Toggle SGML Header (+)


Section 1: 8-K (8-K)

htlf-20200427
0000920112false00009201122020-04-272020-04-27



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 of 15(d) of The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported)April 27, 2020

Heartland Financial USA, Inc.
(Exact name of Registrant as specified in its charter)
Commission File Number: 001-15393

Delaware42-1405748
(State or other jurisdiction of incorporation) (I.R.S. Employer Identification Number)

1398 Central Avenue
Dubuque,Iowa52001
(Address of principal executive offices)

(563) 589-2100
(Registrant's telephone number, including area code)

Not Applicable
(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2 below):

 Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $1.00 per shareHTLFNasdaq Stock Market

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2). Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.



Item 2.02 Results of Operations and Financial Condition

On April 27, 2020, Heartland Financial USA, Inc. issued a press release announcing its earnings and an investor presentation with supplemental information for the quarter ended March 31, 2020. A copy of the press release and slide presentation are furnished as Exhibit 99.1 and Exhibit 99.2, respectively.

Item 9.01 Financial Statements and Exhibits

(d) Exhibits
99.1 Press Release dated April 27, 2020.

99.2 Investor Presentation dated April 27, 2020.

104  Cover Page Interactive Data File (embedded within the Inline XBRL document)





SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Date: April 27, 2020HEARTLAND FINANCIAL USA, INC.
By:/s/ Bryan R. McKeag
Bryan R. McKeag
Executive Vice President
Chief Financial Officer



(Back To Top)

Section 2: EX-99.1 (EX-99.1)

Document


403750019_htlf20logo20color1.jpg
403750019_news20logo1.jpg

CONTACT:FOR IMMEDIATE RELEASE
Bryan R. McKeagApril 27, 2020
Executive Vice President
Chief Financial Officer
(563) 589-1994
bmckeag@htlf.com

HEARTLAND FINANCIAL USA, INC. REPORTS QUARTERLY RESULTS AS OF MARCH 31, 2020

Highlights and Developments
§Quarterly net income of $20.0 million or $0.54 per diluted common share in comparison with $31.5 million or $0.91 per diluted common share for the first quarter of the prior year
§
Net interest margin of 3.81%, fully tax-equivalent net interest margin (non-GAAP)(1) of 3.84%
§
Return on average common equity of 4.98% and return on average tangible common equity (non-GAAP)(1) of 8.00%
§
Efficiency ratio (non-GAAP)(1) for the first quarter of 2020 of 61.82% compared to 64.93% for the first quarter of 2019
§
Tangible common equity ratio (non-GAAP)(1) of 8.29% compared to 8.60% at March 31, 2019
§Total commercial loan growth of $76.5 million and non-time deposit growth of $212.3 million for the first quarter of 2020
§Entered into a definitive merger agreement with AIM Bancshares, Inc.
§Adopted ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326)"
Three Months Ended March 31,
20202019
Net income available to common stockholders (in millions)$20.0  $31.5  
Diluted earnings per common share0.54  0.91  
Return on average assets0.61 %1.13 %
Return on average common equity4.98  9.56  
Return on average tangible common equity (non-GAAP)(1)
8.00  15.24  
Net interest margin3.81  4.12  
Net interest margin, fully tax-equivalent (non-GAAP)(1)
3.84  4.18  
Efficiency ratio, fully-tax equivalent (non-GAAP)(1)
61.82  64.93  

(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 had a solid first quarter, which included $76.5 million of commercial loan growth, non-time deposit growth of $212.3 million, strong net interest margin, and a significantly improved efficiency ratio compared to the same quarter last year."
Bruce K. Lee, president and chief executive officer, Heartland Financial USA, Inc.



