Heartland Financial USA, Inc. Reports Second Quarter 2014 Results

Quarterly Highlights

  • Net income available to common stockholders of $10.6 million or $0.56 per diluted common share
  • Net interest margin increased 12 basis points from the prior quarter to 4.04%, the highest since second quarter 2012
  • Loan growth of $117.0 million or 13% annualized since March 31, 2014
  • Nonperforming assets decreased $7 million or 12% since March 31, 2014
  • Completed systems conversion of Morrill & Janes Bank and Trust Company

Business Wire

DUBUQUE, Iowa--(BUSINESS WIRE)--

Heartland Financial USA, Inc. (HTLF):

       
Quarter Six Months
Ended Ended
June 30, June 30,
2014     2013 2014     2013
Net income (in millions) $ 10.8 $ 9.6 $ 17.7 $ 22.1
Net income available to common stockholders (in millions) 10.6 9.4 17.3 21.4
Diluted earnings per common share 0.56 0.54 0.92 1.25
 
Return on average assets 0.73 % 0.76 % 0.60 % 0.88 %
Return on average common equity 11.14 11.28 9.32 13.19
Net interest margin 4.04 3.71 3.98 3.74
 
 

“Heartland’s second quarter performance was excellent in nearly every respect. Net earnings of $10.6 million exceeded last year’s same quarter by 13 percent. Our results were fueled in part by an expanded net interest margin of 4.04 percent and solid noninterest income.”

 

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

 

Heartland Financial USA, Inc. (HTLF) today reported net income available to common stockholders of $10.6 million, or $0.56 per diluted common share, for the quarter ended June 30, 2014, compared to $9.4 million, or $0.54 per diluted common share, for the second quarter of 2013. Return on average common equity was 11.14% and return on average assets was 0.73% for the second quarter of 2014, compared to 11.28% and 0.76%, respectively, for the same quarter in 2013.

Positively affecting net income for the quarter as compared to the same quarter last year was a $11.9 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 offset by a $4.3 million decrease in gains on sale of loans held for sale, resulting from weaker mortgage loan volumes, and a $6.7 million increase in noninterest expenses, primarily due to the added expenses at Morrill & Janes Bank and Trust Company.

Commenting on Heartland’s second quarter results, Lynn B. Fuller, Heartland’s chairman, president and chief executive officer said, “Heartland’s second quarter performance was excellent in nearly every respect. Net earnings of $10.6 million exceeded last year’s same quarter by 13 percent. Our results were fueled in part by an expanded net interest margin of 4.04 percent and solid noninterest income.”

Net income available to common stockholders for the first six months of 2014 was $17.3 million, or $0.92 per diluted common share, compared to $21.4 million, or $1.25 per diluted common share, recorded during the first six months of 2013. Return on average common equity was 9.32% and return on average assets was 0.60% for the first six months of 2014, compared to 13.19% and 0.88%, respectively, for the same period in 2013.

Net Interest Margin Increases in Both Percentage and Dollars

Net interest margin, expressed as a percentage of average earning assets, was 4.04% during the second quarter of 2014 compared to 3.92% during the first quarter of 2014 and 3.71% during the second quarter of 2013.

Fuller said, “We are very pleased to see net interest margin increase to 4.04 percent. Our margin has increased by 22 basis points so far in 2014 and by 33 basis points over the past year.”

Interest income increased $11.5 million or 24% to $59.3 million in the second quarter of 2014 from the $47.8 million recorded in the second quarter of 2013. After adjustment to add $2.7 million for the second quarter of 2014 and $2.4 million for the second 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 second quarter of 2014 was $62.0 million compared to $50.2 million in the second quarter of 2013. The increase in interest income in the second quarter of 2014, as compared to the second quarter of 2013, was due to increases in both average earning assets and the interest rate earned on those assets. The average interest rate earned on total earning assets was 4.68% during the second quarter of 2014 compared to 4.51% during the second quarter of 2013. Average earning assets increased $859.2 million or 19% during the second quarter of 2014 compared to the second quarter of 2013, with approximately $804.8 million attributable to the Morrill & Janes Bank and Trust Company acquisition completed during the fourth quarter of 2013.

Interest expense for the second quarter of 2014 was $8.5 million, a decrease of $411,000 or 5% from $8.9 million in the second quarter of 2013. Even though average interest bearing liabilities increased $657.5 million or 19% for the quarter ended June 30, 2014, as compared to the same quarter in 2013, the average interest rate paid on Heartland's interest bearing deposits and borrowings declined 21 basis points decreasing from 1.04% in the second quarter of 2013 to 0.83% in the second 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 was 75% during the second quarter of 2014, compared to 70% for the second quarter of 2013. The average interest rate paid on savings deposits was 0.32% during the second quarter of 2014 compared to 0.30% during the second quarter of 2013 and the average interest rate paid on time deposits was 1.14% during the second quarter of 2014 compared to 1.69% during the second quarter of 2013.

Net interest income increased $11.9 million or 31% to $50.8 million in the second quarter of 2014 from the $38.9 million recorded in the second quarter of 2013. Net interest income on a tax-equivalent basis totaled $53.5 million during the second quarter of 2014, an increase of $12.2 million or 30% from the $41.3 million recorded during the second quarter of 2013.

