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Heartland Financial USA, Inc. Reports 2017 Fourth Quarter and Annual Results

Highlights

  • Quarterly net income available to common stockholders of $13.7 million, and annual net income available to common stockholders of $75.2 million
  • Diluted earnings per common share of $0.45 for the quarter and $2.65 for the year
  • Recorded a charge to income tax expense of $10.4 million related to the enactment by Congress of the Tax Cuts and Jobs Act, which resulted in a reduction of diluted earnings per common share of $0.35 for the quarter and for the year
  • Net interest margin of 4.14% for the quarter, fully tax-equivalent (non-GAAP)(1) of 4.30%
  • Net interest margin of 4.04% for the year, fully tax-equivalent (non-GAAP)(1) of 4.22%
  • Announced agreement to acquire Signature Bancshares, Inc. of Minnetonka, MN
  • Announced agreement to acquire First Bank Lubbock Bancshares, Inc. of Lubbock, TX
  • Declared and paid a special dividend of $0.07 per common share
       
  Quarter Ended
December 31,
  Year Ended
December 31,
  2017   2016   2017   2016
Net income available to common stockholders (in millions) $ 13.7     $ 19.1     $ 75.2     $ 80.1  
Diluted earnings per common share 0.45     0.74     2.65     3.22  
               
Return on average assets 0.55 %   0.92 %   0.83 %   0.98 %
Return on average common equity 5.50     10.48     8.63     11.80  
Return on average tangible common equity (non-GAAP)(2) 7.60     13.24     11.45     15.15  
Net interest margin 4.14     3.96     4.04     3.95  
Net interest margin, fully tax-equivalent (non-GAAP)(1) 4.30     4.14     4.22     4.13  


"Excluding the fourth quarter tax charge, 2017 was another banner year for Heartland as we reached new heights in earnings and acquired growth.  We enter 2018 with positive momentum, and we are poised for strong performance."

 

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

 

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


DUBUQUE, Iowa, Jan. 29, 2018 (GLOBE NEWSWIRE) -- Heartland Financial USA, Inc. (HTLF) today reported net income available to common stockholders of $13.7 million, or $0.45 per diluted common share, for the quarter ended December 31, 2017, compared to $19.1 million, or $0.74 per diluted common share, for the fourth quarter of 2016. Return on average common equity was 5.50% and return on average assets was 0.55% for the fourth quarter of 2017, compared to 10.48% and 0.92%, respectively, for the same quarter in 2016.

Net income available to common stockholders for the year 2017 was $75.2 million, or $2.65 per diluted common share, compared to $80.1 million, or $3.22 per diluted common share, recorded during the year 2016. Return on average common equity was 8.63% and return on average assets was 0.83% for the year 2017, compared to 11.80% and 0.98%, respectively, for the same period in 2016.

In the fourth quarter of 2017, in response to the passage of the Tax Cuts and Jobs Act by Congress, Heartland recorded a reduction in the value of its deferred tax assets, resulting in a one-time non-cash charge of $10.4 million to income tax expense. Excluding this charge to income tax expense, net income available to common stockholders for the fourth quarter of 2017 was $24.1 million or $0.80 per diluted common share, and for the year 2017, net income available to common shareholders was $85.6 million or $3.01 per diluted common share.

Commenting on Heartland’s fourth quarter and annual results, Lynn B. Fuller, Heartland’s chairman and chief executive officer said, "Excluding the fourth quarter tax charge, 2017 was another banner year for Heartland as we reached new heights in earnings and acquired growth. We enter 2018 with positive momentum, and we are poised for strong performance."

On November 13, 2017, Heartland entered into a definitive merger agreement with Signature Bancshares, Inc., parent company of Signature Bank headquartered in Minnetonka, Minnesota. As of the announcement date, the stock and cash transaction was valued at approximately $53.4 million. Simultaneous with the closing of the transaction, Signature Bank will merge into Heartland's Minnesota-based subsidiary, Minnesota Bank & Trust, and the combined entity will operate as Minnesota Bank & Trust. The transaction is subject to certain potential adjustments and customary closing conditions. The transaction is expected to close in the first quarter of 2018 with a systems conversion planned for the second quarter of 2018. As of December 31, 2017, Signature Bank had total assets of $409.1 million, including gross loans held to maturity of $339.1 million, and deposits of $367.8 million.

