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

Monday, 26. October 2020 21:00

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

§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%
§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
§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 share1.23   0.94   2.59   3.11  
        
Return on average assets1.19 % 1.12 % 0.90 % 1.27 %
Return on average common equity10.90   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 margin3.51   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, Heartland’s 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 Heartland’s 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
IndustryTotal 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 trade405,118   3.70   407,030   3.64   367,727   3.30  
Retail properties363,457   3.32   369,782   3.31   408,506   3.66  
Restaurants and bars248,053   2.26   255,701   2.29   247,239   2.22  
Oil and gas52,766   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 AIM’s adjusted tangible common equity as a result of gains in AIM’s “available-for-sale” securities portfolio, an increase in AIM’s retained earnings and gains in AIM’s “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 Heartland’s 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 Bank’s 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 Heartland’s 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 Heartland’s 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 management’s 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 Heartland’s 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. Heartland’s 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 pandemic’s severity, its duration and the extent of its impact on Heartland’s 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 Heartland’s 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 Heartland’s 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 Heartland’s 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 Heartland’s financial results, is included in Heartland’s 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:       
Taxable25,016   18,567   70,109   50,566  
Nontaxable3,222   2,119   8,749   7,766  
Interest on federal funds sold—   —   —    
Interest on deposits with other banks and short-term investments72   2,151   847   5,742  
Total Interest Income130,967   133,403   395,781   381,127  
Interest Expense       
Interest on deposits4,962   17,982   25,678   47,333  
Interest on short-term borrowings78   250   435   1,477  
Interest on other borrowings3,430   3,850   10,514   11,333  
Total Interest Expense8,470   22,082   36,627   60,143  
Net Interest Income122,497   111,321   359,154   320,984  
Provision for credit losses1,678   5,201   49,994   11,754  
Net Interest Income After Provision for Credit Losses120,819   106,120   309,160   309,230  
Noninterest Income       
Service charges and fees11,749   12,366   34,742   39,789  
Loan servicing income638   821   1,980   3,888  
Trust fees5,357   4,959   15,356   14,258  
Brokerage and insurance commissions649   962   1,977   2,724  
Securities gains, net1,300   2,013   4,964   7,168  
Unrealized gain/ (loss) on equity securities, net155   144   604   514  
Net gains on sale of loans held for sale8,894   4,673   21,411   12,192  
Valuation adjustment on servicing rights(120)  (626)  (1,676)  (1,579) 
Income on bank owned life insurance868   881   2,533   2,668  
Other noninterest income1,726   3,207   5,779   6,556  
Total Noninterest Income31,216   29,400   87,670   88,178  
Noninterest Expense       
Salaries and employee benefits50,978   49,927   151,053   150,107  
Occupancy6,732   6,594   19,705   19,627  
Furniture and equipment2,500   2,862   8,601   8,690  
Professional fees12,802   11,276   38,951   36,642  
Advertising928   2,622   4,128   7,551  
Core deposit and customer relationship intangibles amortization2,492   2,899   8,169   9,054  
Other real estate and loan collection expenses, net335   (89)  872   774  
(Gain)/loss on sales/valuations of assets, net1,763   356   2,480   (20,934) 
Acquisition, integration and restructuring costs1,146   1,500   3,195   6,043  
Partnership investment in tax credit projects927   3,052   1,902   4,992  
Other noninterest expenses9,793   11,968   32,638   33,749  