Decrease in Noninterest Income; Increase in Noninterest Expenses

Noninterest income was $20.7 million during the second quarter of 2014 compared to $23.3 million during the second quarter of 2013, a decrease of $2.5 million or 11%, primarily due to a $4.3 million decrease in gains on sale of loans held for sale and a $1.5 million decrease in securities and trading account securities gains. These decreases are related to the moderately higher interest rate environment in the second quarter of 2014, as compared to the low interest rate environment in the second quarter of 2013 that encouraged mortgage loan refinancings and rebalancing of the securities portfolio. The volume of mortgage loans sold totaled $208.4 million during the second quarter of 2014, a 53% decrease from the $445.5 million sold during the second quarter of 2013. The negative impact of these decreases was partially offset by higher service charges and fees, loan servicing income, trust fees and brokerage and insurance commissions.

Fuller commented, “Our Heartland Mortgage unit remains an area of emphasis for Heartland. We are making diligent efforts to increase loan production while seeking efficiencies in the back office.”

For the second quarter of 2014, noninterest expense totaled $53.9 million, an increase of $6.7 million or 14% from the same quarter of 2013, largely due to $5.2 million of expenses at the Morrill & Janes Bank and Trust Company, which was acquired during the last quarter of 2013. Excluding the effect of this acquisition, noninterest expense increased $1.5 million or 3% during the second quarter of 2014 in comparison to the second quarter of 2013.

Heartland's effective tax rate was 27.81% for the second quarter of 2014 compared to 27.35% for the second quarter of 2013. Federal low-income housing tax credits included in Heartland's effective tax rate totaled $200,000 during both the second quarter of 2014 and 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 34.37% during the second quarter of 2014 compared to 33.71% during the second quarter of 2013. The tax-equivalent adjustment for this tax-exempt interest income was $2.7 million during the second quarter of 2014 compared to $2.4 million during the second quarter of 2013.

Increase in Loans; Slight Decrease in Deposits

Total assets were $5.91 billion at June 30, 2014, a decrease of $9.8 million since year-end 2013. Securities represented 29% of total assets at June 30, 2014, compared to 32% at year-end 2013.

Total loans and leases held to maturity were $3.69 billion at June 30, 2014, compared to $3.50 billion at year-end 2013, an increase of $197.8 million or 11% annualized, with $117.0 million or 59% of this growth occurring in the second quarter. A majority of the year-to-date growth occurred in the commercial and commercial real estate loan portfolio, which increased $170.6 million or 14% annualized since year-end 2013, with $102.9 million or 60% of this growth occurring during the second quarter.

Fuller stated, “An important contributor to Heartland’s solid performance is excellent loan growth of nearly $200 million during the first six months of this year. Our investments in sales technology, tools and training along with active outbound calling, are generating solid increases in organic loan growth.”

Total deposits were $4.64 billion as of June 30, 2014, compared to $4.67 billion at year-end 2013, a decrease of $25.0 million or 1% annualized. Demand deposits totaled $1.22 billion at June 30, 2014, a decrease of $16.9 million or 3% annualized since year-end 2013. Also experiencing a decrease during the first six months, certificates of deposit totaled $863.0 million at June 30, 2014, a decrease of $29.7 million or 7% annualized. Savings deposits experienced an increase during the first six months, growing to $2.56 billion at June 30, 2014, an increase of $21.5 million or 2% annualized. With the continued decline in time deposits, Heartland has continued its positive trend in lower cost of funds.

Fuller said, “While deposit growth has slowed this year, we continue to see a very favorable deposit mix. Demand deposits represent 26 percent of our deposits and, when combined with savings deposits, represent 81 percent of total deposits.”

Decrease in Nonperforming Assets; Increase in Provision for Loan Losses as Result of Loan Growth

Nonperforming loans, exclusive of those covered under the loss sharing agreements, were $29.1 million or 0.79% of total loans and leases at June 30, 2014, compared to $42.4 million or 1.21% of total loans and leases at December 31, 2013. Approximately 45%, or $13.2 million, of Heartland's nonperforming loans have individual loan balances exceeding $1.0 million, the largest of which is $3.9 million. These nonperforming loans, to an aggregate of six borrowers, are spread over five different industry classifications with 60% located in Heartland's Western and the remainder in Heartland's Midwestern markets.

Other real estate owned was $24.4 million at June 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 June 30, 2014, was 1.11% of loans and leases and 140.64% 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 $2.8 million for the second quarter of 2014 compared to $1.9 million for the second quarter of 2013. This increase was primarily a result of the higher loan growth experienced during the second quarter of 2014.

Net charge-offs on loans during the second quarter of 2014 were $432,000, down $9.0 million as compared to the prior quarter and down $1.3 million as compared to the second quarter of 2013.