On December 12, 2017, Heartland entered into a definitive merger agreement with First Bank Lubbock Bancshares, Inc., parent company of FirstBank & Trust Company, headquartered in Lubbock, Texas. As of the announcement date, the aggregate merger consideration, which is comprised of Heartland common stock and cash, was approximately $185.6 million. The transaction is subject to certain potential adjustments and customary closing conditions. Upon closing of the transaction, FirstBank & Trust Company will become a wholly owned subsidiary of Heartland. The transaction is expected to close in the second quarter of 2018 with a systems conversion planned for the third quarter of 2018. As of December 31, 2017, FirstBank & Trust Company had total assets of $929.6 million, including $669.3 million of gross loans held to maturity, and deposits of $821.9 million.

Net Interest Margin Increases As a Percentage of Average Earning Assets and Increases In Dollars

Net interest margin, expressed as a percentage of average earning assets, was 4.14% (4.30% on a fully tax-equivalent basis) during the fourth quarter of 2017, compared to 4.08% (4.26% on a fully tax-equivalent basis) during the third quarter of 2017 and 3.96% (4.14% on a fully tax-equivalent basis) during the fourth quarter of 2016.

Fuller said, “Heartland’s strong net interest margin stands out among its peers. Our fully-tax-equivalent margin widened for the quarter and annual periods to 4.30 percent and 4.22 percent, respectively.”

Interest income for the fourth quarter of 2017 was $102.1 million, an increase of $19.3 million or 23%, compared to the $82.8 million recorded in the fourth quarter of 2016. The tax-equivalent adjustment, which accounts for income taxes saved on the interest earned on nontaxable securities and loans, was $3.6 million for the fourth quarter of 2017 and $3.5 million for the fourth quarter of 2016. With these adjustments, interest income on a tax-equivalent basis was $105.6 million for the fourth quarter of 2017, an increase of $19.3 million or 22%, compared to $86.3 million for the fourth quarter of 2016. The increase in interest income in the fourth quarter of 2017, as compared to the fourth quarter of 2016, was primarily due to an increase in average earning assets, which totaled $8.89 billion during the fourth quarter of 2017 compared to $7.55 billion during the fourth quarter of 2016, a $1.34 billion or 18% increase. A majority of this growth was attributable to the acquisitions completed in 2017.

Interest expense for the fourth quarter of 2017 was $9.2 million, an increase of $1.6 million or 21% from $7.6 million in the fourth quarter of 2016. Average interest bearing liabilities for the quarter ended December 31, 2017, totaled $5.66 billion, an increase of $457.4 million or 9% from $5.21 billion in the same quarter in 2016. The average interest rate paid on Heartland's interest bearing deposits and borrowings increased 7 basis points from 0.58% in the fourth quarter of 2016 to 0.65% in the fourth quarter of 2017. The average interest rate paid on savings deposits was 0.31% during the fourth quarter of 2017 compared to 0.21% during the fourth quarter of 2016, and the average interest rate paid on time deposits was 0.82% during the fourth quarter of 2017 compared to 0.77% during the fourth quarter of 2016.

Net interest income increased $17.7 million or 24% to $92.9 million in the fourth quarter of 2017 from the $75.2 million recorded in the fourth quarter of 2016. After the tax-equivalent adjustment discussed above, net interest income on a tax-equivalent basis totaled $96.4 million during the fourth quarter of 2017, an increase of $17.7 million or 23% from the $78.7 million recorded during the fourth quarter of 2016.

Noninterest Income and Noninterest Expenses Increase From Fourth Quarter 2016

Noninterest income totaled $25.5 million during the fourth quarter of 2017 compared to $24.5 million during the fourth quarter of 2016, an increase of $1.1 million or 4%. Service charges and fees totaled $9.9 million during the fourth quarter of 2017 compared to $8.1 million during the fourth quarter of 2016, an increase of $1.8 million or 22%. This increase was primarily attributable to a larger demand deposit customer base, a portion of which was the result of the Founders Bancorp acquisition completed in the first quarter of 2017 and the Citywide Banks of Colorado, Inc., acquisition completed in the third quarter of 2017. Gains on sale of loans held for sale totaled $4.3 million during the fourth quarter of 2017 compared to $5.8 million during the fourth quarter of 2016, a decrease of $1.6 million or 27%. Trust fees increased $618,000 or 17% to $4.3 million in the fourth quarter of 2017 compared to $3.7 million for the same quarter of 2016.

For the fourth quarter of 2017, noninterest expenses totaled $77.9 million compared to $69.9 million during the fourth quarter of 2016, an increase of $8.0 million or 11%. The category with the most significant increase was salaries and employee benefits, which increased $4.2 million or 11%. Full time equivalent employees totaled 2,008 as of December 31, 2017, compared to 1,864 as of December 31, 2016. Professional fees totaled $8.5 million for the fourth quarter of 2017, an increase of $1.3 million or 19% from $7.2 million recorded during the fourth quarter of 2016 primarily due to the recently completed and pending acquisitions.