Total Noninterest Expense90,396   92,967   271,694   256,295  
Income Before Income Taxes61,639   42,553   125,136   141,113  
Income taxes13,681   7,941   27,007   29,835  
Net Income47,958   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-diluted36,995,572   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:         
Taxable25,016   23,362   21,731   22,581   18,567  
Nontaxable3,222   3,344   2,183   2,102   2,119  
Interest on federal funds sold—   —   —   —   —  
Interest on deposits with other banks and short-term investments72   54   721   953   2,151  
Total Interest Income130,967   133,765   131,049   133,202   133,403  
Interest Expense         
Interest on deposits4,962   6,134   14,582   16,401   17,982  
Interest on short-term borrowings78   61   296   271   250  
Interest on other borrowings3,430   3,424   3,660   3,785   3,850  
Total Interest Expense8,470   9,619   18,538   20,457   22,082  
Net Interest Income122,497   124,146   112,511   112,745   111,321  
Provision for credit losses1,678   26,796   21,520   4,903   5,201  
Net Interest Income After Provision for Credit Losses120,819   97,350   90,991   107,842   106,120  
Noninterest Income         
Service charges and fees11,749   10,972   12,021   12,368   12,366  
Loan servicing income638   379   963   955   821  
Trust fees5,357   4,977   5,022   5,141   4,959  
Brokerage and insurance commissions649   595   733   1,062   962  
Securities gains, net1,300   2,006   1,658   491   2,013  
Unrealized gain/ (loss) on equity securities, net155   680   (231)  11   144  
Net gains on sale of loans held for sale8,894   7,857   4,660   3,363   4,673  
Valuation adjustment on servicing rights(120)    (1,565)  668   (626) 
Income on bank owned life insurance868   1,167   498   1,117   881  
Other noninterest income1,726   1,995   2,058   2,854   3,207  
Total Noninterest Income31,216   30,637   25,817   28,030   29,400  
Noninterest Expense         
Salaries and employee benefits50,978   50,118   49,957   50,234   49,927  
Occupancy6,732   6,502   6,471   5,802   6,594  
Furniture and equipment2,500   2,993   3,108   3,323   2,862  
Professional fees12,802   13,676   12,473   11,082   11,276  
Advertising928   995   2,205   2,274   2,622  
Core deposit and customer relationship intangibles amortization2,492   2,696   2,981   2,918   2,899  
Other real estate and loan collection expenses, net335   203   334   261   (89) 
(Gain)/loss on sales/valuations of assets, net1,763   701   16   1,512   356  
Acquisition, integration and restructuring costs1,146   673   1,376   537   1,500  
Partnership investment in tax credit projects927   791   184   3,038   3,052  
Other noninterest expenses9,793   11,091   11,754   11,885   11,968  
Total Noninterest Expense90,396   90,439   90,859   92,866   92,967  
Income Before Income Taxes61,639   37,548   25,949   43,006   42,553  
Income taxes13,681   7,417   5,909   5,155   7,941  
Net Income47,958   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-diluted36,995,572   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 investments156,371   242,149   64,156   172,127   204,372  
Cash and cash equivalents331,655   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 unearned9,220,666   9,186,913   8,364,220   8,090,476   7,883,678  
Deposits12,650,822   12,288,378   10,971,193   10,704,643   10,253,643  
Earning assets13,868,360   13,103,159   11,891,455   11,580,295   11,102,581  
Interest bearing liabilities8,320,123   8,155,753   7,841,941   7,513,701   7,174,944  
Common equity1,661,381   1,574,902   1,619,682   1,570,258   1,541,369  
Total stockholders' equity1,772,086   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 assets1.19 % 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 loans0.92   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 unearned9,220,666   7,883,678   8,925,016   7,650,090  
Deposits12,650,822   10,253,643   11,972,615   9,803,488  
Earning assets13,868,360   11,102,581   12,957,661   10,598,465  
Interest bearing liabilities8,320,123   7,174,944   8,106,721   6,891,871  
Common equity1,661,381   1,541,369   1,618,811   1,440,754  
Total stockholders' equity1,772,086   1,541,369   1,658,006   1,440,754  
Tangible common stockholders' equity1,172,891   1,062,568   1,127,642   981,449  
        
