HEARTLAND FINANCIAL USA, INC. REPORTS QUARTERLY AND YEAR TO DATE RESULTS AS OF SEPTEMBER 30, 2020

Heartland Financial USA, Inc.
·37 min read

Dubuque, IA, Oct. 26, 2020 (GLOBE NEWSWIRE) -- Highlights and Developments

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Record quarterly net income available to common stockholders of $45.5 million compared to $34.6 million for the third quarter of 2019, an increase of $10.9 million or 32%

§

Diluted earnings per common share of $1.23 in comparison with $0.94 for the third quarter of the prior year, an increase of $0.29 or 31%

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Net interest margin of 3.51% (3.55% on a fully tax-equivalent basis, non-GAAP) (1) during the third quarter of 2020, compared to 3.81% (3.85% on a fully tax-equivalent basis, non-GAAP) (1) during the second quarter of 2020 and 3.98% (4.02% on a fully tax-equivalent basis, non-GAAP) (1) during the third quarter of 2019

§

Efficiency ratio (non-GAAP) 1 of 54.67% compared to 60.85% for the third quarter of 2019

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Contributed $1.5 million for the nine months ended September 30, 2020, to support communities served by Heartland and its subsidiary banks, including recent donations of $260,000 to local schools


 

Quarter Ended
September 30,

 

Nine Months Ended
September 30,

 

2020

 

2019

 

2020

 

2019

Net income available to common stockholders (in millions)

$

45.5 

 

 

$

34.6 

 

 

$

95.7 

 

 

$

111.3 

 

Diluted earnings per common share

1.23 

 

 

0.94 

 

 

2.59 

 

 

3.11 

 

 

 

 

 

 

 

 

 

Return on average assets

1.19 

%

 

1.12 

%

 

0.90 

%

 

1.27 

%

Return on average common equity

10.90 

 

 

8.91 

 

 

7.90 

 

 

10.33 

 

Return on average tangible common equity (non-GAAP) (1)

16.11 

 

 

13.78 

 

 

12.10 

 

 

16.13 

 

Net interest margin

3.51 

 

 

3.98 

 

 

3.70 

 

 

4.05 

 

Net interest margin, fully tax-equivalent (non-GAAP) (1)

3.55 

 

 

4.02 

 

 

3.74 

 

 

4.10 

 

Efficiency ratio, fully-tax equivalent (non-GAAP) (1)

54.67 

 

 

60.85 

 

 

57.28 

 

 

63.26 

 

(1) Refer to "Non-GAAP Measures" in this earnings release for additional information on the usage and presentation of these non-GAAP measures, and refer to the financial tables for reconciliations to the most directly comparable GAAP measures.

"Heartland set a new record of $45.5 million for quarterly net income available to common stockholders during the third quarter of 2020, an increase of $10.9 million or 32% over the same quarter of 2019. Earnings per diluted common share totaled $1.23, an increase of $0.29 or 31% from $0.94 in the third quarter of 2019."

Bruce K. Lee, president and chief executive officer, Heartland Financial USA, Inc.

Heartland Financial USA, Inc. (NASDAQ: HTLF) today reported the following quarterly results:

  1. net income available to common stockholders of $45.5 million, or $1.23 per diluted common share, for the quarter ended September 30, 2020, compared to $34.6 million, or $0.94 per diluted common share, for the third quarter of 2019.

  2. excluding tax-effected provision for credit losses of $1.3 million and tax-effected acquisition, integration and restructuring costs of $905,000, adjusted net income available to common stockholders (non-GAAP) was $47.8 million, or $1.29 of adjusted earnings per diluted common share (non-GAAP) for the third quarter of 2020, compared to $39.9 million (non-GAAP) or $1.08 of adjusted earnings per diluted common share (non-GAAP), for the third quarter of 2019, which excluded tax-effected provision for credit losses of $4.1 million and tax-effected acquisition, integration and restructuring costs of $1.2 million.

  3. return on average common equity was 10.90% and return on average assets was 1.19% for the third quarter of 2020, compared to 8.91% and 1.12%, respectively, for the same quarter in 2019.

  4. return on average tangible common equity (non-GAAP) of 16.11% and adjusted return on average tangible common equity (non-GAAP) of 16.86% for the third quarter of 2020 compared to 13.78% and 15.76%, respectively, for the third quarter of 2019.

Heartland reported the following results for the nine months ended September 30, 2020:

  1. net income available to common stockholders of $95.7 million or $2.59 per diluted common share, for the nine months ended September 30, 2020, compared to $111.3 million or $3.11 per diluted common share for the nine months ended September 30, 2019.

  2. excluding tax-effected provision for credit losses of $39.5 million and tax-effected acquisition, integration and restructuring costs of $2.5 million, adjusted net income available to common stockholders (non-GAAP) was $137.7 million, or $3.73 of adjusted earnings per diluted common share (non-GAAP), for the nine months ended September 30, 2020, compared to $125.3 million (non-GAAP), or $3.50 of adjusted earnings per diluted common share (non-GAAP), for the nine months ended September 30, 2019, which excluded tax-effected provision for credit losses of $9.3 million and tax-effected acquisition, integration and restructuring costs of $4.8 million.

  3. return on average common equity was 7.90% and return on average assets was 0.90% for the first nine months of 2020, compared to 10.33% and 1.27%, respectively, for the same period in 2019.

  4. return on average tangible common equity (non-GAAP) of 12.10% and adjusted return on average tangible common equity (non-GAAP) of 17.08% for the nine months ended September 30, 2020, compared to 16.13% and 18.05%, respectively, for the nine months ended September 30, 2019.

"Heartland set a new record of $45.5 million for quarterly net income available to common stockholders during the third quarter of 2020, an increase of $10.9 million or 32% over the same quarter of 2019. Earnings per diluted common share totaled $1.23, an increase of $0.29 or 31% from $0.94 in the third quarter of 2019," said Bruce K. Lee, Heartland's president and chief executive officer.

Responses to COVID-19 

In the first quarter of 2020, Heartland implemented and continues to operate under its pandemic management plan. While the measures described below remain in effect, Heartlands pandemic management plan continues to evolve in response to the recent developments relating to the COVID-19 pandemic. To assure workplace and employee safety and business resiliency while providing relief and support to customers and communities facing challenges from the impacts of the pandemic, the following measures are in place:

  1. employees who can work from home continue to do so, and those employees who are working in bank offices have been placed on rotating teams to limit potential exposure to COVID-19;

  2. all in-person events and large meetings are canceled and have transitioned to virtual meetings;

  3. employees receive an increase in time off and enhanced health care coverage related to testing and treatments for COVID-19;

  4. Heartland has installed and requires the use of personal protective equipment in bank offices;

  5. Heartland has implemented and extended a 20% wage premium for certain customer-facing employees,

  6. Heartland has provided direct guaranteed loans from the U.S. Small Business Administration (the SBA) to customers through Heartlands participation in the Coronavirus Aid, Relief and Economic Security Act (the CARES Act) and originated $1.2 billion of loans under the Paycheck Protection Program (PPP);

  7. Heartland has participated in the CARES Act SBA loan payment and deferral program for existing SBA loans; and

  8. Heartland has contributed $1.5 million to support communities served by Heartland and its subsidiary banks, including recent donations of $260,000 to local schools.

"We are proud of our recent contributions to local schools to help teachers and students learn in a safe and healthy environment. We continue to support the communities in which we live and work during this pandemic," Lee said.

The continued economic disruption resulting from the COVID-19 pandemic will make it difficult for some customers to repay the principal and interest on their loans, and Heartland's subsidiary banks have been working with customers to modify the terms of certain existing loans.

