,302
Income taxes 2,916   4,150   1,703   46   1,492  
Net Income 11,973 10,774 6,890 7,935 6,810
Net income attributable to noncontrolling interest, net of tax —   —   —   —   —  
Net Income Attributable to Heartland 11,973 10,774 6,890 7,935 6,810
Preferred dividends and discount (205 ) (204 ) (204 ) (204 ) (276 )
Net Income Available to Common Stockholders $ 11,768   $ 10,570   $ 6,686   $ 7,731   $ 6,534  
Earnings per common share-diluted $ 0.63 $ 0.56 $ 0.36 $ 0.42 $ 0.38
Weighted average shares outstanding-diluted 18,752,748 18,746,735 18,724,936 18,360,470 17,221,154
 
 
HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
    As Of
      9/30/2014     6/30/2014     3/31/2014     12/31/2013     9/30/2013
Assets                
Cash and due from banks $ 63,400 $ 98,613 $ 84,744 $ 118,441 $ 160,225
Federal funds sold and other short-term investments 4,436   4,047   3,884   6,829   4,783  
Cash and cash equivalents 67,836 102,660 88,628 125,270 165,008
Time deposits in other financial institutions 2,605 3,105 3,355 3,355 3,605
Securities:
Trading, at fair value — — — 1,801 1,219
Available for sale, at fair value 1,369,703 1,412,809 1,400,756 1,633,902 1,374,180
Held to maturity, at cost 255,312 257,217 257,927 237,498 53,841
Other investments, at cost 20,514 20,932 18,755 21,843 17,430
Loans held for sale 93,054 87,173 54,862 46,665 61,326
Loans and leases:
Held to maturity 3,798,305 3,694,734 3,577,776 3,496,952 2,901,706
Loans covered by loss share agreements 3,850 4,379 5,466 5,749 5,876

Allowance for loan and lease losses

(41,698 ) (40,892 ) (38,573 ) (41,685 ) (41,311 )
Loans and leases, net 3,760,457 3,658,221 3,544,669 3,461,016 2,866,271
Premises, furniture and equipment, net 132,240 133,127 135,054 135,714 129,029
Other real estate, net 20,475 24,395 28,083 29,852 33,018
Goodwill 35,583 35,583 35,583 35,583 30,627
Other intangible assets, net 33,399 32,732 32,690 32,959 23,435
Cash surrender value on life insurance 82,224 81,840 81,486 81,110 79,238
FDIC indemnification asset 83 124 190 249 795
Other assets 61,324   64,000   65,064   76,899   73,708  
Total Assets $ 5,934,809   $ 5,913,918   $ 5,747,102   $ 5,923,716   $ 4,912,730  
Liabilities and Equity
Liabilities
Deposits:
Demand $ 1,274,439 $ 1,221,703 $ 1,195,457 $ 1,238,581 $ 1,073,688
Savings 2,599,850 2,556,784 2,582,166 2,535,242 2,043,397
Time 852,430   862,995   885,741   892,676   807,913  
Total deposits 4,726,719 4,641,482 4,663,364 4,666,499 3,924,998
Short-term borrowings 348,305 420,494 256,250 408,756 224,048
Other borrowings 334,513 329,715 334,916 350,109 322,538
Accrued expenses and other liabilities 41,873   49,806   35,237   58,892   44,543  
Total Liabilities 5,451,410 5,441,497 5,289,767 5,484,256 4,516,127
Stockholders' Equity
Preferred equity 81,698 81,698 81,698 81,698 81,698
Common stock 18,477 18,468 18,455 18,399 16,953
Capital surplus 94,393 93,334 92,199 91,632 52,641
Retained earnings 288,555 278,632 269,908 265,067 259,172
Accumulated other comprehensive income (loss) 276 289 (4,903 ) (17,336 ) (13,819 )
Treasury stock at cost —   —   (22 ) —   (42 )
Total Heartland Stockholders' Equity 483,399 472,421 457,335 439,460 396,603
Noncontrolling interest —   —   —   —   —  
Total Equity 483,399   472,421   457,335   439,460   396,603  
Total Liabilities and Equity $ 5,934,809   $ 5,913,918   $ 5,747,102   $ 5,923,716   $ 4,912,730  
 