Dubuque, Iowa, Monday, April 27, 2020-Heartland Financial USA, Inc. (NASDAQ: HTLF) today reported the following results:
net income available to common stockholders of $20.0 million, or $0.54 per diluted common share, for the quarter ended March 31, 2020, compared to $31.5 million, or $0.91 per diluted common share, for the first quarter of 2019.
excluding provision for credit losses and acquisition, integration and restructuring costs (tax-effected), adjusted net income available to common stockholders (non-GAAP) was $38.1 million, or $1.03 of adjusted earnings per diluted common share (non-GAAP) for the first quarter of 2020, compared to $35.6 million (non-GAAP), or $1.03 per adjusted earnings per diluted common share (non-GAAP), for the first quarter of 2019.
return on average common equity was 4.98% and return on average assets was 0.61% for the first quarter of 2020, compared to 9.56% and 1.13%, respectively, for the same quarter in 2019.
return on average tangible common equity (non-GAAP) of 8.00% and adjusted return on average tangible common equity (non-GAAP) of 14.46% for the first quarter of 2020 compared to 15.24% and 17.11%, respectively, for the first quarter of 2019.

Responses to COVID-19

Heartland has implemented its pandemic management plan to protect employees and enable business continuity while providing relief and support to customers and communities facing challenges from the impacts of COVID-19, which included the following:
enabled approximately 2/3rds of employees to work from home and canceled all in-person events and meetings;
expanded time off program and enhanced health care coverage for COVID-19 related testing and treatments;
implemented a 20% wage premium for customer-facing and call center employees;
closed most bank lobbies and implemented drive-through only for in-person transactions;
announced a series of relief programs for consumers and small business customers, which include waiving account maintenance fees, ATM fees and early redemption penalties on CDs, and deferrals on loan payments;
provided direct loans to customers via participation in the Small Business Administration's Paycheck Protection Program ("PPP"), and
contributed $1.2 million to support non-profit organizations in communities served by Heartland and its subsidiary banks.

"The health and safety of our employees is our top priority. Our customers and communities are relying on us now more than ever, and we are there for them with our full line of products and services to help navigate these unprecedented economic times," Lee said.

The 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 started working with customers to modify the terms of certain existing loans.




The following table shows the total exposure, which includes loans outstanding and unfunded loan commitments as of March 31, 2020, to customer segment profiles that Heartland believes will be more heavily impacted by COVID-19, dollars in thousands:

Industry
Total Exposure(1)
% of Gross Exposure(1)
Lodging$498,596  4.47 %
Multi-family properties436,931  3.92  
Retail real estate408,506  3.66  
Retail trade367,764  3.30  
Restaurants and bars247,239  2.22  
Nursing homes/assisted living126,267  1.13  
Oil and gas56,302  0.50  
Childcare facilities48,455  0.43  
Gaming34,790  0.31  
(1) Total loans outstanding and unfunded commitments

As of April 23, 2020, loan modifications have been made on approximately $556.2 million of loans in Heartland's portfolio. Approximately 69% of these modifications are interest only for 90 days, and the remainder are primarily principal and interest deferments for 90 days. Heartland expects modifications to increase in the near term.

Through April 23, 2020, Heartland's subsidiary banks have processed approximately 3,000 PPP applications and disbursed $1.02 billion of PPP loans. Heartland expects to process approximately $300-$500 million of additional loans due to the announced expansion of the PPP on April 24, 2020.

The ultimate impact of the COVID-19 pandemic on Heartland's financial condition and results of operations will depend on risks and uncertainties, such as 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.

Recent 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:
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;
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
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.

The allowance calculation under CECL is an expected loss model, which encompasses expected losses over the life of the portfolio, including expected losses due to changes in economic conditions and forecasts, such as those caused by the COVID-19 pandemic. Heartland recorded $21.5 million of provision for credit losses in the first quarter of 2020, primarily due to a deteriorating economic outlook resulting in an increase in expected credit losses.

Entered into a Definitive Merger Agreement with AIM Bancshares, Inc.
On February 11, 2020, Heartland entered into a definitive merger agreement to acquire AIM Bancshares, Inc. and its wholly-owned subsidiary, AimBank, headquartered in Levelland, Texas. In the transaction, all issued and outstanding shares of AIM Bancshares stock will be exchanged for shares of Heartland common stock and cash. Shareholders of AIM Bancshares will receive 207.0 shares of Heartland common stock and $685.00 of cash for each share of AIM Bancshares. 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 merger agreement. Simultaneous with the closing of the transaction, AimBank will merge with and into Heartland's Lubbock, Texas-based subsidiary,



First Bank and Trust. The transaction is expected to close in the third quarter of 2020 with a systems conversion planned for the fourth quarter of 2020. As of March 31, 2020, AimBank had total assets of approximately $1.82 billion, which included $1.16 billion of gross loans outstanding, and approximately $1.58 billion of deposits.