The following table shows the total loan exposure as of September 30, 2020, June 30, 2020, and March 31, 2020, to customer segment profiles that Heartland currently believes will be more heavily impacted by COVID-19, dollars in thousands:

 

As of September 30, 2020

 

As of June 30, 2020

 

As of March 31, 2020

Industry

Total Exposure (1)

 

% of Gross Exposure (1)

 

Total Exposure (1)

 

% of Gross Exposure (1)

 

Total Exposure (1)

 

% of Gross Exposure (1)

Lodging

$

495,187 

 

 

4.52 

%

 

$

490,475 

 

 

4.38 

%

 

$

498,596 

 

 

4.47 

%

Retail trade

405,118 

 

 

3.70 

 

 

407,030 

 

 

3.64 

 

 

367,727 

 

 

3.30 

 

Retail properties

363,457 

 

 

3.32 

 

 

369,782 

 

 

3.31 

 

 

408,506 

 

 

3.66 

 

Restaurants and bars

248,053 

 

 

2.26 

 

 

255,701 

 

 

2.29 

 

 

247,239 

 

 

2.22 

 

Oil and gas

52,766 

 

 

0.48 

 

 

63,973 

 

 

0.57 

 

 

56,302 

 

 

0.50 

 

Total

$

1,564,581 

 

 

14.28 

%

 

$

1,586,961 

 

 

14.19 

%

 

$

1,578,370 

 

 

14.15 

%

 

 

 

 

 

 

 

 

 

 

 

 

(1) Total loans outstanding and unfunded commitments excluding PPP loans

As of September 30, 2020, of the approximately $1.11 billion of loans modified under COVID-19 relief programs, $860.0 million of loans have returned to full payment status, $133.0 million of loans remain in the original deferral status, and second loan modifications have been made on approximately $122.0 million of loans in Heartland's portfolio. Approximately 69% of the second loan modifications are principal and interest deferments for 90 days, and the remainder are primarily interest-only payments for 90 days.

The ultimate impact of the COVID-19 pandemic on Heartland's financial condition and results of operations will depend on the severity and duration of the pandemic, related restrictions on business and consumer activity, and the availability of government programs to alleviate the economic stress of the pandemic. See Heartland's "Safe Harbor Statement" below.

2020 Developments

Adoption of ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326)"

On January 1, 2020, Heartland adopted ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326)," commonly referred to as "CECL." The impact of Heartland's adoption of CECL ("Day 1") resulted in the following:

  1. an increase of $12.1 million to the allowance for credit losses related to loans, which included a reclassification of $6.0 million of purchased credit impaired loan discount on previously acquired loans, and a cumulative-effect adjustment to retained earnings totaling $4.6 million, net of taxes of $1.5 million;

  2. an increase of $13.6 million to the allowance for unfunded commitments and a cumulative-effect adjustment to retained earnings totaling $10.2 million, net of taxes of $3.4 million, and

  3. established an allowance for credit losses for Heartland's held to maturity debt securities of $158,000 and a cumulative-effect adjustment to retained earnings totaling $118,000, net of taxes of $40,000.

Entered into an Amended and Restated Agreement and Plan of Merger with AIM Bancshares, Inc.

On October 19, 2020, Heartland entered into an Amended and Restated Agreement and Plan of Merger (the amended and restated merger agreement) relating to the acquisition of AIM Bancshares, Inc. (AIM) and its wholly-owned subsidiary, AimBank, headquartered in Levelland, Texas. The amended and restated merger agreement amends and restates the Agreement and Plan of Merger dated February 11, 2020 between Heartland and AIM (the original merger agreement). The original merger agreement was amended and restated to address certain regulatory concerns raised by the Federal Reserve Board during its review of the transaction contemplated by the original merger agreement. In response to discussions with the Federal Reserve Board, AIM and Heartland agreed that they could better serve the goals of the transaction and more easily address regulatory concerns if they adopted two sequential mergers described in the next paragraph. AIM and Heartland also agreed to adjust the cash component of the merger consideration based on increases in AIMs adjusted tangible common equity as a result of gains in AIMs available-for-sale securities portfolio, an increase in AIMs retained earnings and gains in AIMs held-to-maturity securities portfolio since the date of the original merger agreement. A holdback provision was added to the amended and restated merger agreement as a result of a certain litigation proceedings. Certain other provisions of the original merger agreement were revised to reflect other changes in economic terms and the significantly delayed closing date of the transaction.

In the first merger, AIM will merge with and into AimBank, and holders of shares of AIM common stock will receive one share of AimBank common stock for each share of AIM common stock owned by such holders.  In the second merger, which will occur immediately following the consummation of the AIM/AimBank merger, AimBank will merge with and into Heartlands wholly owned subsidiary, First Bank & Trust. In the second merger transaction, all issued and outstanding shares of AimBank common stock will be exchanged for shares of Heartland common stock and cash. As a result, each share of AimBank common stock received by shareholders of AIM in the first merger will be exchanged for 207.0 shares of Heartland common stock and $685.00 of cash. The transaction value will change due to fluctuations in the price of Heartland common stock and is subject to certain potential adjustments as set forth in the amended and restated merger agreement, including but not limited to adjustments based on changes in the adjusted tangible common equity of AIM. Heartland expects this transaction to close in the fourth quarter of 2020. As of September 30, 2020, AimBank had total assets of approximately $1.85 billion, which included $1.14 billion of gross loans outstanding, and approximately $1.60 billion of deposits.

Entered into a Purchase and Assumption Agreement with Johnson Financial Group, Inc.

On June 9, 2020, Arizona Bank & Trust (AB&T), a wholly-owned subsidiary of Heartland headquartered in Phoenix, Arizona, entered into a purchase and assumption agreement, pursuant to which AB&T will acquire certain assets and will assume substantially all of the deposits and certain other liabilities of Johnson Banks Arizona operations, which includes four banking centers. Johnson Bank is a wholly-owned subsidiary of Johnson Financial Group, Inc. headquartered in Racine, Wisconsin. Johnson Insurance Services is not a part of this transaction.

Under the terms of the purchase and assumption agreement, AB&T will acquire Johnson Bank's Arizona banking centers, which had deposits of approximately $392.2 million and loans of approximately $183.8 million as of September 30, 2020. The actual amount of deposits assumed and loans acquired will be determined at closing, which is expected to be in the fourth quarter of 2020 and is subject to certain potential adjustments as set forth in the purchase and assumption agreement.

"We are looking forward to completing the acquisitions of AimBank and four Johnson Bank branches in the fourth quarter," commented Lynn B. Fuller, Heartland's executive operating chairman.

Branch Optimization

In the third quarter of 2020, Heartland's subsidiary banks approved plans to consolidate six branch locations, which included one branch in the Midwest region, four branches in the Western region and one in the Southwestern region and resulted in $1.2 million of fixed asset write-downs. The branch consolidations are expected to be completed in early 2021. Heartland continues to review its branch network for optimization and consolidation opportunities, which may result in additional write-downs of fixed assets in future periods.

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

Net interest margin, expressed as a percentage of average earning assets, was 3.51% (3.55% on a fully tax-equivalent basis, non-GAAP) during the third quarter of 2020, compared to 3.81% (3.85% on a fully tax-equivalent basis, non-GAAP) during the second quarter of 2020 and 3.98% (4.02% on a fully tax-equivalent basis, non-GAAP) during the third quarter of 2019.

Total interest income and average earning asset changes for the third quarter of 2020 compared to the third quarter of 2019 were:

  1. Heartland recorded $131.0 million of total interest income, which was a decrease of $2.4 million or 2% from $133.4 million, based on a decrease in the average rate on earning assets, which was partially offset by an increase in average earning assets.