“Steady and significant improvement in credit quality is an important driver of Heartland’s year-to-date performance. Over the last twelve months we’ve reduced nonperforming assets by $23 million or 30 percent, resulting in a ratio of nonperforming assets to total assets below one percent, 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 July 27, 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 Six Months Ended
June 30, June 30,
      2014     2013     2014     2013
Interest Income        
Interest and fees on loans and leases $ 48,101 $ 39,726 $ 94,485 $ 79,553
Interest on securities:
Taxable 7,447 4,712 15,208 9,371
Nontaxable 3,708 3,360 6,830 6,558
Interest on federal funds sold
Interest on deposits in other financial institutions 7   2   14   6  
Total Interest Income 59,263   47,800   116,537   95,488  
Interest Expense
Interest on deposits 4,577 5,066 9,355 10,142
Interest on short-term borrowings 202 108 428 256
Interest on other borrowings 3,685   3,702   7,343   7,499  
Total Interest Expense 8,464   8,876   17,126   17,897  
Net Interest Income 50,799 38,924 99,411 77,591
Provision for loan and lease losses 2,751   1,862   9,082   2,499  
Net Interest Income After Provision for Loan and Lease Losses 48,048   37,062   90,329   75,092  
Noninterest Income
Service charges and fees 5,254 4,280 10,150 8,288
Loan servicing income 1,393 141 2,904 267
Trust fees 3,343 2,942 6,553 5,846
Brokerage and insurance commissions 1,158 1,087 2,281 2,038
Securities gains, net 854 2,067 1,635 5,494
Gain (loss) on trading account securities 262 (38 ) 576
Gains on sale of loans held for sale 8,796 13,048 15,175 26,205
Loss on sales/valuations of repossessed assets, net (798 ) (1,600 ) (921 ) (2,101 )
Valuation adjustment on mortgage servicing rights 496
Income on bank owned life insurance 339 315 702 720
Other noninterest income 398   716   1,023   1,396  
Total Noninterest Income 20,737   23,258   39,464   49,225  
Noninterest Expense
Salaries and employee benefits 32,563 29,516 64,882 59,256
Occupancy 3,984 3,224 8,034 6,409
Furniture and equipment 2,085 2,065 3,975 4,116
Professional fees 4,214 4,233 8,740 7,776
FDIC insurance assessments 980 861 1,960 1,763
Advertising 1,511 1,248 2,699 2,476
Intangible assets amortization 591 198 1,215 398
Other real estate and loan collection expenses 518 877 1,570 1,716
Other noninterest expenses 7,415   4,944   13,201   9,502  
Total Noninterest Expense 53,861   47,166   106,276   93,412  
Income Before Income Taxes 14,924 13,154 23,517 30,905
Income taxes 4,150   3,598   5,853   8,797  
Net Income 10,774 9,556 17,664 22,108
Net income attributable to noncontrolling interest, net of tax       (64 )
Net Income Attributable to Heartland 10,774 9,556 17,664 22,044
Preferred dividends and discount (204 ) (205 ) (408 ) (613 )
Net Income Available to Common Stockholders $ 10,570   $ 9,351   $ 17,256   $ 21,431  
Earnings per common share-diluted $ 0.56 $ 0.54 $ 0.92 $ 1.25
Weighted average shares outstanding-diluted 18,746,735 17,203,924 18,739,067 17,193,446
 
 
HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
    For the Quarter Ended
      6/30/2014     3/31/2014     12/31/2013     9/30/2013     6/30/2013
Interest Income                
Interest and fees on loans and leases $ 48,101 $ 46,384 $ 44,995 $ 40,154 $ 39,726
Interest on securities:
Taxable 7,447 7,761 7,327 4,803 4,712
Nontaxable 3,708 3,122 3,294 3,443 3,360
Interest on federal funds sold 1
Interest on deposits in other financial institutions 7   7   3   3   2  
Total Interest Income 59,263   57,274   55,620   48,403   47,800  
Interest Expense
Interest on deposits 4,577 4,778 5,057 4,769 5,066
Interest on short-term borrowings 202 226 421 131 108
Interest on other borrowings 3,685   3,658   3,785   3,623   3,702  
Total Interest Expense 8,464   8,662   9,263   8,523   8,876  
Net Interest Income 50,799 48,612 46,357 39,880 38,924
Provision for loan and lease losses 2,751   6,331   2,049   5,149   1,862  
Net Interest Income After Provision for Loan and Lease Losses 48,048   42,281   44,308   34,731   37,062  
Noninterest Income
Service charges and fees 5,254 4,896 4,885 4,487 4,280
Loan servicing income 1,393 1,511 783 598 141
Trust fees 3,343 3,210 2,944 2,918 2,942
Brokerage and insurance commissions 1,158 1,123 1,246 1,277 1,087
Securities gains, net 854 781 509 1,118 2,067
Gain (loss) on trading account securities (38 ) 582 263 262
Gains on sale of loans held for sale 8,796 6,379 5,353 8,637 13,048
Loss on sales/valuations of repossessed assets, net (798 ) (123 ) (359 ) (339 ) (1,600 )
Valuation adjustment on mortgage servicing rights
Income on bank owned life insurance 339 363 426 409 315
Other noninterest income 398   625   846   1,011   716  
Total Noninterest Income 20,737   18,727   17,215   20,379   23,258  
Noninterest Expense
Salaries and employee benefits 32,563 32,319 30,121 28,847 29,516
Occupancy 3,984 4,050 3,663 3,387 3,224
Furniture and equipment 2,085 1,890 2,007 1,917 2,065
Professional fees 4,214 4,526 5,270 4,486 4,233
FDIC insurance assessments 980 980 1,036 745 861
Advertising 1,511 1,188 1,458 1,360 1,248
Intangible assets amortization 591 624 469 196 198
Other real estate and loan collection expenses 518 1,052 1,999 730 877
Other noninterest expenses 7,415   5,786   7,519   5,140   4,944  
Total Noninterest Expense 53,861   52,415   53,542   46,808   47,166  
Income Before Income Taxes 14,924 8,593 7,981 8,302 13,154
Income taxes 4,150   1,703   46   1,492   3,598  
Net Income 10,774 6,890 7,935 6,810 9,556
Net income attributable to noncontrolling interest, net of tax          
Net Income Attributable to Heartland 10,774 6,890 7,935 6,810 9,556
Preferred dividends and discount (204 ) (204 ) (204 ) (276 ) (205 )
Net Income Available to Common Stockholders $ 10,570   $ 6,686   $ 7,731   $ 6,534   $ 9,351  
Earnings per common share-diluted $ 0.56 $ 0.36 $ 0.42 $ 0.38 $ 0.54
Weighted average shares outstanding-diluted 18,746,735 18,724,936 18,360,470 17,221,154 17,203,924
 