Key Performance Ratios       
Annualized return on average assets1.19 % 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 loans0.92   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 stock36,885,390   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 rate22.20 % 19.75 % 22.77 % 11.99 % 18.66 %
Full time equivalent employees1,827   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 estate1,494,902   1,433,271   1,431,038   1,472,704   1,392,415  
Commercial and business lending4,926,583   4,922,101   3,981,528   4,003,513   3,781,276  
Non-owner occupied commercial real estate1,659,683   1,543,623   1,551,787   1,495,877   1,378,020  
Real estate construction917,765   1,115,843   1,069,700   1,027,081   980,298  
Commercial real estate lending2,577,448   2,659,466   2,621,487   2,522,958   2,358,318  
Total commercial lending7,504,031   7,581,567   6,603,015   6,526,471   6,139,594  
Agricultural and agricultural real estate508,058   520,773   550,107   565,837   571,596  
Residential mortgage701,899   735,762   792,540   832,277   823,056  
Consumer385,658   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 losses4,741   25,007   19,865   4,903   5,201  
Charge-offs(21,753)  (3,564)  (6,301)  (2,018)  (4,842) 
Recoveries452   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 more1,681   1,360   —   4,105   40  
Other real estate owned5,050   5,539   6,074   6,914   6,425  
Other repossessed assets130   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 loans11,834   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 loans0.89 % 1.01 % 0.95 % 0.96 % 0.91 %
Ratio of nonperforming loans and performing trouble debt restructured loans to total loans1.02   1.03   0.98   1.01   0.95  
Ratio of nonperforming assets to total assets0.55   0.66   0.64   0.66   0.63  
Annualized ratio of net loan charge-offs to average loans0.92   0.11   0.24   0.04   0.14  
Allowance for loan credit losses as a percent of loans1.14   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 loans128.07   129.01   122.79   87.28   91.66  
Loans delinquent 30-89 days as a percent of total loans0.17   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 securities4,555,410   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 investments215,361   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 loans1,128,488   7,462   2.63   916,405   6,017   2.64   —   —   —  
Owner occupied commercial real estate1,463,538   17,359   4.72   1,426,019   17,670   4.98   1,364,901   19,422   5.65  
Non-owner occupied commercial real estate1,589,073   18,860   4.72   1,540,958   19,055   4.97   1,217,879   19,009   6.19  
Real estate construction1,023,490   11,628   4.52   1,100,514   12,589   4.60   969,292   13,957   5.71  
Agricultural and agricultural real estate514,442   5,968   4.62   532,668   6,171   4.66   564,729   7,643   5.37  
Residential mortgage774,850   8,915   4.58   795,149   9,586   4.85   859,904   11,007   5.08  
Consumer395,318   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 loans9,097,589   103,191   4.51   9,084,238   107,532   4.76   7,819,214   111,143   5.64  
Total earning assets13,868,360   132,357   3.80 % 13,103,159   135,181   4.15 % 11,102,581   134,543   4.81 %
Nonearning Assets1,298,865       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 deposits1,035,715   3,022   1.16   1,096,386   3,762   1.38   1,149,064   4,681   1.62  
Short-term borrowings128,451   78   0.24   82,200   61   0.30   102,440   250   0.97  
Other borrowings431,995   3,430   3.16   286,663   3,424   4.80   279,718   3,850   5.46  
Total interest bearing liabilities8,320,123   8,470   0.40 % 8,155,753   9,619   0.47 % 7,174,944   22,082   1.22  
Noninterest Bearing Liabilities                 
Noninterest bearing deposits4,891,145       4,501,488       3,460,857      
Accrued interest and other liabilities183,871       153,618       116,162      
Total noninterest bearing liabilities5,075,016       4,655,106       3,577,019      
Equity1,772,086       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 assets59.99 %     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:           
Taxable$3,546,471   $70,109   2.64 % $2,350,120   $50,566   2.88 %
Nontaxable(1)384,026   11,074   3.85   327,150   9,830   4.02  
Total securities3,930,497   81,183   2.76   2,677,270   60,396   3.02  
Interest bearing deposits with other banks and other short-term investments202,390   847   0.56   334,191   5,742   2.30  
Federal funds sold—   —   —   185     2.89  
Loans:(2)(3)           
Commercial and industrial(1)2,463,546   90,990   4.93   2,394,412   95,790   5.35  
PPP loans683,262   13,479   2.64   —   —   —  
Owner occupied commercial real estate1,440,981   53,610   4.97   1,309,573   55,612   5.68  
Non-owner occupied commercial real estate1,534,293   57,445   5.00   1,169,295   54,115   6.19  
Real estate construction1,056,493   37,062   4.69   914,911   39,023   5.70  
Agricultural and agricultural real estate533,290   19,178   4.80   562,407   22,311   5.30  
Residential mortgage796,497   28,922   4.85   873,088   32,422   4.96  
Consumer416,654   17,002   5.45   426,404   19,532   6.12  
Less: allowance for loan losses(100,242)  —   —   (63,271)  —   —  
Net loans8,824,774   317,688   4.81   7,586,819   318,805   5.62  
Total earning assets12,957,661   399,718   4.12 % 10,598,465   384,947   4.86 %
Nonearning Assets1,281,490       1,161,655      
Total Assets$14,239,151       $11,760,120      
Interest Bearing Liabilities           
Savings$6,564,582   $14,394   0.29 % $5,376,999   $35,279   0.88 %
Time deposits1,092,698   11,284   1.38 % 1,109,302   12,054   1.45  
Short-term borrowings117,526   435   0.49 % 129,928   1,477   1.52  
Other borrowings331,915   10,514   4.23 % 275,642   11,333   5.50  
Total interest bearing liabilities8,106,721   36,627   0.60 % 6,891,871   60,143   1.17 %
Noninterest Bearing Liabilities           
Noninterest bearing deposits4,315,335       3,317,187      
Accrued interest and other liabilities159,089       110,308      
Total noninterest bearing liabilities4,474,424       3,427,495      
Stockholders' Equity1,658,006       1,440,754      
Total Liabilities and Stockholders' Equity$14,239,151       $11,760,120      
Net interest income, fully tax-equivalent (non-GAAP)(4)  $363,091       $324,804    
Net interest spread(1)    3.52 %     3.69 %
Net interest income, fully tax-equivalent (non-GAAP)(4) to total earning assets    3.74 %     4.10 %
Interest bearing liabilities to earning assets62.56 %     65.03 %    
            