  2. Total interest income on a tax-equivalent basis was $132.4 million, which was a decrease of $2.2 million or 2% from $134.5 million. 

  3. Average earning assets increased $2.77 billion or 25% to $13.87 billion compared to $11.10 billion for the third quarter of 2019, which was primarily attributable to recent acquisitions and loan growth, including PPP loans.

  4. The average rate on earning assets decreased 101 basis points to 3.80% compared to 4.81%, which was primarily due to recent decreases in market interest rates and the lower yield on PPP loans, which was 2.63% for the third quarter of 2020.

Total interest expense and average interest bearing liability changes for the third quarter of 2020 compared to the third quarter of 2019 were:

  1. Total interest expense was $8.5 million, a decrease of $13.6 million or 62% from $22.1 million, based on a decrease in the average interest rate paid, which was partially offset by an increase in average interest bearing liabilities.

  2. The average interest rate paid on Heartland's interest bearing liabilities decreased to 0.40% compared to 1.22%, which was primarily due to recent decreases in market interest rates.

  3. Average interest bearing deposits increased $966.9 million or 14% to $7.76 billion from $6.79 billion which was primarily attributable to recent acquisitions and deposit growth, including deposits from government stimulus payments and other COVID-19 relief programs. 

  4. The average interest rate paid on Heartland's interest bearing deposits decreased 80 basis points to 0.25% compared to 1.05%.

  5. Average borrowings increased $178.3 million or 47% to $560.4 million from $382.2 million. The average interest rate paid on Heartland's borrowings was 2.49% compared to 4.27%.

Net interest income increased for the third quarter of 2020 compared to the third quarter of 2019:

  1. Net interest income totaled $122.5 million compared to $111.3 million, which was an increase of $11.2 million or 10%.

  2. Net interest income on a tax-equivalent basis totaled $123.9 million compared to $112.5 million, which was an increase of $11.4 million or 10%. 

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

Total noninterest income was $31.2 million during the third quarter of 2020 compared to $29.4 million during the third quarter of 2019, an increase of $1.8 million or 6%. Significant changes by noninterest income category for the third quarter of 2020 compared to the third quarter of 2019 were:

  1. Net gains on sale of loans held for sale totaled $8.9 million compared to $4.7 million, which was an increase of $4.2 million or 90%, primarily due to an increase in residential mortgage loan activity in response to the recent declines in mortgage interest rates.

  2. Other noninterest income was $1.7 million compared to $3.2 million, which was a decrease of $1.5 million or 46%. Commercial swap fee income totaled $16,000 compared to $1.6 million.

Total noninterest expense was $90.4 million during the third quarter of 2020 compared to $93.0 million during the third quarter of 2019, which was a decrease of $2.6 million or 3%. Significant changes within the noninterest expense category for the third quarter of 2020 compared to the third quarter of 2019 were:

  1. Professional fees increased $1.5 million or 14% to $12.8 million compared to $11.3 million. Included in professional fees for the third quarter of 2020 was $1.6 million of expense for FDIC insurance assessments compared to a benefit of $911,000 in the third quarter of 2019. 

  2. Advertising expense decreased $1.7 million or 65% to $928,000 compared to $2.6 million. The decrease was primarily attributable to a reduction of in-person customer events.

  1. Net losses on sales/valuations of assets totaled $1.8 million compared to $356,000, which was an increase of $1.4 million. The increase was primarily attributable to losses and writedowns on fixed assets associated with branch optimization activities.

  2. Other noninterest expenses totaled $9.8 million compared to $12.0 million, which was a decrease of $2.2 million or 18%. The decrease was primarily attributable to reduced travel expenses and customer entertainment activities because meetings have transitioned to virtual formats.

Heartland's effective tax rate was 22.20% for the third quarter of 2020 compared to 18.66% for the third quarter of 2019. The following items impacted Heartland's third quarter 2020 and 2019 tax calculations:

  1. Solar energy tax credits of $965,000 compared to $2.0 million.

  2. Federal low-income housing tax credits of $195,000 compared to $281,000.

  3. New markets tax credits of $75,000 compared to $0.

  4. Tax-exempt interest income as a percentage of pre-tax income of 8.48% compared to 10.08%.

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

Total assets were $15.61 billion at September 30, 2020, an increase of $2.40 billion or 18% from $13.21 billion at year-end 2019. Securities represented 33% and 26% of total assets at September 30, 2020, and December 31, 2019, respectively.

Total loans held to maturity were $9.10 billion at September 30, 2020, and $8.37 billion at December 31, 2019, which was an increase of $731.7 million or 9%. Loan changes by category were:

  1. Commercial and business lending, which includes commercial and industrial, Paycheck Protection Program ("PPP"), and owner occupied commercial real estate loans, increased $923.1 million or 23% to $4.93 billion at September 30, 2020, compared to $4.00 billion at December 31, 2019. Excluding $1.13 billion of PPP loans, commercial and business lending decreased $205.0 million or 5% since year-end 2019. 

  2. Commercial real estate lending, which includes non-owner occupied commercial real estate and construction loans, increased $54.5 million or 2% to $2.58 billion at September 30, 2020 from $2.52 billion at year-end 2019. 

  3. Agricultural and agricultural real estate loans totaled $508.1 million at September 30, 2020, compared to $565.8 million at December 31, 2019, which was a decrease of $57.8 million or 10%.

  1. Residential mortgage loans decreased $130.4 million or 16% to $701.9 million at September 30, 2020, from $832.3 million at December 31, 2019.

  1. Consumer loans decreased $57.7 million or 13% to $385.7 million at September 30, 2020, compared to $443.3 million at December 31, 2019.

Total deposits were $12.77 billion as of September 30, 2020, compared to $11.04 billion at year-end 2019, an increase of $1.72 billion or 16%. Deposit changes by category were:

  1. Demand deposits increased $1.48 billion or 42% to $5.02 billion at September 30, 2020, compared to $3.54 billion at December 31, 2019.

  1. Savings deposits increased $434.7 million or 7% to $6.74 billion at September 30, 2020, from $6.31 billion at December 31, 2019. 

  1. Time deposits decreased $190.7 million or 16% to $1.00 billion at September 30, 2020 from $1.19 billion at December 31, 2019. 

Growth in non-time deposits was positively impacted by federal government stimulus payments and other COVID-19 relief programs.

Provision and Allowance

Provision and Allowance for Credit Losses for Loans
Provision expense for credit losses for loans for the third quarter of 2020 was $4.7 million, which was a decrease of $20.3 million from $25.0 million recorded in the prior quarter and a decrease of $460,000 from $5.2 million recorded in the third quarter of 2019. The provision expense for the third quarter of 2020 was impacted by several factors, including:

  1. decreases in balances of loans held to maturity of $147.2 million from the prior quarter;

  2. modest changes in credit quality marked by delinquencies of 0.17% of total loans and nonpass loans of 8.7% of total loans for the third quarter compared to delinquencies of 0.22% of total loans and nonpass loans of 8.1% of total loans for the second quarter;

  3. consistent macroeconomic outlook compared to the second quarter of 2020, and

  4. the charge off of one $5.9 million commercial and industrial loan originated in California for which no specific reserve was previously established.

Heartland's allowance for credit losses for loans totaled $103.4 million and $70.4 million at September 30, 2020, and December 31, 2019, respectively. The following items have impacted Heartland's allowance for credit losses for loans for the nine months ended September 30, 2020:

  1. The allowance for credit losses for loans increased $12.1 million after the adoption of CECL on January 1, 2020.

  2. Provision expense for the nine months ended September 30, 2020, totaled $49.6 million.

  3. Net charge offs of $28.7 million have been recorded for the first nine months of 2020, which included $21.3 million of net charge offs for the third quarter. During the third quarter of 2020, Heartland charged off $13.9 million on individually assessed loans with principal balances of $17.1 million that had been specifically reserved in the second quarter of 2020 in addition to the charge off of the $5.9 million loan previously described.