 
HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
     

For the Quarter Ended
September 30,

    

For the Nine Months Ended
September 30,

  2014     2013     2014     2013
Average Balances          
Assets $ 5,882,792 $ 4,901,972 $ 5,818,160 $ 4,907,436
Loans and leases, net of unearned 3,812,218 2,937,508 3,692,718 2,906,970
Deposits 4,710,177 3,861,624 4,670,070 3,845,120
Earning assets 5,426,336 4,396,140 5,342,481 4,420,699
Interest bearing liabilities 4,099,526 3,413,205 4,093,520 3,418,956
Common stockholders' equity 393,740 309,472 380,165 321,511
Total stockholders' equity 475,438 391,170 461,863 404,417
Tangible common stockholders' equity 348,423 276,511 334,131 288,349
 
Earnings Performance Ratios
Annualized return on average assets 0.79 % 0.53 % 0.67 % 0.76 %
Annualized return on average common equity 11.86 % 8.38 % 10.21 % 11.63 %
Annualized return on average common tangible equity 13.40 % 9.38 % 11.61 % 12.97 %
Annualized net interest margin(1) 3.96 % 3.81 % 3.97 % 3.77 %
Efficiency ratio, fully taxable equivalent(2) 72.67 % 75.35 % 73.10 % 73.51 %
 
(1) Computed on a tax equivalent basis using an effective tax rate of 35%.
(2) Efficiency ratio, fully taxable equivalent, is noninterest expense, divided by the sum of taxable equivalent net interest income plus noninterest income, excluding investment securities gains (losses), loss on sales/valuations of repossessed assets, net, and intangible assets amortization. This efficiency ratio is presented on a taxable equivalent basis, which adjusts net interest income for the tax-favored status of certain loans and investment securities. Management believes this measure to be the preferred industry measurement of net interest income as it enhances the comparability of net interest income arising from taxable and tax-exempt sources, and it excludes certain specific revenue items (such as investment securities gains (losses), net, and loss on sales/valuations of repossessed assets, net). This is a non-GAAP measure.
 
 
HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
    For the Quarter Ended
      9/30/2014     6/30/2014     3/31/2014     12/31/2013     9/30/2013
Average Balances                
Assets $ 5,882,792 $ 5,800,104 $ 5,770,350 $ 5,604,487 $ 4,901,972
Loans and leases, net of unearned 3,812,218 3,692,159 3,571,127 3,341,252 2,937,508
Deposits 4,710,177 4,665,993 4,633,192 4,512,170 3,861,624
Earning assets 5,426,336 5,321,149 5,278,331 5,061,822 4,396,140
Interest bearing liabilities 4,099,526 4,091,233 4,089,691 3,921,951 3,413,205
Common stockholders' equity 393,740 380,561 365,889 349,056 309,472
Total stockholders' equity 475,438 462,259 447,587 430,754 391,170
Tangible common stockholders' equity 348,423 334,747 318,898 308,802 276,511
 
Earnings Performance Ratios
Annualized return on average assets 0.79 % 0.73 % 0.47 % 0.55 % 0.53 %
Annualized return on average common equity 11.86 % 11.14 % 7.41 % 8.79 % 8.38 %
Annualized return on average common tangible equity 13.40 % 12.66 % 8.50 % 9.93 % 9.38 %
Annualized net interest margin(1) 3.96 % 4.04 % 3.92 % 3.82 % 3.81 %
Efficiency ratio, fully taxable equivalent(2) 72.67 % 71.75 % 75.00 % 80.61 % 75.35 %
 
(1) Computed on a tax equivalent basis using an effective tax rate of 35%.
(2) Efficiency ratio, fully taxable equivalent, is noninterest expense, divided by the sum of taxable equivalent net interest income plus noninterest income, excluding investment securities gains (losses), loss on sales/valuations of repossessed assets, net, and intangible assets amortization. This efficiency ratio is presented on a taxable equivalent basis, which adjusts net interest income for the tax-favored status of certain loans and investment securities. Management believes this measure to be the preferred industry measurement of net interest income as it enhances the comparability of net interest income arising from taxable and tax-exempt sources, and it excludes certain specific revenue items (such as investment securities gains (losses), net, and loss on sales/valuations of repossessed assets, net). This is a non-GAAP measure.
 
 
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
      9/30/2014     6/30/2014     3/31/2014     12/31/2013     9/30/2013
Common Share Data                
Book value per common share $ 21.74 $ 21.16 $ 20.36 $ 19.44 $ 18.58
Tangible book value per common share(1) $ 19.30 $ 18.69 $ 17.86 $ 16.90 $ 16.64
ASC 320 effect on book value per common share $ 0.10 $ 0.13 $ (0.16 ) $ (0.82 ) $ (0.66 )
Common shares outstanding, net of treasury stock 18,477,463 18,467,646 18,454,048 18,399,156 16,951,053
Tangible capital ratio(2) 6.06 % 5.88 % 5.78 % 5.29 % 5.78 %
 
Loan and Lease Data
Loans held to maturity:
Commercial and commercial real estate $ 2,709,544 $ 2,650,517 $ 2,547,625 $ 2,479,880 $ 2,042,995
Residential mortgage 360,309 341,697 365,162 349,349 269,501
Agricultural and agricultural real estate 404,423 389,918 370,348 376,735 324,339
Consumer 326,148 315,234 297,978 294,145 268,112
Unearned discount and deferred loan fees (2,119 ) (2,632 ) (3,337 ) (3,157 ) (3,241 )
Total loans and leases held to maturity $ 3,798,305   $ 3,694,734   $ 3,577,776   $ 3,496,952   $ 2,901,706  
 
Loans covered under loss share agreements:
Commercial and commercial real estate $ 1,188 $ 1,208 $ 2,292 $ 2,314 $ 2,402
Residential mortgage 1,762 1,995 2,062 2,280 2,433
Agricultural and agricultural real estate 573 567 502 543 446
Consumer 327   609   610   612   595  
Total loans and leases covered under loss share agreements $ 3,850   $ 4,379   $ 5,466   $ 5,749   $ 5,876  
 
Other Selected Trend Information
Effective tax rate 19.59 % 27.81 % 19.82 % 0.57 % 17.98 %
Average full time equivalent employees 1,650 1,655 1,678 1,662 1,616
Trust assets under management $ 1,820,612 $ 1,859,643 $ 1,736,308 $ 1,621,970 $ 1,535,092
Total Residential Mortgage Loan Applications $ 445,039 $ 460,533 $ 316,829 $ 293,115 $ 416,128
Residential Mortgage Loans Originated $ 312,428 $ 277,895 $ 175,249 $ 232,150 $ 349,012
Residential Mortgage Loans Sold $ 283,677 $ 208,429 $ 149,993 $ 214,334 $ 336,780
Residential Mortgage Loan Servicing Portfolio $ 3,362,717 $ 3,198,510 $ 3,107,589 $ 3,045,893 $ 2,887,667
 
(1) Total common stockholders' equity less goodwill and intangible assets (excluding mortgage servicing rights) 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.
(2) Total common stockholders' equity less goodwill and intangible assets (excluding mortgage servicing rights) divided by total assets less intangible assets (excluding mortgage servicing rights). 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.
 
 
HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
    As of and for the Quarter Ended
      9/30/2014     6/30/2014     3/31/2014     12/31/2013     9/30/2013
Allowance for Loan and Lease Losses                
Balance, beginning of period $ 40,892 $ 38,573 $ 41,685 $ 41,311 $ 37,623
Provision for loan and lease losses 2,553 2,751 6,331 2,049 5,149
Charge-offs on loans not covered by loss share agreements (2,649 ) (1,392 ) (10,617 ) (3,197 ) (2,454 )
Charge-offs on loans covered by loss share agreements — (8 ) (41 ) — (59 )
Recoveries 894 913 1,215 1,522 1,052
Recoveries on loans covered by loss share agreements 8   55   —   —   —  
Balance, end of period $ 41,698   $ 40,892   $ 38,573   $ 41,685   $ 41,311  
 
Asset Quality
Not covered under loss share agreements:
Nonaccrual loans $ 30,130 $ 29,076 $ 31,928 $ 42,394 $ 47,088
Loans and leases past due ninety days or more as to interest or principal payments — — — 24 —
Other real estate owned 19,873 23,761 28,033 29,794 32,753
Other repossessed assets 506   414   397   397   469  
Total nonperforming assets not covered under loss share agreements $ 50,509   $ 53,251   $ 60,358   $ 72,609   $ 80,310  
 