"We continue to move forward with our acquisition of AIM Bancshares, Inc., and we are excited to welcome them to the Heartland family in the third quarter," commented Lynn B. Fuller, Heartland's executive operating chairman.

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

Net interest margin, expressed as a percentage of average earning assets, was 3.81% (3.84% on a fully tax-equivalent basis, non-GAAP) during the first quarter of 2020, compared to 3.86% (3.90% on a fully tax-equivalent basis, non-GAAP) during the fourth quarter of 2019 and 4.12% (4.18% on a fully tax-equivalent basis, non-GAAP) during the first quarter of 2019.

Total interest income for the first quarter of 2020 was $131.0 million compared to $120.7 million recorded in the first quarter of 2019, an increase of $10.3 million or 9%. The tax-equivalent adjustment for income taxes saved on the interest earned on nontaxable securities and loans was $1.1 million for the first quarter of 2020 and $1.4 million for the first quarter of 2019. With these adjustments, total interest income on a tax-equivalent basis was $132.2 million for the first quarter of 2020, an increase of $10.0 million or 8%, compared to total interest income on a tax-equivalent basis of $122.1 million for the first quarter of 2019.

Average earning assets of $11.89 billion increased $1.76 billion or 17% from the first quarter of 2019, which was primarily attributable to recent acquisitions. The average rate on earning assets decreased 42 basis points to 4.47% for the first quarter of 2020 compared to 4.89% for the same quarter in 2019, which was primarily due to recent decreases in market interest rates.

Total interest expense for the first quarter of 2020 was $18.5 million, an increase of $772,000 or 4% from $17.8 million in the first quarter of 2019, which was the result of the increase in average interest bearing liabilities. The average interest rate paid on Heartland's interest bearing liabilities decreased to 0.95% for the first quarter of 2020 compared to 1.09% for the first quarter of 2019, which was primarily due to recent decreases in market interest rates.

Average interest bearing deposits increased $1.27 billion or 21% to $7.42 billion for the quarter ended March 31, 2020, from $6.16 billion in the same quarter in 2019, which was primarily attributable to recent acquisitions. The average interest rate paid on Heartland's interest bearing deposits decreased 8 basis points to 0.79% for the first quarter of 2020 compared to 0.87% for the same quarter in 2019.

Average borrowings decreased $48.4 million or 10% to $417.8 million during the first quarter of 2020 from $466.2 million during the same quarter in 2019. The average interest rate paid on Heartland's borrowings was 3.81% for the first quarter of 2020 compared to 3.96% in the first quarter of 2019.

Net interest income was $112.5 million during the first quarter of 2020 compared to $103.0 million during the first quarter of 2019, an increase of $9.6 million or 9%. After the tax-equivalent adjustment discussed above, net interest income on a tax-equivalent basis totaled $113.6 million during the first quarter of 2020 compared to net interest income on a tax-equivalent basis of $104.4 million during the first quarter of 2019, an increase of $9.3 million or 9%.

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

Total noninterest income was $25.8 million during the first quarter of 2020 compared to $26.7 million during the first quarter of 2019, a decrease of $900,000 or 3%. Significant changes by noninterest income category were:
Loan servicing income totaled $963,000 for the first quarter of 2020 compared to $1.7 million for the first quarter of 2019, which was a decrease of $766,000 or 44%. The decrease was attributable to the sale of the mortgage servicing rights of Dubuque Bank and Trust Company in the second quarter of 2019.
Net gains on sale of loans held for sale totaled $4.7 million during the first quarter of 2020 compared to $3.2 million during the same quarter in 2019, which was an increase of $1.5 million or 47%, primarily due to an increase in residential mortgage loan refinancing activity in response to the recent declines in mortgage interest rates.



The valuation adjustment on servicing rights increased $976,000 to $1.6 million in the first quarter of 2020 from $589,000 in the first quarter of 2019, primarily due to recent declines in mortgage interest rates.