 
HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
    As Of
      6/30/2014     3/31/2014     12/31/2013     9/30/2013     6/30/2013
Assets                
Cash and due from banks $ 98,613 $ 84,744 $ 118,441 $ 160,225 $ 105,127
Federal funds sold and other short-term investments 4,047   3,884   6,829   4,783   6,970  
Cash and cash equivalents 102,660 88,628 125,270 165,008 112,097
Time deposits in other financial institutions 3,105 3,355 3,355 3,605 3,605
Securities:
Trading, at fair value 1,801 1,219 956
Available for sale, at fair value 1,412,809 1,400,756 1,633,902 1,374,180 1,507,026
Held to maturity, at cost 257,217 257,927 237,498 53,841 55,199
Other investments, at cost 20,932 18,755 21,843 17,430 15,392
Loans held for sale 87,173 54,862 46,665 61,326 88,541
Loans and leases:
Held to maturity 3,694,734 3,577,776 3,496,952 2,901,706 2,832,377
Loans covered by loss share agreements 4,379 5,466 5,749 5,876 6,275
Allowance for loan and lease losses (40,892 ) (38,573 ) (41,685 ) (41,311 ) (37,623 )
Loans and leases, net 3,658,221 3,544,669 3,461,016 2,866,271 2,801,029
Premises, furniture and equipment, net 133,127 135,054 135,714 129,029 129,938
Other real estate, net 24,395 28,083 29,852 33,018 34,763
Goodwill 35,583 35,583 35,583 30,627 30,627
Other intangible assets, net 32,732 32,690 32,959 23,435 22,056
Cash surrender value on life insurance 81,840 81,486 81,110 79,238 75,992
FDIC indemnification asset 124 190 249 795 282
Other assets 64,000   65,064   76,899   73,708   82,253  
Total Assets $ 5,913,918   $ 5,747,102   $ 5,923,716   $ 4,912,730   $ 4,959,756  
Liabilities and Equity
Liabilities
Deposits:
Demand $ 1,221,703 $ 1,195,457 $ 1,238,581 $ 1,073,688 $ 1,029,784
Savings 2,556,784 2,582,166 2,535,242 2,043,397 1,978,962
Time 862,995   885,741   892,676   807,913   832,388  
Total deposits 4,641,482 4,663,364 4,666,499 3,924,998 3,841,134
Short-term borrowings 420,494 256,250 408,756 224,048 339,181
Other borrowings 329,715 334,916 350,109 322,538 336,332
Accrued expenses and other liabilities 49,806   35,237   58,892   44,543   47,974  
Total Liabilities 5,441,497 5,289,767 5,484,256 4,516,127 4,564,621
Stockholders' Equity
Preferred equity 81,698 81,698 81,698 81,698 81,698
Common stock 18,468 18,455 18,399 16,953 16,947
Capital surplus 93,334 92,199 91,632 52,641 52,710
Retained earnings 278,632 269,908 265,067 259,172 254,332
Accumulated other comprehensive income (loss) 289 (4,903 ) (17,336 ) (13,819 ) (10,200 )
Treasury stock at cost   (22 )   (42 ) (352 )
Total Heartland Stockholders' Equity 472,421 457,335 439,460 396,603 395,135
Noncontrolling interest          
Total Equity 472,421   457,335   439,460   396,603   395,135  
Total Liabilities and Equity $ 5,913,918   $ 5,747,102   $ 5,923,716   $ 4,912,730   $ 4,959,756  
 
 
HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
    For the Quarter Ended     For the Six Months Ended
June 30, June 30,
      2014     2013     2014     2013
Average Balances        
Assets $ 5,800,104 $ 4,932,852 $ 5,785,309 $ 4,911,556

Loans and leases, net of unearned

3,692,159 2,905,778 3,631,977 2,891,449
Deposits 4,665,993 3,871,945 4,649,683 3,836,731
Earning assets 5,321,149 4,461,923 5,299,857 4,433,182
Interest bearing liabilities 4,091,233 3,433,686 4,090,466 3,423,221
Common stockholders' equity 380,561 332,386 373,265 327,629
Total stockholders' equity 462,259 414,976 454,963 411,150
Tangible common stockholders' equity 334,747 299,225 326,866 294,366
 
Earnings Performance Ratios
Annualized return on average assets 0.73 % 0.76 % 0.60 % 0.88 %
Annualized return on average common equity 11.14 % 11.28 % 9.32 % 13.19 %
Annualized return on average common tangible equity 12.66 % 12.53 % 10.65 % 14.68 %
Annualized net interest margin(1) 4.04 % 3.71 % 3.98 % 3.74 %
Efficiency ratio, fully taxable equivalent(2) 71.75 % 73.27 % 73.32 % 72.62 %
 
(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
      6/30/2014     3/31/2014     12/31/2013     9/30/2013     6/30/2013
Average Balances                
Assets $ 5,800,104 $ 5,770,350 $ 5,604,487 $ 4,901,972 $ 4,932,852
Loans and leases, net of unearned 3,692,159 3,571,127 3,341,252 2,937,508 2,905,778
Deposits 4,665,993 4,633,192 4,512,170 3,861,624 3,871,945
Earning assets 5,321,149 5,278,331 5,061,822 4,396,140 4,461,923
Interest bearing liabilities 4,091,233 4,089,691 3,921,951 3,413,205 3,433,686
Common stockholders' equity 380,561 365,889 349,056 309,472 332,386
Total stockholders' equity 462,259 447,587 430,754 391,170 414,976
Tangible common stockholders' equity 334,747 318,898 308,802 276,511 299,225
 
Earnings Performance Ratios
Annualized return on average assets 0.73 % 0.47 % 0.55 % 0.53 % 0.76 %
Annualized return on average common equity 11.14 % 7.41 % 8.79 % 8.38 % 11.28 %
Annualized return on average common tangible equity 12.66 % 8.50 % 9.93 % 9.38 % 12.53 %
Annualized net interest margin(1) 4.04 % 3.92 % 3.82 % 3.81 % 3.71 %
Efficiency ratio, fully taxable equivalent(2) 71.75 % 75.00 % 80.61 % 75.35 % 73.27 %
 
(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
      6/30/2014     3/31/2014     12/31/2013     9/30/2013     6/30/2013
Common Share Data                
Book value per common share $ 21.16 $ 20.36 $ 19.44 $ 18.58 $ 18.51
Tangible book value per common share(1) $ 18.69 $ 17.86 $ 16.90 $ 16.64 $ 16.56
ASC 320 effect on book value per common share $ 0.13 $ (0.16 ) $ (0.82 ) $ (0.66 ) $ (0.44 )
Common shares outstanding, net of treasury stock 18,467,646 18,454,048 18,399,156 16,951,053 16,934,161
Tangible capital ratio(2) 5.88 % 5.78 % 5.29 % 5.78 % 5.69 %
 
Loan and Lease Data
Loans held to maturity:
Commercial and commercial real estate $ 2,650,517 $ 2,547,625 $ 2,479,880 $ 2,042,995 $ 2,004,883
Residential mortgage 341,697 365,162 349,349 269,501 248,604
Agricultural and agricultural real estate 389,918 370,348 376,735 324,339 327,490
Consumer 315,234 297,978 294,145 268,112 254,825
Unearned discount and deferred loan fees (2,632 ) (3,337 ) (3,157 ) (3,241 ) (3,425 )
Total loans and leases held to maturity $ 3,694,734   $ 3,577,776   $ 3,496,952   $ 2,901,706   $ 2,832,377  
 
Loans covered under loss share agreements:
Commercial and commercial real estate $ 1,208 $ 2,292 $ 2,314 $ 2,402 $ 2,519
Residential mortgage 1,995 2,062 2,280 2,433 2,493
Agricultural and agricultural real estate 567 502 543 446 441
Consumer 609   610   612   595   822  
Total loans and leases covered under loss share agreements $ 4,379   $ 5,466   $ 5,749   $ 5,876   $ 6,275  
 
Other Selected Trend Information
Effective tax rate 27.81 % 19.82 % 0.57 % 17.98 % 27.35 %
Average full time equivalent employees 1,655 1,678 1,662 1,616 1,542
Trust assets under management $ 1,859,643 $ 1,736,308 $ 1,621,970 $ 1,535,092 $ 1,577,903
Total Residential Mortgage Loan Applications $ 460,533 $ 316,829 $ 293,115 $ 416,128 $ 653,461
Residential Mortgage Loans Originated $ 277,895 $ 175,249 $ 232,150 $ 349,012 $ 470,813
Residential Mortgage Loans Sold $ 208,429 $ 149,993 $ 214,334 $ 336,780 $ 445,452
Residential Mortgage Loan Servicing Portfolio $ 3,198,510 $ 3,107,589 $ 3,045,893 $ 2,887,667 $ 2,679,283
 
(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
      6/30/2014     3/31/2014     12/31/2013     9/30/2013     6/30/2013
Allowance for Loan and Lease Losses                
Balance, beginning of period $ 38,573 $ 41,685 $ 41,311 $ 37,623 $ 37,528
Provision for loan and lease losses 2,751 6,331 2,049 5,149 1,862
Charge-offs on loans not covered by loss share agreements (1,392 ) (10,617 ) (3,197 ) (2,454 ) (2,742 )
Charge-offs on loans covered by loss share agreements (8 ) (41 ) (59 ) (31 )
Recoveries 913 1,215 1,522 1,052 1,006
Recoveries on loans covered by loss share agreements 55          
Balance, end of period $ 40,892   $ 38,573   $ 41,685   $ 41,311   $ 37,623  
 
Asset Quality
Not covered under loss share agreements:
Nonaccrual loans $ 29,076 $ 31,928 $ 42,394 $ 47,088 $ 41,003
Loans and leases past due ninety days or more as to interest or principal payments 24 6
Other real estate owned 23,761 28,033 29,794 32,753 33,709
Other repossessed assets 414   397   397   469   603  
Total nonperforming assets not covered under loss share agreements $ 53,251   $ 60,358   $ 72,609   $ 80,310   $ 75,321  
 