(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.
SELECTED FINANCIAL DATA - SUBSIDIARY BANKS (Unaudited)
DOLLARS IN THOUSANDS
 As of and For the Quarter Ended
 9/30/20206/30/20203/31/202012/31/20199/30/2019
Total Assets     
Citywide Banks$2,639,516  $2,546,942  $2,271,889  $2,294,512  $2,335,811  
New Mexico Bank & Trust2,002,663  1,899,194  1,670,097  1,763,037  1,607,498  
Dubuque Bank and Trust Company1,838,260  1,849,035  1,591,312  1,646,105  1,547,014  
Illinois Bank & Trust1,500,012  1,470,000  1,295,984  1,301,172  839,721  
Bank of Blue Valley1,424,261  1,380,159  1,222,358  1,307,688  1,346,342  
First Bank & Trust1,289,187  1,256,710  1,163,181  1,137,714  1,158,320  
Wisconsin Bank & Trust1,262,069  1,203,108  1,079,582  1,090,412  1,032,016  
Premier Valley Bank1,042,437  1,031,899  889,280  903,220  888,401  
Arizona Bank & Trust1,039,253  970,775  866,107  784,240  695,236  
Minnesota Bank & Trust1,007,548  951,236  778,724  718,724  718,035  
Rocky Mountain Bank617,169  590,764  576,245  532,191  528,094  
Total Deposits     
Citywide Banks$2,163,051  $2,147,642  $1,868,404  $1,829,217  $1,895,894  
New Mexico Bank & Trust1,747,527  1,698,584  1,451,041  1,565,070  1,413,170  
Dubuque Bank and Trust Company1,591,561  1,496,559  1,363,164  1,290,756  1,275,131  
Illinois Bank & Trust1,307,513  1,318,866  1,139,945  1,167,905  768,267  
Bank of Blue Valley1,142,910  1,138,818  1,008,362  1,016,743  1,091,243  
First Bank & Trust936,366  959,886  900,399  893,419  903,410  
Wisconsin Bank & Trust1,011,843  1,050,766  920,168  941,109  880,217  
Premier Valley Bank855,913  869,165  706,479  707,814  719,141  
Arizona Bank & Trust886,174  865,430  754,464  693,975  578,694  
Minnesota Bank & Trust804,045  820,199  648,560  574,369  600,175  
Rocky Mountain Bank533,429  519,029  496,465  468,314  462,825  


 

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
Reconciliation of Annualized Return on Average Tangible Common Equity (non-GAAP)         
Net income available to common stockholders (GAAP)$45,521   $30,131   $20,040   $37,851   $34,612  
Plus core deposit and customer relationship intangibles amortization, net of tax(1)1,969   2,130   2,355   2,305   2,291  
Net income available to common stockholders excluding intangible amortization (non-GAAP)$47,490   $32,261   $22,395   $40,156   $36,903  
          
Average common equity (GAAP)$1,661,381   $1,574,902   $1,619,682   $1,570,258   $1,541,369  
Less average goodwill446,345   446,345   446,345   433,374   427,097  
Less average core deposit and customer relationship intangibles, net42,145   44,723   47,632   49,389   51,704  
Average tangible common equity (non-GAAP)$1,172,891   $1,083,834   $1,125,705   $1,087,495   $1,062,568  
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)16.11 % 11.97 % 8.00 % 14.65 % 13.78 %
          
Reconciliation of Annualized Net Interest Margin, Fully Tax-Equivalent (non-GAAP)         
Net Interest Income (GAAP)$122,497   $124,146   $112,511   $112,745   $111,321  
Plus tax-equivalent adjustment(1)1,390   1,416   1,131   1,109   1,140  
Net interest income, fully tax-equivalent (non-GAAP)$123,887   $125,562   $113,642   $113,854   $112,461  
          
Average earning assets$13,868,360   $13,103,159   $11,891,455   $11,580,295   $11,102,581  
          
Annualized net interest margin (GAAP)3.51 % 3.81 % 3.81 % 3.86 % 3.98 %
Annualized net interest margin, fully tax-equivalent (non-GAAP)3.55   3.85   3.84   3.90   4.02  
Purchase accounting discount amortization on loans included in annualized net interest margin0.10   0.16   0.09   0.17   0.23  


Reconciliation of Tangible Book Value Per Common Share (non-GAAP)         
Common equity (GAAP)$1,700,899   $1,636,672   $1,553,714   $1,578,137   $1,563,843  
Less goodwill446,345   446,345   446,345   446,345   427,097  
Less core deposit and customer relationship intangibles, net40,520   43,011   45,707   48,688   49,819  
Tangible common equity (non-GAAP)$1,214,034   $1,147,316   $1,061,662   $1,083,104   $1,086,927  
          
Common shares outstanding, net of treasury stock36,885,390   36,844,744   36,807,217   36,704,278   36,696,190  
Common equity (book value) per share (GAAP)$46.11   $44.42   $42.21   $43.00   $42.62  
Tangible book value per common share (non-GAAP)$32.91   $31.14   $28.84   $29.51   $29.62  
          
Reconciliation of Tangible Common Equity Ratio (non-GAAP)         
Tangible common equity (non-GAAP)$1,214,034   $1,147,316   $1,061,662   $1,083,104   $1,086,927  
          
Total assets (GAAP)$15,612,664   $15,026,153   $13,294,509   $13,209,597   $12,569,262  
Less goodwill446,345   446,345   446,345   446,345   427,097  
Less core deposit and customer relationship intangibles, net40,520   43,011   45,707   48,688   49,819  
Total tangible assets (non-GAAP)$15,125,799   $14,536,797   $12,802,457   $12,714,564   $12,092,346  
Tangible common equity ratio (non-GAAP)8.03 % 7.89 % 8.29 % 8.52 % 8.99 %
          
(1) Computed on a tax-equivalent basis using an effective tax rate of 21%.

 


         



HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
Reconciliation of Efficiency Ratio (non-GAAP)For the Quarter Ended
9/30/2020 6/30/2020 3/31/2020 12/31/2019 9/30/2019
Net interest income (GAAP)$122,497   $124,146   $112,511   $112,745   $111,321  
Tax-equivalent adjustment(1)1,390   1,416   1,131   1,109   1,140  
Fully tax-equivalent net interest income123,887   125,562   113,642   113,854   112,461  
Noninterest income31,216   30,637   25,817   28,030   29,400  
Securities gains, net(1,300)  (2,006)  (1,658)  (491)  (2,013) 
Unrealized (gain)/loss on equity securities, net(155)  (680)  231   (11)  (144) 
Gain on extinguishment of debt—   —   —   —   (375) 
Valuation adjustment on servicing rights120   (9)  1,565   (668)  626  
Adjusted revenue (non-GAAP)$153,768   $153,504   $139,597   $140,714   $139,955  
          