Covered under loss share agreements:
Nonaccrual loans $ 297 $ 297 $ 820 $ 783 $ 805
Other real estate owned 602 634 50 58 265
Other repossessed assets —   —   —   —   4  
Total nonperforming assets covered under loss share agreements $ 899   $ 931   $ 870   $ 841   $ 1,074  
 
Performing troubled debt restructured loans $ 11,994 $ 12,076 $ 12,548 $ 19,353 $ 19,371
 
Nonperforming Assets Activity
Balance, beginning of period $ 54,182 $ 61,228 $ 73,450 $ 81,384 $ 76,946
Net loan charge offs (1,747 ) (432 ) (9,443 ) (1,675 ) (1,461 )
New nonperforming loans 5,911 4,264 5,328 6,981 16,070
Reduction of nonperforming loans(1) (2,679 ) (4,145 ) (3,303 ) (4,951 ) (5,653 )
OREO/Repossessed assets sales proceeds (4,313 ) (5,878 ) (4,731 ) (6,907 ) (3,444 )
OREO/Repossessed assets writedowns, net (38 ) (902 ) (80 ) (1,387 ) (1,048 )
Net activity at Citizens Finance Co. 92   47   7   5   (26 )
Balance, end of period $ 51,408   $ 54,182   $ 61,228   $ 73,450   $ 81,384  
 
Asset Quality Ratios Excluding Assets Covered Under Loss Share Agreements
Ratio of nonperforming loans and leases to total loans and leases 0.79 % 0.79 % 0.89 % 1.21 % 1.62 %
Ratio of nonperforming assets to total assets 0.85 % 0.90 % 1.06 % 1.23 % 1.63 %
Annualized ratio of net loan charge-offs to average loans and leases 0.18 % 0.05 % 1.07 % 0.20 % 0.20 %
Allowance for loan and lease losses as a percent of loans and leases 1.10 % 1.11 % 1.08 % 1.19 % 1.42 %
Allowance for loan and lease losses as a percent of nonperforming loans and leases 138.40 % 140.64 % 120.81 % 98.27 % 87.73 %
Loans delinquent 30-89 days as a percent of total loans 0.32 % 0.25 % 0.31 % 0.32 % 0.53 %
 
(1) Includes principal reductions and transfers to performing status
 
 
HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited)
DOLLARS IN THOUSANDS
    For the Quarter Ended
September 30, 2014     September 30, 2013
Average         Average        
      Balance     Interest     Rate     Balance     Interest     Rate
Earning Assets
Securities:
Taxable $ 1,279,612 $ 7,547 2.34 % $ 1,086,302 $ 4,803 1.75 %
Nontaxable(1) 367,791   4,997   5.39   401,083   5,297   5.24  
Total securities 1,647,403   12,544   3.02   1,487,385   10,100   2.69  
Interest bearing deposits 8,098 6 0.29 9,054 3 0.13
Federal funds sold 344   1   1.15   237   —   —  
Loans and leases:(2)
Commercial and commercial real estate(1) 2,656,438 32,249 4.82 2,020,895 25,461 5.00
Residential mortgage 435,965 4,589 4.18 327,185 3,423 4.15
Agricultural and agricultural real estate(1) 398,571 5,030 5.01 327,266 4,274 5.18
Consumer 321,244 6,704 8.28 262,162 6,144 9.30
Fees on loans 1,603 — 1,377 —
Less: allowance for loan and lease losses (41,727 ) —   —   (38,044 ) —   —  
Net loans and leases 3,770,491   50,175   5.28   2,899,464   40,679   5.57  
Total earning assets 5,426,336   62,726   4.59 % 4,396,140   50,782   4.58 %
Nonearning Assets 456,456   505,832  
Total Assets $ 5,882,792   $ 4,901,972  
Interest Bearing Liabilities
Savings $ 2,592,630 $ 2,032 0.31 % $ 1,985,496 $ 1,495 0.30 %
Time, $100,000 and over 320,849 924 1.14 301,633 1,056 1.39
Other time deposits 534,544 1,699 1.26 517,826 2,218 1.70
Short-term borrowings 316,874 227 0.28 277,041 131 0.19
Other borrowings 334,629   3,741   4.44   331,209   3,623   4.34  
Total interest bearing liabilities 4,099,526   8,623   0.83 % 3,413,205   8,523   0.99 %
Noninterest Bearing Liabilities
Noninterest bearing deposits 1,262,154 1,056,669
Accrued interest and other liabilities 45,674   40,928  
Total noninterest bearing liabilities 1,307,828   1,097,597  
Stockholders' Equity 475,438   391,170  
Total Liabilities and Stockholders' Equity $ 5,882,792   $ 4,901,972  
Net interest income(1) $ 54,103   $ 42,259  
Net interest spread(1) 3.76 % 3.59 %
Net interest income to total earning assets(1) 3.96 % 3.81 %
Interest bearing liabilities to earning assets 75.55 % 77.64 %
 