Covered under loss share agreements:
Nonaccrual loans $ 297 $ 820 $ 783 $ 805 $ 571
Other real estate owned 634 50 58 265 1,054
Other repossessed assets       4    
Total nonperforming assets covered under loss share agreements $ 931   $ 870   $ 841   $ 1,074   $ 1,625  
 
Performing troubled debt restructured loans $ 12,076 $ 12,548 $ 19,353 $ 19,371 $ 32,661
 
Nonperforming Assets Activity
Balance, beginning of period $ 61,228 $ 73,450 $ 81,384 $ 76,946 $ 71,209
Net loan charge offs (432 ) (9,443 ) (1,675 ) (1,461 ) (1,767 )
New nonperforming loans 4,264 5,328 6,981 16,070 18,471
Reduction of nonperforming loans(1) (4,145 ) (3,303 ) (4,951 ) (5,653 ) (2,634 )
OREO/Repossessed assets sales proceeds (5,878 ) (4,731 ) (6,907 ) (3,444 ) (5,953 )
OREO/Repossessed assets writedowns, net (902 ) (80 ) (1,387 ) (1,048 ) (2,284 )
Net activity at Citizens Finance Co. 47   7   5   (26 ) (96 )
Balance, end of period $ 54,182   $ 61,228   $ 73,450   $ 81,384   $ 76,946  
 
Asset Quality Ratios Excluding Assets Covered Under Loss Share Agreements
Ratio of nonperforming loans and leases to total loans and leases 0.79 % 0.89 % 1.21 % 1.62 % 1.45 %
Ratio of nonperforming assets to total assets 0.90 % 1.06 % 1.23 % 1.63 % 1.52 %
Annualized ratio of net loan charge-offs to average loans and leases 0.05 % 1.07 % 0.20 % 0.20 % 0.24 %
Allowance for loan and lease losses as a percent of loans and leases 1.11 % 1.08 % 1.19 % 1.42 % 1.33 %
Allowance for loan and lease losses as a percent of nonperforming loans and leases 140.64 % 120.81 % 98.27 % 87.73 % 91.74 %
Loans delinquent 30-89 days as a percent of total loans 0.25 % 0.31 % 0.32 % 0.53 % 0.46 %
 
(1) Includes principal reductions and transfers to performing status
 
 
HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited)
DOLLARS IN THOUSANDS
    For the Quarter Ended
June 30, 2014     June 30, 2013
Average         Average        
      Balance     Interest     Rate     Balance     Interest     Rate
Earning Assets
Securities:
Taxable $ 1,287,411 $ 7,447 2.32 % $ 1,191,838 $ 4,712 1.59 %
Nontaxable(1) 374,093   5,705   6.12   392,298   5,169   5.28  
Total securities 1,661,504   13,152   3.17   1,584,136   9,881   2.50  
Interest bearing deposits 7,236 7 0.39 9,607 2 0.08
Federal funds sold 202       160      
Loans and leases:
Commercial and commercial real estate(1) 2,584,110 31,418 4.88 1,998,000 25,266 5.07
Residential mortgage 428,160 4,617 4.33 334,706 3,473 4.16
Agricultural and agricultural real estate(1) 371,191 4,742 5.12 322,438 4,204 5.23
Consumer 308,698 6,484 8.42 250,634 5,926 9.48
Fees on loans 1,604 1,436
Less: allowance for loan and lease losses (39,952 )     (37,758 )    
Net loans and leases 3,652,207   48,865   5.37   2,868,020   40,305   5.64  
Total earning assets 5,321,149   62,024   4.68 % 4,461,923   50,188   4.51 %
Nonearning Assets 478,955   470,929  
Total Assets $ 5,800,104   $ 4,932,852  
Interest Bearing Liabilities
Savings $ 2,585,831 $ 2,090 0.32 % $ 2,011,051 $ 1,509 0.30 %
Time, $100,000 and over 328,950 842 1.03 313,760 1,169 1.49
Other time deposits 543,326 1,645 1.21 528,775 2,388 1.81
Short-term borrowings 300,936 202 0.27 243,665 108 0.18
Other borrowings 332,190   3,685   4.45   336,435   3,702   4.41  
Total interest bearing liabilities 4,091,233   8,464   0.83 % 3,433,686   8,876   1.04 %
Noninterest Bearing Liabilities
Noninterest bearing deposits 1,207,886 1,018,359
Accrued interest and other liabilities 38,726   65,831  
Total noninterest bearing liabilities 1,246,612   1,084,190  
Stockholders' Equity 462,259   414,976  
Total Liabilities and Stockholders' Equity $ 5,800,104   $ 4,932,852  
Net interest income(1) $ 53,560   $ 41,312  
Net interest spread(1) 3.85 % 3.47 %
Net interest income to total earning assets(1) 4.04 % 3.71 %
Interest bearing liabilities to earning assets 76.89 % 76.96 %
 
(1) Computed on a tax equivalent basis using an effective tax rate of 35%
 
 
HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited)
DOLLARS IN THOUSANDS
    For the Six Months Ended
June 30, 2014     June 30, 2013
Average         Average        
      Balance     Interest     Rate     Balance     Interest     Rate
Earning Assets
Securities:
Taxable $ 1,315,116 $ 15,208 2.33 % $ 1,188,223 $ 9,371 1.59 %
Nontaxable(1) 386,438   10,508   5.48   381,644   10,089   5.33  
Total securities 1,701,554   25,716   3.05   1,569,867   19,460   2.50  
Interest bearing deposits 6,828 14 0.41 9,298 6 0.13
Federal funds sold 504       893      
Loans and leases:
Commercial and commercial real estate(1) 2,542,457 61,730 4.90 1,990,270 50,826 5.15
Residential mortgage 414,254 8,967 4.37 334,227 6,912 4.17
Agricultural and agricultural real estate(1) 372,681 9,477 5.13 318,827 8,568 5.42
Consumer 302,585 12,668 8.44 248,125 11,750 9.55
Fees on loans 3,099 2,630
Less: allowance for loan and lease losses (41,006 )     (38,325 )    
Net loans and leases 3,590,971   95,941   5.39   2,853,124   80,686   5.70  
Total earning assets 5,299,857   121,671   4.63 % 4,433,182   100,152   4.56 %
Nonearning Assets 485,452   478,374  
Total Assets $ 5,785,309   $ 4,911,556  
Interest Bearing Liabilities
Savings 2,562,256 4,152 0.33 % 1,986,381 3,142 0.32 %
Time, $100,000 and over 334,615 1,717 1.03 314,755 2,339 1.50
Other time deposits 555,097 3,486 1.27 539,644 4,661 1.74
Short-term borrowings 303,489 428 0.28 236,747 256 0.22
Other borrowings 335,009   7,342   4.42   345,694   7,499   4.37  
Total interest bearing liabilities 4,090,466   17,125   0.84 % 3,423,221   17,897   1.05 %
Noninterest Bearing Liabilities
Noninterest bearing deposits 1,197,715 995,951
Accrued interest and other liabilities 42,165   81,234  
Total noninterest bearing liabilities 1,239,880   1,077,185  
Stockholders' Equity 454,963   411,150  
Total Liabilities and Stockholders' Equity $ 5,785,309   $ 4,911,556  
Net interest income(1) $ 104,546   $ 82,255  
Net interest spread(1) 3.79 % 3.51 %
Net interest income to total earning assets(1) 3.98 % 3.74 %
Interest bearing liabilities to earning assets 77.18 % 77.22 %
 
(1) Computed on a tax equivalent basis using an effective tax rate of 35%
 
 
HEARTLAND FINANCIAL USA, INC.
SELECTED FINANCIAL DATA - SUBSIDIARY BANKS (Unaudited)
DOLLARS IN THOUSANDS
    As of and For the Quarter Ended
      6/30/2014     3/31/2014     12/31/2013     9/30/2013     6/30/2013
Total Assets                
Dubuque Bank and Trust Company $ 1,393,391 $ 1,346,025 $ 1,540,049 $ 1,438,041 $ 1,512,215
New Mexico Bank & Trust 1,050,117 1,020,381 1,032,441 999,555 1,029,360
Morrill & Janes Bank and Trust Company 837,148 859,998 890,984
Wisconsin Bank & Trust 658,773 631,501 643,430 635,606 643,727
Riverside Community Bank 506,150 490,147 443,114 460,224 450,915
Rocky Mountain Bank 472,079 456,201 467,443 464,221 448,855
Arizona Bank & Trust 467,966 472,141 450,320 415,174 393,829
Galena State Bank & Trust Co. 297,298 281,981 290,457 296,383 290,388
Minnesota Bank & Trust 165,250 157,965 170,517 166,324 164,714
Summit Bank & Trust     135,721       116,154       113,719       115,547       118,049  
Total Deposits
Dubuque Bank and Trust Company $ 1,001,798 $ 1,066,711 $ 1,116,154 $ 1,118,225 $ 1,122,506
New Mexico Bank & Trust 814,523 790,172 765,572 765,903 748,345
Morrill & Janes Bank and Trust Company 680,176 673,325 692,038
Wisconsin Bank & Trust 558,654 544,323 531,371 545,163 527,762
Riverside Community Bank 392,053 403,643 353,046 371,779 334,248
Rocky Mountain Bank 384,856 379,017 380,011 375,949 367,707
Arizona Bank & Trust 382,011 381,121 368,059 320,737 321,813
Galena State Bank & Trust Co. 257,029 244,682 244,505 252,691 245,324
Minnesota Bank & Trust 148,260 142,750 154,812 151,659 145,246
Summit Bank & Trust     118,275       104,598       101,447       102,855       102,891  
Net Income (Loss)
Dubuque Bank and Trust Company $ 4,135 $ 2,381 $ 5,009 $ 2,737 $ 3,694
New Mexico Bank & Trust 2,855 2,199 1,575 1,660 2,520
Morrill & Janes Bank and Trust Company 1,711 1,301 1,145
Wisconsin Bank & Trust 1,299 1,068 1,850 1,990 1,534
Riverside Community Bank 393 527 433 546 240
Rocky Mountain Bank 388 1,049 576 916 854
Arizona Bank & Trust 1,243 837 125 380 1,568
Galena State Bank & Trust Co. 1,072 802 403 324 981
Minnesota Bank & Trust 59 122 (31 ) (124 ) 196
Summit Bank & Trust     (82 )     (434 )     44       (368 )     (242 )
Return on Average Assets
Dubuque Bank and Trust Company 1.20 % 0.67 % 1.36 % 0.74 % 1.00 %
New Mexico Bank & Trust 1.10 0.88 0.61 0.66 0.99
Morrill & Janes Bank and Trust Company 0.81 0.62 0.66
Wisconsin Bank & Trust 0.82 0.69 1.16 1.24 0.96
Riverside Community Bank 0.31 0.49 0.38 0.46 0.21
Rocky Mountain Bank 0.34 0.92 0.49 0.80 0.75
Arizona Bank & Trust 1.05 0.74 0.12 0.38 1.59
Galena State Bank & Trust Co. 1.51 1.15 0.54 0.43 1.35
Minnesota Bank & Trust 0.15 0.32 (0.07 ) (0.32 ) 0.55
Summit Bank & Trust     (0.26 )     (1.57 )     0.15       (1.27 )     (0.85 )
Net Interest Margin as a Percentage of Average Earning Assets
Dubuque Bank and Trust Company 3.67 % 3.72 % 3.59 % 3.30 % 3.23 %
New Mexico Bank & Trust 3.96 3.80 3.63 3.58 3.53
Morrill & Janes Bank and Trust Company 3.50 3.17 2.97
Wisconsin Bank & Trust 4.27 4.41 4.39 4.43 4.25
Riverside Community Bank 3.57 3.45 3.17 2.82 2.89
Rocky Mountain Bank 4.36 4.21 4.22 4.15 3.96
Arizona Bank & Trust 4.47 4.37 4.35 4.57 4.29
Galena State Bank & Trust Co. 3.79 3.74 3.47 3.32 3.48
Minnesota Bank & Trust 3.88 3.79 3.64 3.50 3.30
Summit Bank & Trust     3.98       4.03       3.79       3.76       3.57  
 
 
HEARTLAND FINANCIAL USA, INC.
SELECTED FINANCIAL DATA - SUBSIDIARY BANKS (Unaudited)
DOLLARS IN THOUSANDS
    As of
      6/30/2014     3/31/2014     12/31/2013     9/30/2013     6/30/2013
Total Portfolio Loans and Leases                
Dubuque Bank and Trust Company $ 908,729 $ 897,860 $ 915,377 $ 828,502 $ 828,088
New Mexico Bank & Trust 575,685 556,928 529,808 508,452 501,373
Morrill & Janes Bank and Trust Company 429,326 400,243 384,685
Wisconsin Bank & Trust 496,486 465,969 459,594 444,174 442,184
Riverside Community Bank 233,668 227,920 186,739 181,024 174,498
Rocky Mountain Bank 339,479 317,513 316,702 301,224 285,900
Arizona Bank & Trust 328,438 343,298 329,211 278,616 251,416
Galena State Bank & Trust Co. 181,135 183,012 183,639 177,480 169,306
Minnesota Bank & Trust 105,142 98,818 101,491 94,182 89,121
Summit Bank & Trust     84,040       72,898       73,150       75,681       75,869  
Allowance For Loan and Lease Losses
Dubuque Bank and Trust Company $ 9,441 $ 8,839 $ 10,303 $ 11,040 $ 8,858
New Mexico Bank & Trust 6,628 6,388 7,202 7,007 6,619
Morrill & Janes Bank and Trust Company 1,741 1,137 406
Wisconsin Bank & Trust 4,564 4,281 4,850 4,554 4,420
Riverside Community Bank 3,335 2,835 3,121 3,012 2,924
Rocky Mountain Bank 4,179 3,965 4,148 4,451 4,404
Arizona Bank & Trust 3,754 3,913 4,133 3,841 3,573
Galena State Bank & Trust Co. 1,553 1,716 1,916 1,872 1,759
Minnesota Bank & Trust 1,071 1,021 1,091 1,068 944
Summit Bank & Trust     1,099       1,054       1,334       1,297       1,222  
Nonperforming Loans and Leases
Dubuque Bank and Trust Company $ 5,718 $ 7,729 $ 15,641 $ 19,803 $ 9,612
New Mexico Bank & Trust 4,781 5,195 6,880 7,406 8,606
Morrill & Janes Bank and Trust Company 368 129 160
Wisconsin Bank & Trust 3,617 4,904 6,165 6,825 7,921
Riverside Community Bank 6,213 5,213 3,325 4,120 2,769
Rocky Mountain Bank 3,471 3,271 3,326 4,076 5,997
Arizona Bank & Trust 2,946 3,200 4,413 1,862 2,240
Galena State Bank & Trust Co. 826 939 1,077 1,131 1,246
Minnesota Bank & Trust 3
Summit Bank & Trust     567       584       688       1,021       1,897  
Allowance As a Percent of Total Loans and Leases
Dubuque Bank and Trust Company 1.04 % 0.98 % 1.13 % 1.33 % 1.07 %
New Mexico Bank & Trust 1.15 1.15 1.36 1.38 1.32
Morrill & Janes Bank and Trust Company 0.41 0.28 0.11
Wisconsin Bank & Trust 0.92 0.92 1.06 1.03 1.00
Riverside Community Bank 1.43 1.24 1.67 1.66 1.68
Rocky Mountain Bank 1.23 1.25 1.31 1.48 1.54
Arizona Bank & Trust 1.14 1.14 1.26 1.38 1.42
Galena State Bank & Trust Co. 0.86 0.94 1.04 1.05 1.04
Minnesota Bank & Trust 1.02 1.03 1.07 1.13 1.06
Summit Bank & Trust     1.31       1.45       1.82       1.71       1.61  
 

Contact:
Heartland Financial USA, Inc.
Bryan R. McKeag, 563-589-1994
Executive Vice President
Chief Financial Officer
bmckeag@htlf.com
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