Total noninterest expenses (GAAP)$90,396   $90,439   $90,859   $92,866   $92,967  
Less:         
Core deposit and customer relationship intangibles amortization2,492   2,696   2,981   2,918   2,899  
Partnership investment in tax credit projects927   791   184   3,038   3,052  
(Gain)/loss on sales/valuation of assets, net1,763   701   16   1,512   356  
Acquisition, integration and restructuring costs1,146   673   1,376   537   1,500  
Adjusted noninterest expenses (non-GAAP)$84,068   $85,578   $86,302   $84,861   $85,160  
Efficiency ratio, fully tax-equivalent (non-GAAP)54.67 % 55.75 % 61.82 % 60.31 % 60.85 %
          
Acquisition, integration and restructuring costs         
Salaries and employee benefits$—   $122   $44   $—   $100  
Occupancy—   —   —   11   —  
Furniture and equipment496   15   24     (4) 
Professional fees476   505   996   462   855  
Advertising    89   31   115  
(Gain)/loss on sales/valuations of assets, net—   —   —   —   —  
Other noninterest expenses166   27   223   26   434  
Total acquisition, integration and restructuring costs$1,146   $673   $1,376   $537   $1,500  
After tax impact on diluted earnings per share(1)$0.02   $0.01   $0.03   $0.01   $0.03  
          
Reconciliation of Adjusted Net Income Available to Common Stockholders and Adjusted Diluted EPS (non-GAAP)         
Net income available to common stockholders (GAAP)$45,521   $30,131   $20,040   $37,851   $34,612  
Provision for credit losses(1)1,325   21,169   17,001   3,873   4,109  
Acquisition, integration and restructuring costs(1)905   532   1,087   424   1,185  
Adjusted net income available to common stockholders (non-GAAP)$47,751   $51,832   $38,128   $42,148   $39,906  
Diluted earnings per common share (GAAP)$1.23   $0.82   $0.54   $1.03   $0.94  
Adjusted diluted earnings per common share (non-GAAP)$1.29   $1.40   $1.03   $1.14   $1.08  
          
Reconciliation of Annualized Adjusted Return on Average Tangible Common Equity (non-GAAP)         
Adjusted net income available to common stockholders (non-GAAP)$47,751   $51,832   $38,128   $42,148   $39,906  
Plus core deposit and customer relationship intangibles amortization, net of tax(1)1,969   2,130   2,355   2,305   2,291  
Adjusted net income available to common stockholders excluding intangible amortization (non-GAAP)$49,720   $53,962   $40,483   $44,453   $42,197  
Average tangible common equity (non-GAAP)$1,172,891   $1,083,834   $1,125,705   $1,087,495   $1,062,568  
Annualized adjusted return on average tangible common equity (non-GAAP)16.86 % 20.02 % 14.46 % 16.22 % 15.76 %
          
(1) Computed on a tax-equivalent basis using an effective tax rate of 21%.


 

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
Reconciliation of Annualized Return on Average Tangible Common Equity (non-GAAP)       
Net income available to common stockholders (GAAP)$45,521   $34,612   $95,692   $111,278  
Plus core deposit and customer relationship intangibles amortization, net of tax(1)1,969   2,291   6,454   7,153  
Net income available to common stockholders excluding intangible amortization (non-GAAP)$47,490   $36,903   $102,146   $118,431  
        
Average common equity (GAAP)$1,661,381   $1,541,369   $1,618,811   $1,440,754  
Less average goodwill446,345   427,097   446,345   409,932  
Less average core deposit and customer relationship intangibles, net42,145   51,704   44,824   49,373  
Average tangible common equity (non-GAAP)$1,172,891   $1,062,568   $1,127,642   $981,449  
Annualized return on average common equity (GAAP)10.90 % 8.91 % 7.90 % 10.33 %
Annualized return on average tangible common equity (non-GAAP)16.11 % 13.78 % 12.10 % 16.13 %
        