Heartland's effective tax rate was 61.13% for the fourth quarter of 2017 compared to 30.38% for the fourth quarter of 2016. Exclusive of the charge to income tax expense of $10.4 million recorded as a result of the Tax Cuts and Jobs Act, Heartland's effective tax rate was 31.58% for the fourth quarter of 2017. Heartland's effective tax rate was also affected by the level of tax-exempt interest income which, as a percentage of pre-tax income, was 18.78% during the fourth quarter of 2017 compared to 23.69% during the fourth quarter of 2016.

"The passage of the Tax Cuts and Jobs Act required us to revalue our deferred tax assets at the new federal tax rate of 21%. While the $10.4 million non-cash charge to income tax expense negatively impacted earnings for the fourth quarter of 2017, we expect the new legislation will have a positive impact on our future earnings," stated Fuller.

Loans and Deposits Increase Since December 31, 2016

Total assets were $9.81 billion at December 31, 2017, an increase of $1.56 billion or 19% from $8.25 billion at year-end 2016. Included in this increase, at fair value, were $213.9 million of assets acquired in the Founders Bancorp transaction and $1.49 billion of assets acquired in the Citywide Banks of Colorado, Inc. transaction. Exclusive of these transactions, total assets decreased $144.0 million or 2%. Securities represented 25% of total assets at December 31, 2017, compared to 26% at December 31, 2016.

Total loans held to maturity were $6.39 billion at December 31, 2017, compared to $5.35 billion at year-end 2016, an increase of $1.04 billion or 19%. This increase included $1.08 billion of total loans held to maturity, at fair value, acquired in the Founders Bancorp and Citywide Banks of Colorado, Inc. transactions. Exclusive of these transactions, total loans held to maturity decreased $42.1 million during the year 2017. Loan growth for the fourth quarter of 2017 totaled $18.0 million.

Total deposits were $8.15 billion as of December 31, 2017, compared to $6.85 billion at year-end 2016, an increase of $1.30 billion or 19%. This increase included $1.39 billion of deposits, at fair value, acquired in the Founders Bancorp and Citywide Banks of Colorado, Inc. transactions. Exclusive of these transactions, total deposits decreased $92.0 million. Demand deposits totaled $2.98 billion at December 31, 2017, an increase of $781.2 million or 35% from $2.20 billion at year-end 2016. Excluding $626.7 million of demand deposits attributable to the Founders Bancorp and Citywide Banks of Colorado, Inc. transactions, demand deposits increased $154.5 million or 7% since year-end 2016. Savings deposits increased $452.2 million or 12% to $4.24 billion at December 31, 2017, from $3.79 billion at December 31, 2016. Excluding savings deposits of $619.0 million acquired in the Founders Bancorp and Citywide Banks of Colorado, Inc. transactions, savings deposits decreased $166.7 million or 4% since year-end 2016. Time deposits totaled $923.5 million as of December 31, 2017, compared to $857.3 million as of December 31, 2016, an increase of $66.2 million. Exclusive of $145.9 million of time deposits acquired during 2017, time deposits decreased $79.7 million or 9% since December 31, 2016.

"Aided by acquisitions, loans and deposits increased by 19 percent over the previous year. Loans and non-time deposits also grew organically during the second half of 2017. These growth trends provide significant momentum for Heartland going into 2018," commented Fuller.

Nonperforming Assets Remain Constant; Provision for Loan Losses Increases Since December 31, 2016

Nonperforming assets were $74.6 million at December 31, 2017, compared to $74.8 million at December 31, 2016. Exclusive of $8.0 million of nonperforming assets, at fair value, acquired in the Citywide Banks of Colorado, Inc. transaction, nonperforming assets decreased $8.2 million or 11% since year-end 2016. Nonperforming loans were $63.4 million or 0.99% of total loans at December 31, 2017, compared to $64.4 million or 1.20% of total loans at December 31, 2016.

The allowance for loan losses at December 31, 2017, was 0.87% of loans and 87.82% of nonperforming loans compared to 1.02% of loans and 84.37% of nonperforming loans at December 31, 2016. The provision for loan losses was $5.3 million and $2.2 million for the fourth quarter of 2017 and 2016, respectively. Given the size of Heartland's loan portfolio, the level of organic loan growth, acquired loans that move out of the purchase accounting pool, changes in credit quality and the variability that can occur in the factors considered when determining the appropriateness of the allowance for loan losses, Heartland's quarterly provision for loan losses will vary from quarter to quarter.