Heartland expects that net charge offs could remain elevated in future periods as customers ability to repay loans is adversely impacted by economic disruptions caused by the COVID-19 pandemic.

Provision and Allowance for Credit Losses for Unfunded Commitments
Heartland's allowance for unfunded commitments totaled $13.9 million after the adoption of CECL on January 1, 2020. Unfunded commitments declined $84.8 million or 3% during the quarter to $2.98 billion at September 30, 2020, and as a result, Heartland recorded a benefit to provision for credit losses for unfunded loan commitments of $3.1 million. At September 30, 2020, the allowance for unfunded commitments was $14.3 million.

Total Provision and Allowance for Lending Related Credit Losses
The total provision for lending related credit losses was $1.7 million for the third quarter of 2020. The total allowance for lending related credit losses was $117.7 million at September 30, 2020, which was 1.29% of loans as of September 30, 2020.

Nonperforming Assets and Loan Delinquencies Decrease Since December 31, 2019

Nonperforming assets decreased $1.7 million or 2% to $85.9 million or 0.55% of total assets at September 30, 2020, compared to $87.6 million or 0.66% of total assets at December 31, 2019. Nonperforming loans were $80.7 million or 0.89% of total loans at September 30, 2020, compared to $80.7 million or 0.96% of total loans at December 31, 2019. At September 30, 2020, loans delinquent 30-89 days were 0.17% of total loans compared to 0.33% of total loans at December 31, 2019. COVID-19 payment deferral and loan modification programs could delay the recognition of net charge-offs, delinquencies and nonaccrual status for loans that would have otherwise moved into past due or nonaccrual status.

Non-GAAP Financial Measures

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

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

  1. Annualized return on average tangible common equity is net income available to common stockholders plus core deposit and customer relationship intangibles amortization, net of tax, divided by average common equity less goodwill and core deposit and customer relationship intangibles, net. This measure is included as it is considered to be a critical metric to analyze and evaluate use of equity, financial condition and capital strength.

  2. Annualized net interest margin, fully tax-equivalent, adjusts net interest income for the tax-favored status of certain loans and securities. Management believes this measure enhances the comparability of net interest income arising from taxable and tax-exempt sources.

  3. Efficiency ratio, fully tax equivalent, expresses noninterest expenses as a percentage of fully tax-equivalent net interest income and noninterest income. This efficiency ratio is presented on a tax-equivalent basis which adjusts net interest income and noninterest expenses for the tax favored status of certain loans, securities, and tax credit projects. Management believes the presentation of this non-GAAP measure provides supplemental useful information for proper understanding of the financial results as it enhances the comparability of income and expenses arising from taxable and nontaxable sources and excludes specific items as noted in reconciliation contained in this press release.

  4. Net interest income, fully tax equivalent, is net income adjusted 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.

  5. Tangible book value per common share is total common equity less goodwill and core deposit and customer relationship intangibles, net, divided by common shares outstanding, net of treasury. This measure is included as it is considered to be a critical metric to analyze and evaluate use of equity, financial condition and capital strength.

  6. Tangible common equity ratio is total common equity less goodwill and core deposit and customer relationship intangibles, net, divided by total assets less goodwill and core deposit and customer relationship intangibles, net. This measure is included as it is considered to be a critical metric to analyze and evaluate financial condition and capital strength.

  7. Annualized return on average tangible common equity is net income excluding intangible amortization calculated as (1) net income excluding tax-effected core deposit and customer relationship intangibles amortization, divided by (2) average common equity less goodwill and core deposit and customer relationship intangibles, net. This measure is included as it is considered to be a critical metric to analyze and evaluate use of equity, financial condition and capital strength.

  8. Adjusted net income, adjusted return on average tangible common equity and adjusted diluted earnings per share exclude tax-effected provision for credit losses and acquisition, integration and restructuring costs. Management believes the presentation of these non-GAAP measures are useful to compare net income, return on average tangible common equity and earnings per share results excluding the variability of credit loss provisions and acquisition, integration and restructuring costs. 

Conference Call Details
Heartland will host a conference call for investors at 5:00 p.m. EDT today. To participate, dial 866-928-9948 at least five minutes before the start time. A replay will be available until October 25, 2021, by logging on to www.htlf.com .

About Heartland Financial USA, Inc.
Heartland Financial USA, Inc. is a diversified financial services company with assets of $15.61 billion. The company provides banking, mortgage, private client, investment, insurance and consumer finance services to individuals and businesses. Heartland currently has 113 banking locations serving 82 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 Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.

Any statements about Heartlands expectations, beliefs, plans, objectives, assumptions or future events or performance are not historical facts and may be forward-looking. These forward-looking statements include information about possible or assumed future results of Heartlands operations or performance. These forward-looking statements are generally identified by the use of the words believe, expect, intent, anticipate, plan, estimate, project, will, would, could, should, may, view, opportunity, potential, or similar expressions that are used in this release, and future oral and written statements of Heartland and its management. Although Heartland has made these statements based on managements experience and best estimate of future events, the ability of Heartland to predict results or the actual effect of plans or strategies is inherently uncertain, and there may be events or factors that management has not anticipated. Therefore, the accuracy and achievement of such forward-looking statements and estimates are subject to a number of risks, many of which are beyond the ability of management to control or predict, that could cause actual results to differ materially from those in its forward-looking statements. These factors, which are detailed below and in the risk factors in Heartland's reports filed with the Securities and Exchange Commission (SEC), include, among others:

  1. The impact of the COVID-19 pandemic on Heartland and U.S. and global financial markets;

  1. Measures enacted by the U.S. federal and state governments and adopted by private businesses in response to the COVID-19 pandemic;

  2. The deterioration of the U.S. economy in general and in the local economies in which Heartland conducts its operations;

  3. Increasing credit losses due to deterioration in the financial condition of its borrowers, based on declining oil prices and asset and collateral values, which may continue to increase the provision for credit losses and net charge-offs of Heartland;

  4. Civil unrest in the communities that Heartland serves;

  5. Levels of unemployment in the geographic areas in which Heartland operates;

  6. Real estate market values in these geographic areas;

  7. Future natural disasters and increases to flood insurance premiums;

  8. The effects of past and any future terrorist threats and attacks, acts of war or threats thereof;

  9. The level of prepayments on loans and mortgage-backed securities;

  10. Legislative and regulatory changes affecting banking, tax, securities, insurance and monetary and financial matters;

  11. Monetary and fiscal policies of the U.S. Government including policies of the U.S. Department of Treasury and the Federal Reserve Board;

  12. The quality or composition of the loan and investment portfolios of Heartland;

  13. Demand for loan products and financial services, deposit flows and competition in Heartlands market areas;

  14. Changes in accounting principles and guidelines;

  15. The timely development and acceptance of products and services, including products and services offered through alternative delivery channels such as the Internet;

  16. The ability of Heartland to implement technological changes as planned and to develop and maintain secure and reliable electronic delivery systems;

  17. Heartlands ability to retain key executives and employees; and

  18. The ability of Heartland to successfully consummate acquisitions and integrate acquired operations.

The COVID-19 pandemic is adversely affecting Heartland and its customers, counterparties, employees and third-party service providers. The COVID-19 pandemics severity, its duration and the extent of its impact on Heartlands business, financial condition, results of operations, liquidity and prospects remain uncertain. The deterioration in general business and economic conditions and turbulence in domestic and global financial markets caused by the COVID-19 pandemic have negatively affected Heartlands net income, total equity and book value per common share, and continued economic deterioration could adversely affect the value of its assets and liabilities, reduce the availability of funding to Heartland, lead to a tightening of credit and increase stock price volatility. Some economists and investment banks believe that a recession or depression may result from the continued spread of COVID-19 and the economic consequences.