(1) Computed on a tax equivalent basis using an effective tax rate of 35%
(2) Nonaccrual loans are included in average loans outstanding.
 
 
HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited)
DOLLARS IN THOUSANDS
    For the Nine Months Ended
September 30, 2014     September 30, 2013
Average         Average        
      Balance     Interest     Rate     Balance     Interest     Rate
Earning Assets
Securities:
Taxable $ 1,303,152 $ 22,755 2.33 % $ 1,153,876 $ 14,174 1.64 %
Nontaxable(1) 380,154   15,506   5.45   388,195   15,386   5.30  
Total securities 1,683,306   38,261   3.04   1,542,071   29,560   2.56  
Interest bearing deposits 7,256 20 0.37 9,216 9 0.13
Federal funds sold 450   1   0.30   672   —   —  
Loans and leases:(2)
Commercial and commercial real estate(1) 2,580,868 93,978 4.87 2,000,590 76,288 5.10
Residential mortgage 421,571 13,554 4.30 331,854 10,334 4.16
Agricultural and agricultural real estate(1) 381,406 14,508 5.09 321,671 12,843 5.34
Consumer 308,873 19,372 8.39 252,855 17,894 9.46
Fees on loans 4,704 — 4,009 —
Less: allowance for loan and lease losses (41,249 ) —   —   (38,230 ) —   —  
Net loans and leases 3,651,469   146,116   5.35   2,868,740   121,368   5.66  
Total earning assets 5,342,481   184,398   4.61 % 4,420,699   150,937   4.56 %
Nonearning Assets 475,679   486,737  
Total Assets $ 5,818,160   $ 4,907,436  
Interest Bearing Liabilities
Savings 2,572,492 6,184 0.32 % 1,986,083 4,637 0.31 %
Time, $100,000 and over 329,976 2,641 1.07 310,333 3,395 1.46
Other time deposits 548,171 5,185 1.26 532,291 6,879 1.73
Short-term borrowings 308,000 655 0.28 250,326 387 0.21
Other borrowings 334,881   11,084   4.43   339,923   11,122   4.37  
Total interest bearing liabilities 4,093,520   25,749   0.84 % 3,418,956   26,420   1.03 %
Noninterest Bearing Liabilities
Noninterest bearing deposits 1,219,431 1,016,413
Accrued interest and other liabilities 43,346   67,650  
Total noninterest bearing liabilities 1,262,777   1,084,063  
Stockholders' Equity 461,863   404,417  
Total Liabilities and Stockholders' Equity $ 5,818,160   $ 4,907,436  
Net interest income(1) $ 158,649   $ 124,517  
Net interest spread(1) 3.77 % 3.53 %
Net interest income to total earning assets(1) 3.97 % 3.77 %
Interest bearing liabilities to earning assets 76.62 % 77.34 %
 
(1) Computed on a tax equivalent basis using an effective tax rate of 35%
(2) Nonaccrual loans are included in the average loans outstanding.
 
 
HEARTLAND FINANCIAL USA, INC.
SELECTED FINANCIAL DATA - SUBSIDIARY BANKS (Unaudited)
DOLLARS IN THOUSANDS
    As of and For the Quarter Ended
      9/30/2014     6/30/2014     3/31/2014     12/31/2013     9/30/2013
Total Assets                
Dubuque Bank and Trust Company $ 1,389,241 $ 1,393,391 $ 1,346,025 $ 1,540,049 $ 1,438,041
New Mexico Bank & Trust 1,069,722 1,050,117 1,020,381 1,032,441 999,555
Morrill & Janes Bank and Trust Company 867,346 837,148 859,998 890,984 —
Wisconsin Bank & Trust 664,630 658,773 631,501 643,430 635,606
Illinois Bank & Trust 505,492 506,150 490,147 443,114 460,224
Rocky Mountain Bank 480,345 472,079 456,201 467,443 464,221
Arizona Bank & Trust 471,661 467,966 472,141 450,320 415,174
Galena State Bank & Trust Co. 293,442 297,298 281,981 290,457 296,383
Minnesota Bank & Trust 165,580 165,250 157,965 170,517 166,324
Summit Bank & Trust     137,774       135,721       116,154       113,719       115,547  
Total Deposits
Dubuque Bank and Trust Company $ 1,055,036 $ 1,001,798 $ 1,066,711 $ 1,116,154 $ 1,118,225
New Mexico Bank & Trust 828,637 814,523 790,172 765,572 765,903
Morrill & Janes Bank and Trust Company 686,833 680,176 673,325 692,038 —
Wisconsin Bank & Trust 564,674 558,654 544,323 531,371 545,163
Illinois Bank & Trust 401,888 392,053 403,643 353,046 371,779
Rocky Mountain Bank 395,728 384,856 379,017 380,011 375,949
Arizona Bank & Trust 390,167 382,011 381,121 368,059 320,737
Galena State Bank & Trust Co. 252,704 257,029 244,682 244,505 252,691
Minnesota Bank & Trust 148,453 148,260 142,750 154,812 151,659
Summit Bank & Trust     118,896       118,275       104,598       101,447       102,855  
Net Income (Loss)
Dubuque Bank and Trust Company $ 4,480 $ 4,135 $ 2,381 $ 5,009 $ 2,737
New Mexico Bank & Trust 3,201 2,855 2,199 1,575 1,660
Morrill & Janes Bank and Trust Company 1,626 1,711 1,301 1,145 —
Wisconsin Bank & Trust 1,077 1,299 1,068 1,850 1,990
Illinois Bank & Trust 814 393 527 433 546
Rocky Mountain Bank 1,448 388 1,049 576 916
Arizona Bank & Trust 551 1,243 837 125 380
Galena State Bank & Trust Co. 724 1,072 802 403 324
Minnesota Bank & Trust 106 59 122 (31 ) (124 )
Summit Bank & Trust     (65 )     (82 )     (434 )     44       (368 )
Return on Average Assets
Dubuque Bank and Trust Company 1.27 % 1.20 % 0.67 % 1.36 % 0.74 %
New Mexico Bank & Trust 1.20 1.10 0.88 0.61 0.66
Morrill & Janes Bank and Trust Company 0.76 0.81 0.62 0.66 —
Wisconsin Bank & Trust 0.65 0.82 0.69 1.16 1.24
Illinois Bank & Trust 0.60 0.31 0.49 0.38 0.46
Rocky Mountain Bank 1.22 0.34 0.92 0.49 0.80
Arizona Bank & Trust 0.47 1.05 0.74 0.12 0.38
Galena State Bank & Trust Co. 0.97 1.51 1.15 0.54 0.43
Minnesota Bank & Trust 0.26 0.15 0.32 (0.07 ) (0.32 )
Summit Bank & Trust     (0.19 )     (0.26 )     (1.57 )     0.15       (1.27 )
Net Interest Margin as a Percentage of Average Earning Assets
Dubuque Bank and Trust Company 3.63 % 3.67 % 3.72 % 3.59 % 3.30 %
New Mexico Bank & Trust 3.85 3.96 3.80 3.63 3.58
Morrill & Janes Bank and Trust Company 3.51 3.50 3.17 2.97 —
Wisconsin Bank & Trust 4.24 4.27 4.41 4.39 4.43
Illinois Bank & Trust 3.40 3.57 3.45 3.17 2.82
Rocky Mountain Bank 4.44 4.36 4.21 4.22 4.15
Arizona Bank & Trust 4.23 4.47 4.37 4.35 4.57
Galena State Bank & Trust Co. 3.47 3.79 3.74 3.47 3.32
Minnesota Bank & Trust 3.84 3.88 3.79 3.64 3.50
Summit Bank & Trust     3.81       3.98       4.03       3.79       3.76  
 
 
HEARTLAND FINANCIAL USA, INC.
SELECTED FINANCIAL DATA - SUBSIDIARY BANKS (Unaudited)
DOLLARS IN THOUSANDS
    As of
      9/30/2014     6/30/2014     3/31/2014     12/31/2013     9/30/2013
Total Portfolio Loans and Leases                
Dubuque Bank and Trust Company $ 917,092 $ 908,729 $ 897,860 $ 915,377 $ 828,502
New Mexico Bank & Trust 609,170 575,685 556,928 529,808 508,452
Morrill & Janes Bank and Trust Company 445,100 429,326 400,243 384,685 —
Wisconsin Bank & Trust 509,364 496,486 465,969 459,594 444,174
Illinois Bank & Trust 239,362 233,668 227,920 186,739 181,024
Rocky Mountain Bank 356,049 339,479 317,513 316,702 301,224
Arizona Bank & Trust 335,648 328,438 343,298 329,211 278,616
Galena State Bank & Trust Co. 179,840 181,135 183,012 183,639 177,480
Minnesota Bank & Trust 104,061 105,142 98,818 101,491 94,182
Summit Bank & Trust     88,199       84,040       72,898       73,150       75,681  
Allowance For Loan and Lease Losses
Dubuque Bank and Trust Company $ 9,143 $ 9,441 $ 8,839 $ 10,303 $ 11,040
New Mexico Bank & Trust 6,688 6,628 6,388 7,202 7,007
Morrill & Janes Bank and Trust Company 2,077 1,741 1,137 406 —
Wisconsin Bank & Trust 5,327 4,564 4,281 4,850 4,554
Illinois Bank & Trust 3,842 3,335 2,835 3,121 3,012
Rocky Mountain Bank 4,048 4,179 3,965 4,148 4,451
Arizona Bank & Trust 3,432 3,754 3,913 4,133 3,841
Galena State Bank & Trust Co. 1,501 1,553 1,716 1,916 1,872
Minnesota Bank & Trust 1,052 1,071 1,021 1,091 1,068
Summit Bank & Trust     996       1,099       1,054       1,334       1,297  
Nonperforming Loans and Leases
Dubuque Bank and Trust Company $ 6,151 $ 5,718 $ 7,729 $ 15,641 $ 19,803
New Mexico Bank & Trust 5,550 4,781 5,195 6,880 7,406
Morrill & Janes Bank and Trust Company 519 368 129 160 —
Wisconsin Bank & Trust 3,335 3,617 4,904 6,165 6,825
Illinois Bank & Trust 6,530 6,213 5,213 3,325 4,120
Rocky Mountain Bank 3,008 3,471 3,271 3,326 4,076
Arizona Bank & Trust 2,732 2,946 3,200 4,413 1,862
Galena State Bank & Trust Co. 1,081 826 939 1,077 1,131
Minnesota Bank & Trust — — — — —
Summit Bank & Trust     583       567       584       688       1,021  
Allowance As a Percent of Total Loans and Leases
Dubuque Bank and Trust Company 1.00 % 1.04 % 0.98 % 1.13 % 1.33 %
New Mexico Bank & Trust 1.10 1.15 1.15 1.36 1.38
Morrill & Janes Bank and Trust Company 0.47 0.41 0.28 0.11 —
Wisconsin Bank & Trust 1.05 0.92 0.92 1.06 1.03
Illinois Bank & Trust 1.61 1.43 1.24 1.67 1.66
Rocky Mountain Bank 1.14 1.23 1.25 1.31 1.48
Arizona Bank & Trust 1.02 1.14 1.14 1.26 1.38
Galena State Bank & Trust Co. 0.83 0.86 0.94 1.04 1.05
Minnesota Bank & Trust 1.01 1.02 1.03 1.07 1.13
Summit Bank & Trust     1.13       1.31       1.45       1.82       1.71