For the first quarter of 2020, total noninterest expense was $90.9 million compared to $88.2 million during the first quarter of 2019, an increase of $2.6 million or 3%. Significant changes by noninterest expense category were:
Professional fees totaled $12.5 million for the first quarter of 2020 compared to $11.0 million for the same quarter of 2019, which was an increase of $1.5 million or 13%, which was primarily due to recent technology upgrades.
Net loss on sales/valuations of assets increased $3.0 million as losses totaled $16,000 in the first quarter of 2020 compared to gains of $3.0 million in the first quarter of 2019. The gains recorded in 2019 were primarily attributable to the branch sales at Wisconsin Bank & Trust.
Other noninterest expenses totaled $11.8 million for the first quarter of 2020 compared to $10.7 million for the first quarter of 2019, which was an increase of $1.1 million or 10%, which was primarily attributable to recent acquisitions.

Heartland's effective tax rate was 22.77% for the first quarter of 2020 compared to 20.88% for the first quarter of 2019. The following items impacted Heartland's first quarter 2020 and 2019 tax calculations:
Solar energy tax credits of $76,000 and $314,000 for the first quarter of 2020 and 2019, respectively.
Federal low-income housing tax credits of $195,000 and $281,000 for the first quarter of 2020 and 2019, respectively.
New markets tax credits of $75,000 during the first quarter of 2020 compared to $0 in the first quarter of 2019.
Tax-exempt interest income as a percentage of pre-tax income increased to 16.40% during the first quarter of 2020 compared to 13.35% for the first quarter of 2019.
Tax expense of $25,000 in the first quarter of 2020 compared to a tax benefit of $336,000 in the first quarter of 2019 resulting from the vesting of restricted stock unit awards.

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

Total assets were $13.29 billion at March 31, 2020, an increase of $84.9 million or 1% from $13.21 billion at year-end 2019. Securities represented 27% and 26% of total assets at March 31, 2020, and December 31, 2019, respectively.

Total loans held to maturity were $8.37 billion at both March 31, 2020, and December 31, 2019. Loan changes by category were:
Commercial and business lending, which includes commercial and industrial and owner occupied commercial real estate loans, decreased $22.0 million or 1% to $3.98 billion at March 31, 2020, compared to $4.00 billion at December 31, 2019.
Commercial real estate lending, which includes non-owner occupied commercial real estate and construction loans, increased $98.5 million or 4% to $2.62 billion at March 31, 2020 from $2.52 billion at year-end 2019.
Agricultural and agricultural real estate loans totaled $550.1 million at March 31, 2020, compared to $565.8 million at December 31, 2019, which was a decrease of $15.7 million or 3%.
Residential mortgage loans decreased $39.7 million or 5% to $792.5 million at March 31, 2020, from $832.3 million at December 31, 2019.
Consumer loans decreased $14.8 million or 3% to $428.6 million at March 31, 2020, compared to $443.3 million at December 31, 2019.

Total deposits were $11.17 billion as of March 31, 2020, compared to $11.04 billion at year-end 2019, an increase of $129.7 million or 1%. Deposit changes by category were:
Demand deposits increased $153.1 million or 4% to $3.70 billion at March 31, 2020, compared to $3.54 billion at December 31, 2019.
Savings deposits increased $59.2 million or 1% to $6.37 billion at March 31, 2020, from $6.31 billion at December 31, 2019.



Time deposits decreased $82.6 million or 7% to $1.11 billion at March 31, 2020 from $1.19 billion at December 31, 2019.

Provision and Allowance for Credit Losses for Loans Increase Since December 31, 2019

Heartland's allowance for credit losses for loans totaled $82.5 million after adoption of CECL on January 1, 2020, which was an increase of $12.1 million since year-end 2019. Heartland recorded provision for credit losses for loans of $19.9 million in the first quarter of 2020 compared to $1.6 million in the first quarter of 2019. The allowance for credit losses for loans totaled $97.4 million and $70.4 million at March 31, 2020, and December 31, 2019, respectively.

The allowance for credit losses for loans at March 31, 2020, was 1.16% of loans compared to 0.84% of loans at December 31, 2019. Net charge offs for the first quarter of 2020 totaled $5.0 million compared to $959,000 for the first quarter of 2019, which was a $4.0 million increase. The increase was primarily attributable to a $3.2 million charge off on a commercial and industrial loan for which a full reserve had been previously established.

Heartland's allowance for unfunded commitments totaled $13.9 million after the adoption of CECL on January 1, 2020. Prior to January 1, 2020, the allowance for unfunded commitments was immaterial. Heartland recorded $1.6 million of provision for credit losses related to unfunded loan commitments in the first quarter of 2020. At March 31, 2020, the allowance for unfunded commitments was $15.5 million. At March 31, 2020, Heartland had $2.78 billion of unfunded loan commitments.

The total allowance for credit related lending losses was $112.8 million at March 31, 2020, which was 1.35% of loans as of March 31, 2020.
Nonperforming Assets Decrease Since December 31, 2019

Nonperforming assets decreased $2.2 million or 3% to $85.4 million or 0.64% of total assets at March 31, 2020, compared to $87.6 million or 0.66% of total assets at December 31, 2019. Nonperforming loans were $79.3 million or 0.95% of total loans at March 31, 2020, compared to $80.7 million or 0.96% of total loans at December 31, 2019. At March 31, 2020, loans delinquent 30-89 days were 0.38% of total loans compared to 0.33% of total loans at December 31, 2019. Heartland expects that nonperforming assets and delinquent loans will increase through 2020 as customers’ ability to repay loans is adversely impacted by economic disruptions caused by the COVID-19 pandemic.

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:

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.
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.



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.
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.
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.
Adjusted net income 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 and earnings per share results excluding the variability of credit loss provisions and acquisition, integration and restructuring costs.
Annualized adjusted return on average tangible common equity is adjusted net income excluding intangible amortization calculated as (1) net income excluding (A) tax-effected provision for credit losses, (B) tax-effected acquisition, integration and restructuring costs and (C) 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.
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. 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 April 26, 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 $13.29 billion. The company provides banking, mortgage, private client, investment, insurance and consumer finance services to individuals and businesses. Heartland currently has 114 banking locations serving 83 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 below and in the risk factors in Heartland's Annual Report on Form 10-K filed with the Securities and Exchange Commission, contained, among others: (i) the strength of the local and national economy, including to the extent that they are affected by the COVID-19 pandemic and related restrictions on business and consumer activities; (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 as they impact the company's general business, including government programs offering relief from the COVID-19 pandemic; (iv) changes in interest rates and prepayment rates of the company's assets; (v) increased competition in the financial services sector and the inability to attract new customers; (vi) changes in technology and the ability to develop and maintain secure and reliable electronic systems; (vii) the potential impact of acquisitions and Heartland's ability to successfully integrate acquired banks; (viii) the loss of key executives or employees; (ix) changes in consumer spending, including changes resulting from the COVID-19 pandemic; (x) unexpected outcomes of existing or new litigation involving the company, including claims resulting from our participation in and execution of government programs related to the COVID-19 pandemic; and (xi) changes in accounting policies and practices.




The COVID-19 pandemic is adversely affecting Heartland and its customers, counterparties, employees and third-party service providers. The 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. Continued deterioration in general business and economic conditions or turbulence in domestic or global financial markets could adversely affect Heartland’s net income and 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 also predict that a recession or depression may result from the continued spread of COVID-19 and the economic consequences.

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 Three Months Ended
March 31,
20202019
Interest Income
Interest and fees on loans$106,414  $100,456  
Interest on securities:
Taxable21,731  15,876  
Nontaxable2,183  3,093  
Interest on federal funds sold—   
Interest on deposits with other banks and short-term investments
721  1,292  
Total Interest Income131,049  120,721  
Interest Expense
Interest on deposits14,582  13,213  
Interest on short-term borrowings296  889  
Interest on other borrowings3,660  3,664  
Total Interest Expense18,538  17,766  
Net Interest Income112,511  102,955  
Provision for credit losses21,520  1,635  
Net Interest Income After Provision for Credit Losses90,991  101,320  
Noninterest Income
Service charges and fees12,021  12,794  
Loan servicing income963  1,729  
Trust fees5,022  4,474  
Brokerage and insurance commissions733  734  
Securities gains, net1,658  1,575  
Unrealized gain/ (loss) on equity securities, net(231) 258  
Net gains on sale of loans held for sale4,660  3,176  
Valuation adjustment on servicing rights(1,565) (589) 
Income on bank owned life insurance498  899  
Other noninterest income2,058  1,667  
Total Noninterest Income25,817  26,717  
Noninterest Expense
Salaries and employee benefits49,957  50,285  
Occupancy6,471  6,607  
Furniture and equipment3,108  2,692  
Professional fees12,473  10,995  
Advertising2,205  2,320  
Core deposit and customer relationship intangibles amortization2,981  2,869  
Other real estate and loan collection expenses, net334  701  
(Gain)/loss on sales/valuations of assets, net16  (3,004) 
Acquisition, integration and restructuring costs1,376  3,614  
Partnership investment in tax credit projects184  475  
Other noninterest expenses11,754  10,676  
Total Noninterest Expense90,859  88,230  
Income Before Income Taxes25,949  39,807  
Income taxes5,909  8,310  
Net Income$20,040  $31,497  
Earnings per common share-diluted$0.54  $0.91  
Weighted average shares outstanding-diluted36,895,591  34,699,839  





HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
For the Quarter Ended
3/31/202012/31/20199/30/20196/30/20193/31/2019
Interest Income
Interest and fees on loans$106,414  $107,566  $110,566  $106,027  $100,456  
Interest on securities:
Taxable21,731  22,581  18,567  16,123  15,876  
Nontaxable2,183  2,102  2,119  2,554  3,093  
Interest on federal funds sold—  —  —  —   
Interest on deposits with other banks and short-term investments
721  953  2,151  2,299  1,292  
Total Interest Income131,049  133,202  133,403  127,003  120,721  
Interest Expense
Interest on deposits14,582  16,401  17,982  16,138  13,213  
Interest on short-term borrowings296  271  250  338  889  
Interest on other borrowings3,660  3,785  3,850  3,819  3,664  
Total Interest Expense18,538  20,457  22,082  20,295  17,766  
Net Interest Income112,511  112,745  111,321  106,708  102,955  
Provision for credit losses21,520  4,903  5,201  4,918  1,635  
Net Interest Income After Provision for Credit Losses90,991  107,842  106,120  101,790  101,320  
Noninterest Income
Service charges and fees12,021  12,368  12,366  14,629  12,794  
Loan servicing income963  955  821  1,338  1,729  
Trust fees5,022  5,141  4,959  4,825  4,474  
Brokerage and insurance commissions733  1,062  962  1,028  734  
Securities gains, net1,658  491  2,013  3,580  1,575  
Unrealized gain/ (loss) on equity securities, net(231) 11  144  112  258  
Net gains on sale of loans held for sale4,660  3,363  4,673  4,343  3,176  
Valuation adjustment on servicing rights(1,565) 668  (626) (364) (589) 
Income on bank owned life insurance498  1,117  881  888  899  
Other noninterest income2,058  2,854  3,207  1,682  1,667  
Total Noninterest Income25,817  28,030  29,400  32,061  26,717  
Noninterest Expense
Salaries and employee benefits49,957  50,234  49,927  49,895  50,285  
Occupancy6,471  5,802  6,594  6,426  6,607  
Furniture and equipment3,108  3,323  2,862  3,136  2,692  
Professional fees12,473  11,082  11,276  14,344  10,995  
Advertising2,205  2,274  2,622  2,609  2,320  
Core deposit and customer relationship intangibles amortization2,981  2,918  2,899  3,313  2,869  
Other real estate and loan collection expenses, net334  261  (89) 162  701  
(Gain)/loss on sales/valuations of assets, net16  1,512  356  (18,286) (3,004) 
Acquisition, integration and restructuring costs1,376  537  1,500  929  3,614  
Partnership investment in tax credit projects184  3,038  3,052  1,465  475  
Other noninterest expenses11,754  11,885  11,968  11,105  10,676  
Total Noninterest Expense90,859  92,866  92,967  75,098  88,230  
Income Before Income Taxes25,949  43,006  42,553  58,753  39,807  
Income taxes5,909  5,155  7,941  13,584  8,310  
Net Income$20,040  $37,851  $34,612  $45,169  $31,497  
Earnings per common share-diluted$0.54  $1.03  $0.94  $1.26  $0.91  
Weighted average shares outstanding-diluted36,895,591  36,840,519  36,835,191  35,879,259  34,699,839  





HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
As of
3/31/202012/31/20199/30/20196/30/20193/31/2019
Assets
Cash and due from banks$175,587  $206,607  $243,395  $198,664  $174,198  
Interest bearing deposits with other banks and short-term investments64,156  172,127  204,372  443,475  318,303  
Cash and cash equivalents239,743  378,734  447,767  642,139  492,501  
Time deposits in other financial institutions3,568  3,564  3,711  4,430  4,675  
Securities:
Carried at fair value3,488,621  3,312,796  3,020,568  2,561,887  2,400,460  
Held to maturity, at cost, less allowance for credit losses91,875  91,324  87,965  88,166  88,089  
Other investments, at cost35,370  31,321  29,042  31,366  27,506  
Loans held for sale22,957  26,748  35,427  34,575  69,716  
Loans:
Held to maturity8,374,236  8,367,917  7,971,608  7,853,051  7,331,544  
 Allowance for credit losses(97,350) (70,395) (66,222) (63,850) (62,639) 
Loans, net8,276,886  8,297,522  7,905,386  7,789,201  7,268,905  
Premises, furniture and equipment, net200,960  200,525  199,235  198,329  190,215  
Goodwill446,345  446,345  427,097  427,097  391,668  
Core deposit and customer relationship intangibles, net45,707  48,688  49,819  52,718  44,637  
Servicing rights, net5,220  6,736  6,271  7,180  28,968  
Cash surrender value on life insurance172,140  171,625  171,471  170,421  163,764  
Other real estate, net6,074  6,914  6,425  6,646  5,391  
Other assets259,043  186,755  179,078  146,135  136,000  
Total Assets$13,294,509  $13,209,597  $12,569,262  $12,160,290  $11,312,495  
Liabilities and Equity
Liabilities
Deposits:
 Demand$3,696,974  $3,543,863  $3,581,127  $3,426,758  $3,118,909  
 Savings6,366,610  6,307,425  5,770,754  5,533,503  5,145,929  
 Time1,110,441  1,193,043  1,117,975  1,148,296  1,088,104  
Total deposits11,174,025  11,044,331  10,469,856  10,108,557  9,352,942  
Deposits held for sale —  —  —  —  118,564  
Short-term borrowings121,442  182,626  107,853  107,260  104,314  
Other borrowings276,150  275,773  278,417  282,863  268,312  
Accrued expenses and other liabilities169,178  128,730  149,293  139,823  96,261  
Total Liabilities11,740,795  11,631,460  11,005,419  10,638,503  9,940,393  
Stockholders' Equity
Common stock36,807  36,704  36,696  36,690  34,604  
Capital surplus842,780  839,857  838,543  837,150  745,596  
Retained earnings700,298  702,502  670,816  642,808  603,506  
Accumulated other comprehensive income/(loss)(26,171) (926) 17,788  5,139  (11,604) 
Total Equity1,553,714  1,578,137  1,563,843  1,521,787  1,372,102  
Total Liabilities and Equity$13,294,509  $13,209,597  $12,569,262  $12,160,290  $11,312,495  






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
3/31/202012/31/20199/30/20196/30/20193/31/2019
Average Balances
Assets$13,148,173  $12,798,770  $12,293,332  $11,708,538  $11,267,214  
Loans, net of unearned8,364,220  8,090,476  7,883,678  7,648,562  7,412,855  
Deposits10,971,193  10,704,643  10,253,643  9,790,756  9,356,204  
Earning assets11,891,455  11,580,295  11,102,581  10,552,166  10,129,957  
Interest bearing liabilities7,841,941  7,513,701  7,174,944  6,872,449  6,622,149  
Common equity1,619,682  1,570,258  1,541,369  1,442,388  1,336,250  
Tangible common equity (non-GAAP)1,125,705  1,087,495  1,062,568  981,878  898,092  
Key Performance Ratios
Annualized return on average assets0.61 %1.17 %1.12 %1.55 %1.13 %
Annualized return on average common equity (GAAP)4.98  9.56  8.91  12.56  9.56  
Annualized return on average tangible common equity (non-GAAP)(1)
8.00  14.65  13.78  19.52  15.24  
Annualized adjusted return on average tangible common equity (non-GAAP)14.46 %16.22 %15.76 %21.41 %17.11 %
Annualized ratio of net charge-offs to average loans0.24  0.04  0.14  0.19  0.05  
Annualized net interest margin (GAAP)3.81  3.86  3.98  4.06  4.12  
Annualized net interest margin, fully tax-equivalent (non-GAAP)(1)
3.84  3.90  4.02  4.10  4.18  
Efficiency ratio, fully tax-equivalent (non-GAAP)(1)
61.82  60.31  60.85  64.13  64.93  


As of and for the Quarter Ended
3/31/202012/31/20199/30/20196/30/20193/31/2019
Common Share Data
Book value per common share$42.21  $43.00  $42.62  $41.48  $39.65  
Tangible book value per common share (non-GAAP)(1)
$28.84  $29.51  $29.62  $28.40  $27.04  
Common shares outstanding, net of treasury stock  36,807,217  36,704,278  36,696,190  36,690,061  34,603,611  
Tangible common equity ratio (non-GAAP)(1)
8.29 %8.52 %8.99 %8.92 %8.60 %
Other Selected Trend Information
Effective tax rate22.77 %11.99 %18.66 %23.12 %20.88 %
Full time equivalent employees1,817  1,908  1,962  2,040  1,976  
Loans Held to Maturity(2)
Commercial and industrial$2,550,490  $2,530,809  $2,388,861  $2,325,025  $2,158,085  
Owner occupied commercial real estate 1,431,038  1,472,704  1,392,415  1,354,996  1,278,181  
Commercial and business lending3,981,528  4,003,513  3,781,276  3,680,021  3,436,266  
Non-owner occupied commercial real estate1,551,787  1,495,877  1,378,020  1,372,343  1,233,525  
Real estate construction1,069,700  1,027,081  980,298  943,109  850,844  
Commercial real estate lending 2,621,487  2,522,958  2,358,318  2,315,452  2,084,369  
Total commercial lending 6,603,015  6,526,471  6,139,594  5,995,473  5,520,635  
Agricultural and agricultural real estate550,107  565,837  571,596  559,054  558,090  
Residential mortgage792,540  832,277  823,056  849,576  850,845  
Consumer428,574  443,332  437,362  448,948  401,974  
Total loans held to maturity$8,374,236  $8,367,917  $7,971,608  $7,853,051  $7,331,544  
Total unfunded loan commitments $2,782,679  $2,973,732  $2,659,729  $2,530,946  $2,332,174  
(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.





HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
As of and for the Quarter Ended
3/31/202012/31/20199/30/20196/30/20193/31/2019
Allowance for Credit Losses-Loans
Balance, beginning of period$70,395  $66,222  $63,850  $62,639  $61,963  
Impact of ASU 2016-13 adoption 12,071  —  —  —  —  
Provision for credit losses19,865  4,903  5,201  4,918  1,635  
Charge-offs(6,301) (2,018) (4,842) (4,780) (1,950) 
Recoveries1,320  1,288  2,013  1,073  991  
Balance, end of period$97,350  $70,395  $66,222  $63,850  $62,639  
Allowance for Unfunded Commitments(1)
Balance, beginning of period$248  $—  $—  $—  $—  
Impact of ASU 2016-13 adoption13,604  —  —  —  —  
Provision for credit losses1,616  —  —  —  —  
Balance, end of period$15,468  $—  $—  $—  $—  
Allowance for lending related credit losses$112,818  $70,395  $66,222  $63,850  $62,639