These risks and uncertainties should be considered in evaluating forward-looking statements made by Heartland or on its behalf, and undue reliance should not be placed on these statements. There can be no assurance that other factors not currently anticipated by Heartland will not materially and adversely affect Heartlands business, financial condition and results of operations. In addition, many of these risks and uncertainties are currently amplified by and may continue to be amplified by the recent outbreak of the COVID-19 pandemic and the impact of varying governmental responses that affect Heartlands customers and the economies where they operate. Please take into account that forward-looking statements speak only as of the date they are made, and except as required by applicable law, Heartland does not undertake any obligation to publicly correct or update any forward-looking statement. Further information concerning Heartland and its business, including additional factors that could materially affect Heartlands financial results, is included in Heartlands filings with the SEC.

-FINANCIAL TABLES FOLLOW-
###

 

 

 


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,

 

2020

 

2019

 

2020

 

2019

Interest Income

 

 

 

 

 

 

 

Interest and fees on loans

$

102,657 

 

 

$

110,566 

 

 

$

316,076 

 

 

$

317,049 

 

Interest on securities:

 

 

 

 

 

 

 

Taxable

25,016 

 

 

18,567 

 

 

70,109 

 

 

50,566 

 

Nontaxable

3,222 

 

 

2,119 

 

 

8,749 

 

 

7,766 

 

Interest on federal funds sold

 

 

 

 

 

 

 

 

 

 

Interest on deposits with other banks and short-term investments

72 

 

 

2,151 

 

 

847 

 

 

5,742 

 

Total Interest Income

130,967 

 

 

133,403 

 

 

395,781 

 

 

381,127 

 

Interest Expense

 

 

 

 

 

 

 

Interest on deposits

4,962 

 

 

17,982 

 

 

25,678 

 

 

47,333 

 

Interest on short-term borrowings

78 

 

 

250 

 

 

435 

 

 

1,477 

 

Interest on other borrowings

3,430 

 

 

3,850 

 

 

10,514 

 

 

11,333 

 

Total Interest Expense

8,470 

 

 

22,082 

 

 

36,627 

 

 

60,143 

 

Net Interest Income

122,497 

 

 

111,321 

 

 

359,154 

 

 

320,984 

 

Provision for credit losses

1,678 

 

 

5,201 

 

 

49,994 

 

 

11,754 

 

Net Interest Income After Provision for Credit Losses

120,819 

 

 

106,120 

 

 

309,160 

 

 

309,230 

 

Noninterest Income

 

 

 

 

 

 

 

Service charges and fees

11,749 

 

 

12,366 

 

 

34,742 

 

 

39,789 

 

Loan servicing income

638 

 

 

821 

 

 

1,980 

 

 

3,888 

 

Trust fees

5,357 

 

 

4,959 

 

 

15,356 

 

 

14,258 

 

Brokerage and insurance commissions

649 

 

 

962 

 

 

1,977 

 

 

2,724 

 

Securities gains, net

1,300 

 

 

2,013 

 

 

4,964 

 

 

7,168 

 

Unrealized gain/ (loss) on equity securities, net

155 

 

 

144 

 

 

604 

 

 

514 

 

Net gains on sale of loans held for sale

8,894 

 

 

4,673 

 

 

21,411 

 

 

12,192 

 

Valuation adjustment on servicing rights

(120)

 

 

(626)

 

 

(1,676)

 

 

(1,579)

 

Income on bank owned life insurance

868 

 

 

881 

 

 

2,533 

 

 

2,668 

 

Other noninterest income

1,726 

 

 

3,207 

 

 

5,779 

 

 

6,556 

 

Total Noninterest Income

31,216 

 

 

29,400 

 

 

87,670 

 

 

88,178 

 

Noninterest Expense

 

 

 

 

 

 

 

Salaries and employee benefits

50,978 

 

 

49,927 

 

 

151,053 

 

 

150,107 

 

Occupancy

6,732 

 

 

6,594 

 

 

19,705 

 

 

19,627 

 

Furniture and equipment

2,500 

 

 

2,862 

 

 

8,601 

 

 

8,690 

 

Professional fees

12,802 

 

 

11,276 

 

 

38,951 

 

 

36,642 

 

Advertising

928 

 

 

2,622 

 

 

4,128 

 

 

7,551 

 

Core deposit and customer relationship intangibles amortization

2,492 

 

 

2,899 

 

 

8,169 

 

 

9,054 

 

Other real estate and loan collection expenses, net

335 

 

 

(89)

 

 

872 

 

 

774 

 

(Gain)/loss on sales/valuations of assets, net

1,763 

 

 

356 

 

 

2,480 

 

 

(20,934)

 

Acquisition, integration and restructuring costs

1,146 

 

 

1,500 

 

 

3,195 

 

 

6,043 

 

Partnership investment in tax credit projects

927 

 

 

3,052 

 

 

1,902 

 

 

4,992 

 

Other noninterest expenses

9,793 

 

 

11,968 

 

 

32,638 

 

 

33,749 

 

Total Noninterest Expense

90,396 

 

 

92,967 

 

 

271,694 

 

 

256,295 

 

Income Before Income Taxes

61,639 

 

 

42,553 

 

 

125,136 

 

 

141,113 

 

Income taxes

13,681 

 

 

7,941 

 

 

27,007 

 

 

29,835 

 

Net Income

47,958 

 

 

34,612 

 

 

98,129 

 

 

111,278 

 

Preferred dividends

(2,437)

 

 

 

 

 

(2,437)

 

 

 

 

Net Income Available to Common Stockholders

$

45,521 

 

 

$

34,612 

 

 

$

95,692 

 

 

$

111,278 

 

Earnings per common share-diluted

$

1.23 

 

 

$

0.94 

 

 

$

2.59 

 

 

$

3.11 

 

Weighted average shares outstanding-diluted

36,995,572 

 

 

36,835,191 

 

 

36,955,970 

 

 

35,817,899 

 


 


HEARTLAND FINANCIAL USA, INC.

CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited)

DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA

 

For the Quarter Ended

 

9/30/2020

 

6/30/2020

 

3/31/2020

 

12/31/2019

 

9/30/2019

Interest Income

 

 

 

 

 

 

 

 

 

Interest and fees on loans

$

102,657 

 

 

$

107,005 

 

 

$

106,414 

 

 

$

107,566 

 

 

$

110,566 

 

Interest on securities:

 

 

 

 

 

 

 

 

 

Taxable

25,016 

 

 

23,362 

 

 

21,731 

 

 

22,581 

 

 

18,567 

 

Nontaxable

3,222 

 

 

3,344 

 

 

2,183 

 

 

2,102 

 

 

2,119 

 

Interest on federal funds sold

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest on deposits with other banks and short-term investments

72 

 

 

54 

 

 

721 

 

 

953 

 

 

2,151 

 

Total Interest Income

130,967 

 

 

133,765 

 

 

131,049 

 

 

133,202 

 

 

133,403 

 

Interest Expense

 

 

 

 

 

 

 

 

 

Interest on deposits

4,962 

 

 

6,134 

 

 

14,582 

 

 

16,401 

 

 

17,982 

 

Interest on short-term borrowings

78 

 

 

61 

 

 

296 

 

 

271 

 

 

250 

 