"In 2017, Heartland successfully executed on its strategy to deliver growth and profitability while maintaining assets below the $10 billion threshold. Closing the year at $9.8 billion in assets affords us 18 months to prepare for the adverse revenue impact of the Dodd Frank Act, which will significantly reduce debit card interchange income. In 2018, we will continue to deliver on our growth strategy by adding Signature Bank and FirstBank & Trust Company and expect to finish the year above $11 billion in total assets," Fuller concluded.

Conference Call Details

Heartland will host a conference call for investors at 5:00 p.m. EDT today. To participate, dial 877-407-0782 at least five minutes before start time. To listen to the live webcast, log on to www.htlf.com at least 15 minutes before start time. A replay will be available until January 28, 2019, 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 $9.8 billion. The company provides banking, mortgage, private client, investment, insurance and consumer finance services to individuals and businesses. Heartland currently has 117 banking locations serving 88 communities in Iowa, Illinois, Wisconsin, New Mexico, Arizona, Montana, Colorado, Minnesota, Kansas, Missouri, Texas and California. Additional information about Heartland Financial USA, Inc. is available at www.htlf.com.

Safe Harbor Statement
This release, and future oral and written statements of Heartland and its management, may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 about Heartland's financial condition, results of operations, plans, objectives, future performance and business. Although these forward-looking statements are based upon the beliefs, expectations and assumptions of Heartland's management, there are a number of factors, many of which are beyond the ability of management to control or predict, that could cause actual results to differ materially from those in its forward-looking statements. These factors, which are detailed in the risk factors in Heartland's Annual Report on Form 10-K for the year ended December 31, 2016, filed with the Securities and Exchange Commission, consist of, among others: (i) the strength of the national economy and the local economies in which we operate; (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 our assets; (v) increased competition in the financial services sector and the inability to attract new customers; (vi) changes in technology and the ability to develop and maintain secure and reliable electronic systems; (vii) the potential impact of acquisitions and Heartland's ability to successfully integrate acquired banks; (viii) the loss of key executives or employees; (ix) changes in consumer spending; (x) unexpected outcomes of existing or new litigation involving Heartland; and (xi) changes in accounting policies and practices. All statements in this release, including forward-looking statements, speak only as of the date they are made, and Heartland undertakes no obligation to update any statement in light of new information or future events.

-FINANCIAL TABLES FOLLOW-

HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
  For the Quarter Ended
December 31,
  For the Year Ended
December 31,
  2017   2016   2017   2016
Interest Income              
Interest and fees on loans $ 86,108     $ 69,848     $ 304,006     $ 278,128  
Interest on securities:              
Taxable 11,119     8,480     38,365     32,858  
Nontaxable 4,401     4,292     19,698     15,085  
Interest on federal funds sold 5         42     12  
Interest bearing deposits with the Federal Reserve Bank and other banks and other short-term investments 435     157     1,547     396  
Total Interest Income 102,068     82,777     363,658     326,479  
Interest Expense              
Interest on deposits 5,313     3,744     18,279     15,939  
Interest on short-term borrowings 180     119     678     1,202  
Interest on other borrowings 3,719     3,754     14,393     14,672  
Total Interest Expense 9,212     7,617     33,350     31,813  
Net Interest Income 92,856     75,160     330,308     294,666  
Provision for loan losses 5,328     2,181     15,563     11,694  
Net Interest Income After Provision for Loan Losses 87,528     72,979     314,745     282,972  
Noninterest Income              
Service charges and fees 9,892     8,128     39,183     31,590  
Loan servicing income 1,400     1,068     5,636     4,501  
Trust fees 4,336     3,718     15,818     14,845  
Brokerage and insurance commissions 1,071     955     4,033     3,869  
Securities gains, net 1,420     1,608     6,973     11,340  
Gains on sale of loans held for sale 4,290     5,840     22,251     39,634  
Valuation adjustment on commercial servicing rights (8 )   8     21     (33 )
Income on bank owned life insurance 733     542     2,772     2,275  
Other noninterest income 2,394     2,588     5,335     5,580  
Total Noninterest Income 25,528     24,455     102,022     113,601  
Noninterest Expense              
Salaries and employee benefits 43,289     39,115     171,407     163,547  
Occupancy 5,892     5,076     22,244     20,398  
Furniture and equipment 3,148     2,944     11,061     10,245  
Professional fees 8,537     7,195     32,879     27,676  
FDIC insurance assessments 985     717     3,595     4,185  
Advertising 2,088     2,274     7,229     6,448  
Core deposit intangibles and customer relationship intangibles amortization 1,825     1,147     6,077     5,630  
Other real estate and loan collection expenses 687     572     2,461     2,443  
(Gain)/loss on sales/valuations of assets, net 833     414     2,475     1,478  
Other noninterest expenses 10,594     10,458     38,247     37,618  
Total Noninterest Expense 77,878     69,912     297,675     279,668  
Income Before Income Taxes 35,178     27,522     119,092     116,905  
Income taxes 21,506     8,360     43,820     36,556  
Net Income 13,672     19,162     75,272     80,349  
Preferred dividends (13 )   (19 )   (58 )   (292 )
Interest expense on convertible preferred debt     3     12     51  
Net Income Available to Common Stockholders $ 13,659     $ 19,146     $ 75,226     $ 80,108  
Earnings per common share-diluted $ 0.45     $ 0.74     $ 2.65     $ 3.22  
Weighted average shares outstanding-diluted 30,209,043     25,800,472     28,425,652     24,873,430  
                       


 
HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
  For the Quarter Ended
  12/31/2017   9/30/2017   6/30/2017   3/31/2017   12/31/2016
Interest Income                  
Interest and fees on loans $ 86,108     $ 82,906     $ 68,094     $ 66,898     $ 69,848  
Interest on securities:                  
Taxable 11,119     10,394     8,599     8,253     8,480  
Nontaxable 4,401     5,086     5,020     5,191     4,292  
Interest on federal funds sold 5     34     3          
Interest bearing deposits with the Federal Reserve Bank and other banks and other short-term investments 435     558     345     209     157  
Total Interest Income 102,068     98,978     82,061     80,551     82,777  
Interest Expense                  
Interest on deposits 5,313     5,073     4,163     3,730     3,744  
Interest on short-term borrowings 180     271     90     137     119  
Interest on other borrowings 3,719     3,790     3,228     3,656     3,754  
Total Interest Expense 9,212     9,134     7,481     7,523     7,617  
Net Interest Income 92,856     89,844     74,580     73,028     75,160  
Provision for loan losses 5,328     5,705     889     3,641     2,181  
Net Interest Income After Provision for Loan Losses 87,528     84,139     73,691     69,387     72,979  
Noninterest Income                  
Service charges and fees 9,892     10,138     9,696     9,457     8,128  
Loan servicing income 1,400     1,161     1,351     1,724     1,068  
Trust fees 4,336     3,872     3,979     3,631     3,718  
Brokerage and insurance commissions 1,071     950     976     1,036     955  
Securities gains, net 1,420     1,679     1,392     2,482     1,608  
Net gains on sale of loans held for sale 4,290     4,997     6,817     6,147     5,840  
Valuation adjustment on commercial servicing rights (8 )   5     19     5     8  
Income on bank owned life insurance 733     766     656     617     542  
Other noninterest income 2,394     1,409     738     794     2,588  
Total Noninterest Income 25,528     24,977     25,624     25,893     24,455  
Noninterest Expense                  
Salaries and employee benefits 43,289     45,225     41,126     41,767     39,115  
Occupancy 5,892     6,223     5,056     5,073     5,076  
Furniture and equipment 3,148     2,826     2,586     2,501     2,944  
Professional fees 8,537     8,450     7,583     8,309     7,195  
FDIC insurance assessments 985     894     909     807     717  
Advertising 2,088     1,358     1,359     2,424     2,274  
Core deposit intangibles and customer relationship intangibles  amortization 1,825     1,863     1,218     1,171     1,147  
Other real estate and loan collection expenses 687     581     365     828     572  
(Gain)/loss on sales/valuations of assets, net 833     1,342     (112 )   412     414  
Other noninterest expenses 10,594     9,997     9,208     8,448     10,458  
Total Noninterest Expense 77,878     78,759     69,298     71,740     69,912  
Income Before Income Taxes 35,178     30,357     30,017     23,540     27,522  
Income taxes 21,506     8,725     8,059     5,530     8,360  
Net Income 13,672     21,632     21,958     18,010     19,162  
Preferred dividends (13 )   (13 )   (13 )   (19 )   (19 )
Interest expense on convertible preferred debt     3     4     5     3  
Net Income Available to Common Stockholders $ 13,659     $ 21,622     $ 21,949     $ 17,996     $ 19,146  
Earnings per common share-diluted $ 0.45     $ 0.72     $ 0.81     $ 0.68     $ 0.74  
Weighted average shares outstanding-diluted 30,209,043     29,910,437     26,972,580     26,627,830     25,800,472  
                             


 
HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
  As Of
  12/31/2017   9/30/2017   6/30/2017   3/31/2017   12/31/2016
Assets                  
Cash and due from banks $ 168,723     $ 180,751     $ 141,100     $ 129,386     $ 151,290  
Interest bearing deposits with the Federal Reserve Bank and other banks and other short-term investments 27,280     70,985     40,676     43,765     7,434  
Cash and cash equivalents 196,003     251,736     181,776     173,151     158,724  
Time deposits in other financial institutions 9,820     19,793     30,241     41,539     2,105  
Securities:                  
Available for sale, at fair value 2,216,753     2,093,385     1,789,441     1,893,528     1,845,864  
Held to maturity, at cost 253,550     256,355     259,586     260,616     263,662  
Other investments, at cost 22,563     23,176     21,094     21,557     21,560  
Loans held for sale 44,560     35,795     48,848     49,009     61,261  
Loans:                  
Held to maturity 6,391,464     6,373,415     5,325,082     5,361,604     5,351,719  
 Allowance for loan losses (55,686 )   (54,885 )   (54,051 )   (54,999 )   (54,324 )
Loans, net 6,335,778     6,318,530     5,271,031     5,306,605     5,297,395  
Premises, furniture and equipment, net 174,301     178,961     163,003     165,425     164,028  
Goodwill 236,615     236,615     141,461     141,461     127,699  
Core deposit intangibles and customer relationship intangibles, net 35,203     37,028     22,850     24,068     22,775  
Servicing rights, net 25,857     26,599     34,736     35,441     35,778  
Cash surrender value on life insurance 142,818     142,073     120,281     117,613     112,615  
Other real estate, net 10,777     13,226     9,269     11,188     9,744  
Other assets 106,141     122,355     111,104     120,644     123,869  
Total Assets $ 9,810,739     $ 9,755,627     $ 8,204,721     $ 8,361,845     $ 8,247,079  
Liabilities and Equity                  
Liabilities                  
Deposits:                  
 Demand $ 2,983,128     $ 3,009,940     $ 2,355,410     $ 2,319,256     $ 2,202,036  
 Savings 4,240,328     4,227,340     3,704,579     3,940,146     3,788,089  
 Time 923,453     994,604     870,180     830,459     857,286  
Total deposits 8,146,909     8,231,884     6,930,169     7,089,861     6,847,411  
Short-term borrowings 324,691     171,871     139,130     155,025     306,459  
Other borrowings 285,011     301,473     281,096     282,051     288,534  
Accrued expenses and other liabilities 62,671     68,715     48,356     53,596     63,759  
Total Liabilities 8,819,282     8,773,943     7,398,751     7,580,533     7,506,163  
Stockholders' Equity                  
Preferred equity 938     938     938     938     1,357  
Common stockholders' equity 990,519     980,746     805,032     780,374     739,559  
Total Equity 991,457     981,684     805,970     781,312     740,916  
Total Liabilities and Equity $ 9,810,739     $ 9,755,627     $ 8,204,721     $ 8,361,845     $ 8,247,079  


HEARTLAND FINANCIAL USA, INC
CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
  For the Quarter Ended
December 31,
  For the Year Ended
December 31,
  2017   2016   2017   2016
Average Balances              
Assets $ 9,807,621     $ 8,280,042     $ 9,009,625     $ 8,172,576  
Loans, net of unearned 6,343,923     5,473,001     5,847,061     5,488,112  
Deposits 8,293,006     6,928,978     7,590,232     6,813,781  
Earning assets 8,891,432     7,551,997     8,181,914     7,455,217  
Interest bearing liabilities 5,663,816     5,206,393     5,426,725     5,266,519  
Common stockholders' equity 986,026     726,455     871,683     678,989  
Total stockholders' equity 986,964     727,812     872,707     697,493  
Tangible common stockholders' equity(1) 713,018     575,412     657,020     528,712  
               
Key Performance Ratios              
Annualized return on average assets 0.55 %   0.92 %   0.83 %   0.98 %
Annualized return on average common equity (GAAP) 5.50 %   10.48 %   8.63 %   11.80 %
Annualized return on average tangible common equity (non-GAAP)(2) 7.60 %   13.24 %   11.45 %   15.15 %
Annualized ratio of net charge-offs to average loans 0.28 %   0.18 %   0.24 %   0.11 %
Annualized net interest margin (GAAP) 4.14 %   3.96 %   4.04 %   3.95 %
Annualized net interest margin, fully tax-equivalent (non-GAAP)(3) 4.30 %   4.14 %   4.22 %   4.13 %
Efficiency ratio, fully tax-equivalent (4) 62.26 %   66.29 %   65.40 %   66.25 %
 
Reconciliation of Return on Average Tangible Common Equity (non-GAAP)(5)              
Net income available to common shareholders (GAAP) $ 13,659     $ 19,146     $ 75,226     $ 80,108  
               
Average common stockholders' equity (GAAP) $ 986,026     $ 726,455     $ 871,683     $ 678,989  
  Less average goodwill 236,615     127,699     184,554     125,724  
  Less average core deposit intangibles and customer relationship
intangibles, net
36,393     23,344     30,109     24,553  
Average tangible common equity (non-GAAP) $ 713,018     $ 575,412     $ 657,020     $ 528,712  
Annualized return on average common equity (GAAP) 5.50 %   10.48 %   8.63 %   11.80 %
Annualized return on average tangible common equity (non-GAAP) 7.60 %   13.24 %   11.45 %   15.15 %
               
Reconciliation of Annualized Net Interest Margin,
Fully Tax-Equivalent (non-GAAP)(6)
             
Net Interest Income (GAAP) $ 92,856     $ 75,160     $ 330,308     $ 294,666  
  Plus tax-equivalent adjustment(7) 3,558     3,511     15,139     12,919  
Net interest income - tax-equivalent (non-GAAP)

$ 96,414     $ 78,671     $ 345,447     $ 307,585  
               
Average earning assets $ 8,891,432     $ 7,551,997     $ 8,181,914     $ 7,455,217  
               
Annualized net interest margin (GAAP) 4.14 %   3.96 %   4.04 %   3.95 %
Annualized net interest margin, fully tax-equivalent (non-GAAP)

4.30 %   4.14 %   4.22 %   4.13 %
 
(1) Calculated as common stockholders' equity less goodwill and core deposit intangibles, net.
(2) Refer to the "Reconciliation of Return on Average Tangible Common Equity (non-GAAP)" table.
(3) Refer to the "Reconciliation of Annualized Net Interest Margin, Fully Tax-Equivalent (non-GAAP)" table.
(4) Refer to the "Reconciliation of Non-GAAP Measure-Efficiency Ratio" table that follows for details of this non-GAAP measure.
(5) Return on average tangible common equity is net income available to common stockholders divided by average common stockholders' equity less goodwill and core deposit intangibles, net. This financial measure is included as it is considered to be a critical metric to analyze and evaluate financial condition and capital strength. This measure should not be considered a substitute for operating results determined in accordance with GAAP.
(6) Annualized net interest margin, fully tax-equivalent is a non-GAAP measure, which adjusts net interest income for the tax-favored status of certain loans and securities. Management believes this measure enhances the comparability of net interest income arising from taxable and tax-exempt sources. This measure should not be considered a substitute for operating results determined in accordance with GAAP.
(7) Computed on a tax-equivalent basis using an effective tax rate of 35%.
 


 
HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
  For the Quarter Ended
  12/31/2017   9/30/2017   6/30/2017   3/31/2017   12/31/2016
Average Balances                  
Assets $ 9,807,621     $ 9,639,844     $ 8,333,301     $ 8,233,510     $ 8,280,042  
Loans, net of unearned 6,343,923     6,286,264     5,376,826     5,365,654     5,473,001  
Deposits 8,293,006     8,100,028     7,050,126     6,896,821     6,928,978  
Earning assets 8,891,432     8,726,228     7,586,256     7,502,496     7,551,997  
Interest bearing liabilities 5,663,816     5,697,713     5,146,243     5,190,955     5,206,393  
Common stockholders' equity 986,026     954,511     791,039     751,671     726,455  
Total stockholders' equity 986,964     955,449     791,977     752,958     727,812  
Tangible common stockholders' equity(1) 713,018     691,464     625,929     596,006     575,412  
                   
Key Performance Ratios                  
Annualized return on average assets 0.55 %   0.89 %   1.06 %   0.89 %   0.92 %
Annualized return on average common equity (GAAP) 5.50 %   8.99 %   11.13 %   9.71 %   10.48 %
Annualized return on average tangible common equity (non-GAAP)(2) 7.60 %   12.41 %   14.07 %   12.25 %   13.24 %
Annualized ratio of net charge-offs to average loans 0.28 %   0.31 %   0.14 %   0.22 %   0.18 %
Annualized net interest margin (GAAP) 4.14 %   4.08 %   3.94 %   3.95 %   3.96 %
Annualized net interest margin, fully tax-equivalent (non-GAAP)(3) 4.30 %   4.26 %   4.14 %   4.16 %   4.14 %
Efficiency ratio, fully tax-equivalent(4) 62.26 %   64.54 %   65.61 %   69.95 %   66.29 %
                   
Reconciliation of Return on Average Tangible Common Equity (non-GAAP)(5)                  
Net income available to common shareholders (GAAP) $ 13,659     $ 21,622     $ 21,949     $ 17,996     $ 19,146  
                   
Average common stockholders' equity (GAAP) $ 986,026     $ 954,511     $ 791,039     $ 751,671     $ 726,455  
   Less average goodwill 236,615     226,097     141,461     132,440     127,699  
  Less average core deposit intangibles and customer relationship
intangibles, net
36,393     36,950     23,649     23,225     23,344  
Average tangible common equity (non-GAAP) $ 713,018     $ 691,464     $ 625,929     $ 596,006     $ 575,412  
Annualized return on average common equity (GAAP) 5.50 %   8.99 %   11.13 %   9.71 %   10.48 %
Annualized return on average tangible common equity (non-GAAP) 7.60 %   12.41 %   14.07 %   12.25 %   13.24 %
                   
Reconciliation of Annualized Net Interest Margin, Fully Tax-Equivalent (non-GAAP)(6)                  
Net Interest Income (GAAP) $ 92,856     $ 89,844     $ 74,580     $ 73,028     $ 75,160  
   Plus tax-equivalent adjustment(7) 3,558     3,925     3,796     3,860     3,511  
Net interest income, fully tax-equivalent (non-GAAP) $ 96,414     $ 93,769     $ 78,376     $ 76,888     $ 78,671  
                   
Average earning assets $ 8,891,432     $ 8,726,228     $ 7,586,256     $ 7,502,496     $ 7,551,997  
                   
Annualized net interest margin (GAAP) 4.14 %   4.08 %   3.94 %   3.95 %   3.96 %
Annualized net interest margin, fully tax-equivalent (non-GAAP) 4.30 %   4.26 %   4.14 %   4.16 %   4.14 %
                   
(1) Calculated as common stockholders' equity less goodwill and core deposit intangibles, net.
(2) Refer to the "Reconciliation of Return on Average Tangible Common Equity (non-GAAP)" table.
(3) Refer to the "Reconciliation of Annualized Net Interest Margin, Fully Tax-Equivalent (non-GAAP)" table.
(4) Refer to the "Reconciliation of Non-GAAP Measure-Efficiency Ratio" table that follows for details of this non-GAAP measure.
(5) Return on average tangible common equity is net income available to common stockholders divided by average common stockholders' equity less goodwill and core deposit intangibles, net. This financial measure is included as it is considered to be a critical metric to analyze and evaluate financial condition and capital strength. This measure should not be considered a substitute for operating results determined in accordance with GAAP.
(6) Annualized net interest margin, fully tax-equivalent is a non-GAAP measure, which adjusts net interest income for the tax-favored status of certain loans and securities. Management believes this measure enhances the comparability of net interest income arising from taxable and tax-exempt sources. This measure should not be considered a substitute for operating results determined in accordance with GAAP.
(7) Computed on a tax-equivalent basis using an effective tax rate of 35%.
 


 
HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
  For the Quarter Ended
December 31,
  For the Year Ended
December 31,
Reconciliation of Non-GAAP Measure-Efficiency Ratio(1) 2017   2016   2017   2016
Net interest income $ 92,856     $ 75,160     $ 330,308     $ 294,666  
Tax-equivalent adjustment(2) 3,558     3,511     15,139     12,919  
Fully tax-equivalent net interest income 96,414     78,671     345,447     307,585  
Noninterest income 25,528     24,455     102,022     113,601  
Securities gains, net (1,420 )   (1,608 )   (6,973 )   (11,340 )
Gain on extinguishment of debt (1,280 )       (1,280 )    
Adjusted income $ 119,242     $ 101,518     $ 439,216     $ 409,846  
               
Total noninterest expenses $ 77,878     $ 69,912     $ 297,675     $ 279,668  
Less:              
Core deposit intangibles and customer relationship intangibles amortization 1,825     1,147     6,077     5,630  
Partnership investment in tax credit projects 984     1,051     1,860     1,051  
(Gain)/loss on sales/valuations of assets, net 833     414     2,475     1,478  
Adjusted noninterest expenses $ 74,236     $ 67,300     $ 287,263     $ 271,509  
               
Efficiency ratio, fully tax-equivalent (non-GAAP) 62.26 %   66.29 %  ...