Reconciliation of Annualized Net Interest Margin, Fully Tax-Equivalent (non-GAAP)       
Net Interest Income (GAAP)$122,497   $111,321   $359,154   $320,984  
Plus tax-equivalent adjustment(1)1,390   1,140   3,937   3,820  
Net interest income, fully tax-equivalent (non-GAAP)$123,887   $112,461   $363,091   $324,804  
        
Average earning assets$13,868,360   $11,102,581   $12,957,661   $10,598,465  
        
Annualized net interest margin (GAAP)3.51 % 3.98 % 3.70 % 4.05 %
Annualized net interest margin, fully tax-equivalent (non-GAAP)3.55   4.02   3.74   4.10  
Purchase accounting discount amortization on loans included in annualized net interest margin0.10   0.23   0.12   0.19  
        
(1) Computed on a tax-equivalent basis using an effective tax rate of 21%.

 

HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
Reconciliation of Efficiency Ratio (non-GAAP)For the Quarter Ended September 30, For the Nine Months Ended
September 30,
2020 2019 2020 2019
Net interest income (GAAP)$122,497   $111,321   $359,154   $320,984  
Tax-equivalent adjustment(1)1,390   1,140   3,937   3,820  
Fully tax-equivalent net interest income123,887   112,461   363,091   324,804  
Noninterest income31,216   29,400   87,670   88,178  
Securities gains, net(1,300)  (2,013)  (4,964)  (7,168) 
Unrealized (gain)/loss on equity securities, net(155)  (144)  (604)  (514) 
Gain on extinguishment of debt—   (375)  —   (375) 
Valuation adjustment on servicing rights120   626   1,676   1,579  
Adjusted revenue (non-GAAP)$153,768   $139,955   $446,869   $406,504  
        
Total noninterest expenses (GAAP)$90,396   $92,967   $271,694   $256,295  
Less:       
Core deposit and customer relationship intangibles amortization2,492   2,899   8,169   9,054  
Partnership investment in tax credit projects927   3,052   1,902   4,992  
(Gain)/loss on sales/valuation of assets, net1,763   356   2,480   (20,934) 
Acquisition, integration and restructuring costs1,146   1,500   3,195   6,043  
Adjusted noninterest expenses (non-GAAP)$84,068   $85,160   $255,948   $257,140  
Efficiency ratio, fully tax-equivalent (non-GAAP)54.67 % 60.85 % 57.28 % 63.26 %
        
Acquisition, integration and restructuring costs       
Salaries and employee benefits$—   $100   $166   $816  
Occupancy—   —   —   1,204  
Furniture and equipment496   (4)  535   80  
Professional fees476   855   1,977   1,903  
Advertising  115   101   172  
(Gain)/loss on sales/valuations of assets, net—   —   —   1,003  
Other noninterest expenses166   434   416   865  
Total acquisition, integration and restructuring costs$1,146   $1,500   $3,195   $6,043  
After tax impact on diluted earnings per share(1)$0.02   $0.03   $0.07   $0.13  
        
Reconciliation of Adjusted Net Income Available to Common Stockholders and Adjusted Diluted EPS (non-GAAP)       
Net income available to common stockholders (GAAP)$45,521   $34,612   $95,692   $111,278  
Provision for credit losses(1)1,325   4,109   39,495   9,286  
Acquisition, integration and restructuring costs(1)905   1,185   2,524   4,774  
Adjusted net income available common stockholders (non-GAAP)$47,751   $39,906   $137,711   $125,338  
Diluted earnings per common share (GAAP)$1.23   $0.94   $2.59   $3.11  
Adjusted diluted earnings per common share (non-GAAP)$1.29   $1.08   $3.73   $3.50  
        
Reconciliation of Annualized Adjusted Return on Average Tangible Common Equity (non-GAAP)       
Adjusted net income available to common stockholders (non-GAAP)$47,751   $39,906   $137,711   $125,338  
Plus core deposit and customer relationship intangibles amortization, net of tax(1)1,969   2,291   6,454   7,153  
Adjusted net income available to common stockholders excluding intangible amortization (non-GAAP)$49,720   $42,197   $144,165   $132,491  
Average tangible common equity (non-GAAP)$1,172,891   $1,062,568   $1,127,642   $981,449  
Annualized adjusted return on average tangible common equity (non-GAAP)16.86 % 15.76 % 17.08 % 18.05 %
 
(1) Computed on a tax-equivalent basis using an effective tax rate of 21%.

 

HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA 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
PPP loan balances$1,128,035   $1,124,430   $—   $—   $—  
Average PPP loan balances1,128,488   916,405   —   —   —  
          
PPP fee income$4,542   $3,655   $—   $—   $—  
PPP interest income2,920   2,362   —   —   —  
Total PPP interest income $7,462   $6,017   $—   $—   $—  
          
Selected ratios excluding PPP loans and interest income          
Annualized net interest margin (GAAP)3.59 % 3.90 % — % — % — %
Annualized net interest margin, fully tax-equivalent (non-GAAP)(1) 3.64   3.95   —   —   —  
Ratio of nonperforming loans to total loans1.01   1.14   —   —   —  
Ratio of nonperforming loans and performing trouble debt restructured loans to total loans1.16   1.18   —   —   —  
Ratio of nonperforming assets to total assets0.59   0.71   —   —   —  
Annualized ratio of net loan charge-offs to average loans1.05   0.12   —   —   —  
Allowance for loan credit losses as a percent of loans1.30   1.48   —   —   —  
Allowance for lending related credit losses as a percent of loans1.48   1.69   —   —   —  
Loans delinquent 30-89 days as a percent of total loans0.19   0.26   —   —   —  
          
After tax impact of PPP interest income on diluted earnings per share(1)$0.16   $0.13   $—   $—   $—  


 As of and For the Nine Months Ended
 September 30, 2020 September 30, 2019
PPP loan balances$1,128,035   $—  
PPP average loan balances683,262   —  
    
PPP fee income$8,197   $—  
PPP interest income5,282   —  
Total PPP interest income$13,479   $—  
    
Selected ratios excluding PPP loans and interest income   
Annualized net interest margin (GAAP)3.76 % — %
Annualized net interest margin, fully tax-equivalent (non-GAAP)(1) 3.80   —  
Annualized ratio of net loan charge-offs to average loans0.47   —  
    
After tax impact of PPP interest income on diluted earnings per share(1)$0.29   $—  
    
(1) Computed on a tax-equivalent basis using an effective tax rate of 21%.
    

About Heartland Financial
About Heartland Financial USA, Inc. Heartland is a diversified financial services company with assets of $15.61 billion. The Company provides banking, mortgage, private client, investment, treasury management, card services, and insurance 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 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 Heartland’s 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 Heartland’s 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 management’s 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:

  • The impact of the COVID-19 pandemic on Heartland and U.S. and global financial markets;
  • Measures enacted by the U.S. federal and state governments and adopted by private businesses in response to the COVID-19 pandemic;
  • The deterioration of the U.S. economy in general and in the local economies in which Heartland conducts its operations; 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;
  • Civil unrest in the communities that Heartland serves;
  • Levels of unemployment in the geographic areas in which Heartland operates;
  • Real estate market values in these geographic areas;
  • Future natural disasters and increases to flood insurance premiums;
  • The effects of past and any future terrorist threats and attacks, acts of war or threats thereof;
  • The level of prepayments on loans and mortgage-backed securities;
  • Legislative and regulatory changes affecting banking, tax, securities, insurance and monetary and financial matters;
  • Monetary and fiscal policies of the U.S. Government including policies of the U.S. Department of Treasury and the Federal Reserve Board;
  • The quality or composition of the loan and investment portfolios of Heartland;
  • Demand for loan products and financial services, deposit flows and competition in Heartland’s market areas;
  • Changes in accounting principles and guidelines;
  • The timely development and acceptance of products and services, including products and services offered through alternative delivery channels such as the Internet;
  • The ability of Heartland to implement technological changes as planned and to develop and maintain secure and reliable electronic delivery systems;
  • Heartland’s ability to retain key executives and employees; and
  • 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 pandemic’s severity, its duration and the extent of its impact on Heartland’s 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 Heartland’s 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 Heartland’s 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 Heartland’s 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 Heartland’s financial results, is included in Heartland’s filings with the SEC.

###

Contact
EVP, Chief Financial Officer
Bryan R. McKeag
BMcKeag@htlf.com
563.589.1994

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