Interest on other borrowings

3,430 

 

 

3,424 

 

 

3,660 

 

 

3,785 

 

 

3,850 

 

Total Interest Expense

8,470 

 

 

9,619 

 

 

18,538 

 

 

20,457 

 

 

22,082 

 

Net Interest Income

122,497 

 

 

124,146 

 

 

112,511 

 

 

112,745 

 

 

111,321 

 

Provision for credit losses

1,678 

 

 

26,796 

 

 

21,520 

 

 

4,903 

 

 

5,201 

 

Net Interest Income After Provision for Credit Losses

120,819 

 

 

97,350 

 

 

90,991 

 

 

107,842 

 

 

106,120 

 

Noninterest Income

 

 

 

 

 

 

 

 

 

Service charges and fees

11,749 

 

 

10,972 

 

 

12,021 

 

 

12,368 

 

 

12,366 

 

Loan servicing income

638 

 

 

379 

 

 

963 

 

 

955 

 

 

821 

 

Trust fees

5,357 

 

 

4,977 

 

 

5,022 

 

 

5,141 

 

 

4,959 

 

Brokerage and insurance commissions

649 

 

 

595 

 

 

733 

 

 

1,062 

 

 

962 

 

Securities gains, net

1,300 

 

 

2,006 

 

 

1,658 

 

 

491 

 

 

2,013 

 

Unrealized gain/ (loss) on equity securities, net

155 

 

 

680 

 

 

(231)

 

 

11 

 

 

144 

 

Net gains on sale of loans held for sale

8,894 

 

 

7,857 

 

 

4,660 

 

 

3,363 

 

 

4,673 

 

Valuation adjustment on servicing rights

(120)

 

 

 

 

(1,565)

 

 

668 

 

 

(626)

 

Income on bank owned life insurance

868 

 

 

1,167 

 

 

498 

 

 

1,117 

 

 

881 

 

Other noninterest income

1,726 

 

 

1,995 

 

 

2,058 

 

 

2,854 

 

 

3,207 

 

Total Noninterest Income

31,216 

 

 

30,637 

 

 

25,817 

 

 

28,030 

 

 

29,400 

 

Noninterest Expense

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

50,978 

 

 

50,118 

 

 

49,957 

 

 

50,234 

 

 

49,927 

 

Occupancy

6,732 

 

 

6,502 

 

 

6,471 

 

 

5,802 

 

 

6,594 

 

Furniture and equipment

2,500 

 

 

2,993 

 

 

3,108 

 

 

3,323 

 

 

2,862 

 

Professional fees

12,802 

 

 

13,676 

 

 

12,473 

 

 

11,082 

 

 

11,276 

 

Advertising

928 

 

 

995 

 

 

2,205 

 

 

2,274 

 

 

2,622 

 

Core deposit and customer relationship intangibles amortization

2,492 

 

 

2,696 

 

 

2,981 

 

 

2,918 

 

 

2,899 

 

Other real estate and loan collection expenses, net

335 

 

 

203 

 

 

334 

 

 

261 

 

 

(89)

 

(Gain)/loss on sales/valuations of assets, net

1,763 

 

 

701 

 

 

16 

 

 

1,512 

 

 

356 

 

Acquisition, integration and restructuring costs

1,146 

 

 

673 

 

 

1,376 

 

 

537 

 

 

1,500 

 

Partnership investment in tax credit projects

927 

 

 

791 

 

 

184 

 

 

3,038 

 

 

3,052 

 

Other noninterest expenses

9,793 

 

 

11,091 

 

 

11,754 

 

 

11,885 

 

 

11,968 

 

Total Noninterest Expense

90,396 

 

 

90,439 

 

 

90,859 

 

 

92,866 

 

 

92,967 

 

Income Before Income Taxes

61,639 

 

 

37,548 

 

 

25,949 

 

 

43,006 

 

 

42,553 

 

Income taxes

13,681 

 

 

7,417 

 

 

5,909 

 

 

5,155 

 

 

7,941 

 

Net Income

47,958 

 

 

30,131 

 

 

20,040 

 

 

37,851 

 

 

34,612 

 

Preferred dividends

(2,437)

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income Available to Common Stockholders

$

45,521 

 

 

$

30,131 

 

 

$

20,040 

 

 

$

37,851 

 

 

$

34,612 

 

Earnings per common share-diluted

$

1.23 

 

 

$

0.82 

 

 

$

0.54 

 

 

$

1.03 

 

 

$

0.94 

 

Weighted average shares outstanding-diluted

36,995,572 

 

 

36,915,630 

 

 

36,895,591 

 

 

36,840,519 

 

 

36,835,191 

 


 


HEARTLAND FINANCIAL USA, INC.

CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited)

DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA

 

As of

 

9/30/2020

 

6/30/2020

 

3/31/2020

 

12/31/2019

 

9/30/2019

Assets

 

 

 

 

 

 

 

 

 

Cash and due from banks

$

175,284 

 

 

$

211,429 

 

 

$

175,587 

 

 

$

206,607 

 

 

$

243,395 

 

Interest bearing deposits with other banks and short-term investments

156,371 

 

 

242,149 

 

 

64,156 

 

 

172,127 

 

 

204,372 

 

Cash and cash equivalents

331,655 

 

 

453,578 

 

 

239,743 378,734 447,767 Time deposits in other financial institutions3,129 3,128 3,568 3,564 3,711 Securities: Carried at fair value4,950,698 4,126,351 3,488,621 3,312,796 3,020,568 Held to maturity, at cost, less allowance for credit losses88,700 90,579 91,875 91,324 87,965 Other investments, at cost35,940 35,902 35,370 31,321 29,042 Loans held for sale65,969 54,382 22,957 26,748 35,427 Loans: Held to maturity9,099,646 9,246,830 8,374,236 8,367,917 7,971,608 Allowance for credit losses(103,377) (119,937) (97,350) (70,395) (66,222) Loans, net8,996,269 9,126,893 8,276,886 8,297,522 7,905,386 Premises, furniture and equipment, net200,028 198,481 200,960 200,525 199,235 Goodwill446,345 446,345 446,345 446,345 427,097 Core deposit and customer relationship intangibles, net40,520 43,011 45,707 48,688 49,819 Servicing rights, net5,752 5,469 5,220 6,736 6,271 Cash surrender value on life insurance173,111 172,813 172,140 171,625 171,471 Other real estate, net5,050 5,539 6,074 6,914 6,425 Other assets269,498 263,682 259,043 186,755 179,078 Total Assets$15,612,664 $15,026,153 $13,294,509 $13,209,597 $12,569,262 Liabilities and Equity Liabilities Deposits: Demand$5,022,567 $4,831,151 $3,696,974 $3,543,863 $3,581,127 Savings6,742,151 6,810,296 6,366,610 6,307,425 5,770,754 Time1,002,392 1,067,252 1,110,441 1,193,043 1,117,975 Total deposits12,767,110 12,708,699 11,174,025 11,044,331 10,469,856 Short-term borrowings306,706 88,631 121,442 182,626 107,853 Other borrowings524,045 306,459 276,150 275,773 278,417 Accrued expenses and other liabilities203,199 174,987 169,178 128,730 149,293 Total Liabilities13,801,060 13,278,776 11,740,795 11,631,460 11,005,419 Stockholders' Equity Preferred equity110,705 110,705 — — — Common stock36,885 36,845 36,807 36,704 36,696 Capital surplus847,377 844,202 842,780 839,857 838,543 Retained earnings761,211 723,067 700,298 702,502 670,816 Accumulated other comprehensive income/(loss)55,426 32,558 (26,171) (926) 17,788 Total Equity1,811,604 1,747,377 1,553,714 1,578,137 1,563,843 Total Liabilities and Equity$15,612,664 $15,026,153 $13,294,509 $13,209,597 $12,569,262




HEARTLAND FINANCIAL USA, INC.

CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited)

DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA AND FULL TIME EQUIVALENT EMPLOYEE DATA

For the Quarter Ended

9/30/2020

6/30/2020

3/31/2020

12/31/2019

9/30/2019

Average Balances

Assets

$

15,167,225

$

14,391,856

$

13,148,173

$

12,798,770

$

12,293,332

Loans, net of unearned

9,220,666

9,186,913

8,364,220

8,090,476

7,883,678

Deposits

12,650,822

12,288,378

10,971,193

10,704,643

10,253,643

Earning assets

13,868,360

13,103,159

11,891,455

11,580,295

11,102,581

Interest bearing liabilities

8,320,123

8,155,753

7,841,941

7,513,701

7,174,944

Common equity

1,661,381

1,574,902

1,619,682

1,570,258

1,541,369

Total stockholders' equity

1,772,086

1,580,997

1,619,682

1,570,258

1,541,369

Tangible common equity (non-GAAP)(1)

1,172,891

1,083,834

1,125,705

1,087,495

1,062,568

Key Performance Ratios

Annualized return on average assets

1.19

%

0.84

%

0.61

%

1.17

%

1.12

%

Annualized return on average common equity (GAAP)

10.90

7.69

4.98

9.56

8.91

Annualized return on average tangible common equity (non-GAAP)(1)

16.11

11.97

8.00

14.65

13.78

Annualized adjusted return on average tangible common equity (non-GAAP)(1)

16.86

20.02

14.46

16.22

15.76

Annualized ratio of net charge-offs to average loans

0.92

0.11

0.24

0.04

0.14

Annualized net interest margin (GAAP)

3.51

3.81

3.81

3.86

3.98

Annualized net interest margin, fully tax-equivalent (non-GAAP)(1)

3.55

3.85

3.84

3.90

4.02

Efficiency ratio, fully tax-equivalent (non-GAAP)(1)

54.67

55.75

61.82

60.31

60.85

(1) Refer to "Non-GAAP Measures" in this earnings release for additional information on the usage and presentation of these non-GAAP measures, and refer to these financial tables for the reconciliations to the most directly comparable GAAP measures.

For the Quarter Ended
September 30,

For the Nine Months Ended
September 30,

2020

2019

2020

2019

Average Balances

Assets

$

15,167,225

$

12,293,332

$

14,239,151

$

11,760,120

Loans, net of unearned

9,220,666

7,883,678

8,925,016

7,650,090

Deposits

12,650,822

10,253,643

11,972,615

9,803,488

Earning assets

13,868,360

11,102,581

12,957,661

10,598,465

Interest bearing liabilities

8,320,123

7,174,944

8,106,721

6,891,871

Common equity

1,661,381

1,541,369

1,618,811

1,440,754

Total stockholders' equity

1,772,086

1,541,369

1,658,006

1,440,754

Tangible common stockholders' equity

1,172,891

1,062,568

1,127,642

981,449

Key Performance Ratios

Annualized return on average assets

1.19

%

1.12

%

0.90

%

1.27

%

Annualized return on average common equity (GAAP)

10.90

8.91

7.90

10.33

Annualized return on average tangible common equity (non-GAAP)(1)

16.11

13.78

12.10

16.13

Annualized adjusted return on average tangible common equity (non-GAAP)(1)

16.86

15.76

17.08

18.05

Annualized ratio of net charge-offs to average loans

0.92

0.14

0.43

0.13

Annualized net interest margin (GAAP)

3.51

3.98

3.70

4.05

Annualized net interest margin, fully tax-equivalent (non-GAAP)(1)

3.55

4.02

3.74

4.10

Efficiency ratio, fully tax-equivalent (non-GAAP)(1)

54.67

60.85

57.28

63.26

(1) Refer to "Non-GAAP Measures" in this earnings release for additional information on the usage and presentation of these non-GAAP measures, and refer to these financial tables for the reconciliations to the most directly comparable GAAP measures.


HEARTLAND FINANCIAL USA, INC.

CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited)

DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND FULL TIME EQUIVALENT EMPLOYEE DATA

As of and for the Quarter Ended

9/30/2020

6/30/2020

3/31/2020

12/31/2019

9/30/2019

Common Share Data

Book value per common share

$

46.11

$

44.42

$

42.21

$

43.00

$

42.62

Tangible book value per common share (non-GAAP)(1)

$

32.91

$

31.14

$

28.84

$

29.51

$

29.62

Common shares outstanding, net of treasury stock

36,885,390

36,844,744

36,807,217

36,704,278

36,696,190

Tangible common equity ratio (non-GAAP)(1)

8.03

%

7.89

%

8.29

%

8.52

%

8.99

%

Other Selected Trend Information

Effective tax rate

22.20

%

19.75

%

22.77

%

11.99

%

18.66

%

Full time equivalent employees

1,827

1,821

1,817

1,908

1,962

Loans Held to Maturity(2)

Commercial and industrial

$

2,303,646

$

2,364,400

$

2,550,490

$

2,530,809

$

2,388,861

Paycheck Protection Program ("PPP")

1,128,035

1,124,430

Owner occupied commercial real estate

1,494,902

1,433,271

1,431,038

1,472,704

1,392,415

Commercial and business lending

4,926,583

4,922,101

3,981,528

4,003,513

3,781,276

Non-owner occupied commercial real estate

1,659,683

1,543,623

1,551,787

1,495,877

1,378,020

Real estate construction

917,765

1,115,843

1,069,700

1,027,081

980,298

Commercial real estate lending

2,577,448

2,659,466

2,621,487

2,522,958

2,358,318

Total commercial lending

7,504,031

7,581,567

6,603,015

6,526,471

6,139,594

Agricultural and agricultural real estate

508,058

520,773

550,107

565,837

571,596

Residential mortgage

701,899

735,762

792,540

832,277

823,056

Consumer

385,658

408,728

428,574

443,332

437,362

Total loans held to maturity

$

9,099,646

$

9,246,830

$

8,374,236

$

8,367,917

$

7,971,608

Total unfunded loan commitments

$

2,980,484

$

3,065,283

$

2,782,679

$

2,973,732

$

2,659,729

(1) Refer to "Non-GAAP Measures" in this earnings release for additional information on the usage and presentation of these non-GAAP measures, and refer to these financial tables for the reconciliations to the most directly comparable GAAP measures.

(2) In conjunction with the adoption of ASU 2016-13, Heartland reclassified loan balances to more closely align with FDIC codes. All prior period balances have been adjusted.


CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited)

DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA

As of and for the Quarter Ended

9/30/2020

6/30/2020

3/31/2020

12/31/2019

9/30/2019

Allowance for Credit Losses-Loans

Balance, beginning of period

$

119,937

$

97,350

$

70,395

$

66,222

$

63,850

Impact of ASU 2016-13 adoption

12,071

Provision for credit losses

4,741

25,007

19,865

4,903

5,201

Charge-offs

(21,753)

(3,564)

(6,301)

(2,018)

(4,842)

Recoveries

452

1,144

1,320

1,288

2,013

Balance, end of period

$

103,377

$

119,937

$

97,350

$

70,395

$

66,222

Allowance for Unfunded Commitments(1)

Balance, beginning of period

$

17,392

$

15,468

$

248

$

$

Impact of ASU 2016-13 adoption

13,604

Provision for credit losses

(3,062)

1,924

1,616

Balance, end of period

$

14,330

$

17,392

$

15,468

$

$

Allowance for lending related credit losses

$

117,707

$

137,329

$

112,818

$

70,395

$

66,222

Provision for Credit Losses

Provision for credit losses-loans

$

4,741

$

25,007

$

19,865

$

4,903

$

5,201

Provision for credit losses-unfunded commitments

(3,062)

1,924

1,616

Provision for credit losses-held to maturity securities(2)

(1)

(135)

39

Total provision for credit losses

$

1,678

$

26,796

$

21,520

$

4,903

$

5,201

(1) Prior to the adoption of ASU 2016-13, the allowance for unfunded commitments was immaterial and therefore prior periods have not been shown in this table.

(2) Prior to ASU 2016-13, there was no requirement to record provision for credit losses for held to maturity securities.


CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited)

DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA

As of and for the Quarter Ended

9/30/2020

6/30/2020

3/31/2020

12/31/2019

9/30/2019

Asset Quality

Nonaccrual loans

$

79,040

$

91,609

$

79,280

$

76,548

$

72,208

Loans past due ninety days or more

1,681

1,360

4,105

40

Other real estate owned

5,050

5,539

6,074

6,914

6,425

Other repossessed assets

130

29

17

11

13

Total nonperforming assets

$

85,901

$

98,537

$

85,371

$

87,578

$

78,686

Performing troubled debt restructured loans

$

11,818

$

2,636

$

2,858

$

3,794

$

3,199

Nonperforming Assets Activity

Balance, beginning of period

$

98,537

$

85,371

$

87,578

$

78,686

$

86,589

Net loan charge offs

(21,301)

(2,420)

(4,981)

(730)

(2,829)

New nonperforming loans

11,834

26,857

15,796

13,751

6,818

Acquired nonperforming assets

3,262

Reduction of nonperforming loans(1)

(1,994)

(9,911)

(11,937)

(5,859)

(8,861)

Net OREO/repossessed assets sales proceeds and losses

(1,175)

(1,360)

(1,085)

(1,532)

(3,031)

Balance, end of period

$

85,901

$

98,537

$

85,371

$

87,578

$

78,686

Asset Quality Ratios

Ratio of nonperforming loans to total loans

0.89

%

1.01

%

0.95

%

0.96

%

0.91

%

Ratio of nonperforming loans and performing trouble debt restructured loans to total loans

1.02

1.03

0.98

1.01

0.95

Ratio of nonperforming assets to total assets

0.55

0.66

0.64

0.66

0.63

Annualized ratio of net loan charge-offs to average loans

0.92

0.11

0.24

0.04

0.14

Allowance for loan credit losses as a percent of loans

1.14

1.30

1.16

0.84

0.83

Allowance for lending related credit losses as a percent of loans(2)

1.29

1.49

1.35

0.84

0.83

Allowance for loan credit losses as a percent of nonperforming loans

128.07

129.01

122.79

87.28

91.66

Loans delinquent 30-89 days as a percent of total loans

0.17

0.22

0.38

0.33

0.28

(1) Includes principal reductions, transfers to performing status and transfers to OREO.

(2) Prior to the adoption of ASU 2016-13, the reserve for unfunded commitments was immaterial.


HEARTLAND FINANCIAL USA, INC.

CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited)

DOLLARS IN THOUSANDS

For the Quarter Ended

September 30, 2020

June 30, 2020

September 30, 2019

Average
Balance

Interest

Rate

Average
Balance

Interest

Rate

Average
Balance

Interest

Rate

Earning Assets

Securities:

Taxable

$

4,125,700

$

25,016

2.41

%

$

3,375,245

$

23,362

2.78

%

$

2,658,107

$

18,567

2.77

%

Nontaxable(1)

429,710

4,078

3.78

433,329

4,233

3.93

266,933

2,682

3.99

Total securities

4,555,410

29,094

2.54

3,808,574

27,595

2.91

2,925,040

21,249

2.88

Interest on deposits with other banks and short-term investments

215,361

72

0.13

210,347

54

0.10

358,327

2,151

2.38

Federal funds sold

Loans:(2)(3)

Commercial and industrial(1)

2,331,467

27,777

4.74

2,453,066

30,759

5.04

2,469,770

33,410

5.37

PPP loans

1,128,488

7,462

2.63

916,405

6,017

2.64

Owner occupied commercial real estate

1,463,538

17,359

4.72

1,426,019

17,670

4.98

1,364,901

19,422

5.65

Non-owner occupied commercial real estate

1,589,073

18,860

4.72

1,540,958

19,055

4.97

1,217,879

19,009

6.19

Real estate construction

1,023,490

11,628

4.52

1,100,514

12,589

4.60

969,292

13,957

5.71

Agricultural and agricultural real estate

514,442

5,968

4.62

532,668

6,171

4.66

564,729

7,643

5.37

Residential mortgage

774,850

8,915

4.58

795,149

9,586

4.85

859,904

11,007

5.08

Consumer

395,318

5,222

5.26

422,134

5,685

5.42

437,203

6,695

6.08

Less: allowance for loan losses

(123,077)

(102,675)

(64,464)

Net loans

9,097,589

103,191

4.51

9,084,238

107,532

4.76

7,819,214

111,143

5.64

Total earning assets

13,868,360

132,357

3.80

%

13,103,159

135,181

4.15

%

11,102,581

134,543

4.81

%

Nonearning Assets

1,298,865

1,288,697

1,190,751

Total Assets

$

15,167,225

$

14,391,856

$

12,293,332

Interest Bearing Liabilities

Savings

$

6,723,962

$

1,940

0.11

%

$

6,690,504

$

2,372

0.14

%

$

5,643,722

$

13,301

0.94

%

Time deposits

1,035,715

3,022

1.16

1,096,386

3,762

1.38

1,149,064

4,681

1.62

Short-term borrowings

128,451

78

0.24

82,200

61

0.30

102,440

250

0.97

Other borrowings

431,995

3,430

3.16

286,663

3,424

4.80

279,718

3,850

5.46

Total interest bearing liabilities

8,320,123

8,470

0.40

%

8,155,753

9,619

0.47

%

7,174,944

22,082

1.22

Noninterest Bearing Liabilities

Noninterest bearing deposits

4,891,145

4,501,488

3,460,857

Accrued interest and other liabilities

183,871

153,618

116,162

Total noninterest bearing liabilities

5,075,016

4,655,106

3,577,019

Equity

1,772,086

1,580,997

1,541,369

Total Liabilities and Equity

$

15,167,225

$

14,391,856

$

12,293,332

Net interest income, fully tax-equivalent (non-GAAP)(4)

$

123,887

$

125,562

$

112,461

Net interest spread(1)

3.40

%

3.68

%

3.59

%

Net interest income, fully tax-equivalent (non-GAAP)(4) to total earning assets

3.55

%

3.85

%

4.02

%

Interest bearing liabilities to earning assets

59.99

%

62.24

%

64.62

%

(1) Computed on a tax-equivalent basis using an effective tax rate of 21%.

(2) Nonaccrual loans and loans held for sale are included in the average loans outstanding.

(3) In conjunction with the adoption of ASU 2016-13, Heartland reclassified loan balances to more closely align with FDIC codes. All prior period balances have been adjusted.

(4) Refer to "Non-GAAP Measures" in this earnings release for additional information on the usage and presentation of these non-GAAP measures, and refer to these financial tables for the reconciliations to the most directly comparable GAAP measures.

HEARTLAND FINANCIAL USA, INC.

CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited)

DOLLARS IN THOUSANDS

For the Nine Months Ended

September 30, 2020

September 30, 2019

Average
Balance

Interest

Rate

Average
Balance

Interest

Rate

Earning Assets

Securities: