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Section 1: 8-K (8-K)

htlf-20200727
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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)July 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 SymbolName of each exchange on which registered
Common Stock, par value $1.00 per shareHTLFNasdaq Stock Market
Depositary Shares (each representing 1/400th interest in a share of 7.00% Fixed-Rate Reset Non-Cumulative Perpetual Preferred Stock, Series E)HTLFPNasdaq 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 July 27, 2020, Heartland Financial USA, Inc. issued a press release announcing its earnings and an investor presentation with supplemental information for the quarter ended June 30, 2020. A copy of the press release and slide presentation are furnished as Exhibit 99.1 and Exhibit 99.2, respectively.

The information furnished in Item 2.02 of this Current Report on Form 8-K and Exhibits 99.1 and 99.2 attached hereto shall not be deemed to be filed for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liabilities of that Section or Sections 11 and 12(a)(2) of the Securities Act of 1933, as amended, and shall not be deemed to be incorporated by reference into any registration statement or other document filed pursuant to the Securities Act of 1933, as amended.

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



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Section 2: EX-99.1 (EX-99.1)

Document


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

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

Highlights and Developments
§Quarterly net income of $30.1 million or $0.82 per diluted common share in comparison with $45.2 million or $1.26 per diluted common share for the second quarter of the prior year
§
Net interest margin of 3.81% (3.85% on a fully tax-equivalent basis, non-GAAP)(1) during the second quarter of 2020, compared to 3.81% (3.84% on a fully tax-equivalent basis, non-GAAP)(1) during the first quarter of 2020 and 4.06% (4.10% on a fully tax-equivalent basis, non-GAAP)(1) during the second quarter of 2019
§
Efficiency ratio (non-GAAP)1 of 55.75% compared to 64.13% for the second quarter of 2019
§Funded approximately 4,800 Paycheck Protection Program ("PPP") loans totaling $1.20 billion
§Arizona Bank & Trust subsidiary entered into a purchase and assumption agreement with Johnson Bank for four banking centers located in Phoenix and Scottsdale, Arizona
§Completed the issuance of $115.0 million of preferred equity
Quarter Ended
June 30,
Six Months Ended June 30,
2020201920202019
Net income available to common stockholders (in millions)$30.1  $45.2  $50.2  $76.7  
Diluted earnings per common share0.82  1.26  1.36  2.17  
Return on average assets0.84 %1.55 %0.73 %1.35 %
Return on average common equity7.69  12.56  6.32  11.13  
Return on average tangible common equity (non-GAAP)(1)
11.97  19.52  9.95  17.49  
Net interest margin3.81  4.06  3.81  4.09  
Net interest margin, fully tax-equivalent (non-GAAP)(1)
3.85  4.10  3.85  4.14  
Efficiency ratio, fully-tax equivalent (non-GAAP)(1)
55.75  64.13  58.64  64.52  

(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 very successful second quarter, which was driven by a solid net interest margin and strong efficiency ratio. In addition, we funded $1.2 billion of Paycheck Protection Program loans, announced the purchase of four banking centers in Phoenix and Scottsdale, Arizona and issued $115 million of preferred stock during the quarter."
Bruce K. Lee, president and chief executive officer, Heartland Financial USA, Inc.



Dubuque, Iowa, Monday, July 27, 2020-Heartland Financial USA, Inc. (NASDAQ: HTLF) today reported the following quarterly results:
net income available to common stockholders of $30.1 million, or $0.82 per diluted common share, for the quarter ended June 30, 2020, compared to $45.2 million, or $1.26 per diluted common share, for the second quarter of 2019.
excluding tax-effected provision for credit losses of $21.2 million and tax-effected acquisition, integration and restructuring costs of $532,000, adjusted net income available to common stockholders (non-GAAP) was $51.8 million, or $1.40 of adjusted earnings per diluted common share (non-GAAP) for the second quarter of 2020, compared to $49.8 million (non-GAAP), or $1.39 of adjusted earnings per diluted common share (non-GAAP), for the second quarter of 2019, which excluded tax-effected provision for credit losses of $3.9 million and tax-effected acquisition, integration and restructuring costs of $734,000.
return on average common equity was 7.69% and return on average assets was 0.84% for the second quarter of 2020, compared to 12.56% and 1.55%, respectively, for the same quarter in 2019.
return on average tangible common equity (non-GAAP) of 11.97% and adjusted return on average tangible common equity (non-GAAP) of 20.02% for the second quarter of 2020 compared to 19.52% and 21.41%, respectively, for the second quarter of 2019.

Heartland reported the following results for the six months ended June 30, 2020:
net income available to common stockholders of $50.2 million or $1.36 per diluted common share, for the six months ended June 30, 2020, compared to $76.7 million or $2.17 per diluted common share for the six months ended June 30, 2019.
excluding tax-effected provision for credit losses of $38.2 million and tax-effected acquisition, integration and restructuring costs of $1.6 million, adjusted net income available to common stockholders (non-GAAP) was $90.0 million, or $2.44 of adjusted earnings per diluted common share (non-GAAP), for the six months ended June 30, 2020, compared to $85.4 million (non-GAAP), or $2.42 of adjusted earnings per diluted common share (non-GAAP), for the six months ended June 30, 2019, which excluded tax-effected provision for credit losses of $5.2 million and tax-effected acquisition, integration and restructuring costs of $3.6 million.
return on average common equity was 6.32% and return on average assets was 0.73% for the first six months of 2020, compared to 11.13% and 1.35%, respectively, for the same period in 2019.
return on average tangible common equity (non-GAAP) of 9.95% and adjusted return on average tangible common equity (non-GAAP) of 17.19% for the six months ended June 30, 2020, compared to 17.49% and 19.37%, respectively, for the six months ended June 30, 2019.

"Heartland had a very successful second quarter, which was driven by a solid net interest margin and strong efficiency ratio. In addition, we funded $1.2 billion of Paycheck Protection Program loans, announced the purchase of four banking centers in Phoenix and Scottsdale, Arizona and issued $115 million of preferred stock during the quarter," 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 to assure workplace and employee safety and business resiliency while providing relief and support to customers and communities facing challenges from the impacts of COVID-19, which included the following measures:
employees who can work from home continue to do so, while those who come into bank locations are on rotating teams to limit potential exposure;
all in-person events and large meetings are canceled and have transitioned to virtual meetings;
expanded time off program and enhanced health care coverage for COVID-19 related testing and treatments, and
implemented and extended a 20% wage premium for certain customer-facing and call center employees.

"The health and safety of our employees continues to be our top priority. We are monitoring our markets closely and updating our responses accordingly," 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 June 30, 2020, and March 31, 2020, to customer segment profiles that Heartland believes will be more heavily impacted by COVID-19, dollars in thousands:

As of June 30, 2020As of March 31, 2020
Industry
Total Exposure(1)
% of Gross Exposure(1)
Total Exposure(1)
% of Gross Exposure(1)
Lodging$490,475  4.38 %$498,596  4.47 %
Multi-family properties474,610  4.24  436,931  3.92  
Retail trade407,030  3.64  367,727  3.30  
Retail properties369,782  3.31  408,506  3.66  
Restaurants and bars255,701  2.29  247,239  2.22  
Nursing homes/assisted living130,103  1.16  126,267  1.13  
Oil and gas63,973  0.57  56,302  0.50  
Childcare facilities44,968  0.40  48,455  0.43  
Gaming34,618  0.31  34,790  0.31  
Total$2,271,260  20.30 %$2,224,813  19.94 %
(1) Total loans outstanding, excluding PPP loans, and unfunded commitments

As of June 30, 2020, loan modifications have been made on approximately $1.10 billion of loans in Heartland's portfolio. Approximately 58% of these modifications are interest only for 90 days, and the remainder are primarily principal and interest deferments for 90 days. The original loan modifications will be expiring throughout the third quarter, and Heartland expects that the majority will be returning to full payment status. However, it is likely that some of the modifications will be extended for an additional 90 days in order to provide the necessary support for certain COVID-19 impacted customers.

Through June 30, 2020, Heartland's subsidiary banks funded approximately 4,800 PPP loans, totaling $1.20 billion. As of June 30, 2020, deferred fees totaling $35.3 million were recorded associated with the PPP loans, of which $3.7 million was recognized in income during the quarter.

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.

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:
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.

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. Heartland and AIM Bancshares are currently reviewing the corporate structure and terms of the transaction. As of June 30, 2020, AimBank had total assets of approximately $1.95 billion, which included $1.19 billion of gross loans outstanding, and approximately $1.69 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 $415.3 million and loans of approximately $168.1 million as of June 30. 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.

"We are excited to expand Arizona Bank & Trust's presence in the Phoenix and Scottsdale areas," commented Lynn B. Fuller, Heartland's executive operating chairman.

Issued $115.0 Million of Preferred Equity
On June 26, 2020, Heartland issued and sold 4.6 million depositary shares, each representing a 1/400th interest in a share of 7.00% Fixed-Rate Reset Non-Cumulative Perpetual Preferred Stock, Series E. The depositary shares are listed on The Nasdaq Global Select Market under the symbol "HTLFP." The net proceeds of $110.7 million are expected to be used for general corporate purposes, which may include organic and acquired growth, financing investments, capital expenditures, investments in wholly-owned subsidiaries as regulatory capital and repayment of debt.

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

Net interest margin, expressed as a percentage of average earning assets, was 3.81% (3.85% on a fully tax-equivalent basis, non-GAAP) during the second quarter of 2020, compared to 3.81% (3.84% on a fully tax-equivalent basis, non-GAAP) during the first quarter of 2020 and 4.06% (4.10% on a fully tax-equivalent basis, non-GAAP) during the second quarter of 2019.

Total interest income for the second quarter of 2020 was $133.8 million compared to $127.0 million recorded in the second quarter of 2019, an increase of $6.8 million or 5%. The tax-equivalent adjustment for income taxes saved on the interest earned on nontaxable securities and loans was $1.4 million for the second quarter of 2020 and $1.3 million for the second quarter of 2019. With these adjustments, total interest income on a tax-equivalent basis was $135.2 million for the second quarter of 2020, an increase of $6.9 million or 5%, compared to total interest income on a tax-equivalent basis of $128.3 million for the second quarter of 2019.

Average earning assets of $13.10 billion increased $2.55 billion or 24% from the second quarter of 2019, which was primarily attributable to recent acquisitions and loan growth, including PPP loans. The average rate on earning assets decreased 73 basis points to 4.15% for the second quarter of 2020 compared to 4.88% for the same quarter in 2019, which was primarily due to recent decreases in market interest rates and the lower yield on PPP loans, which was 2.64% for the second quarter of 2020.

Total interest expense for the second quarter of 2020 was $9.6 million, a decrease of $10.7 million or 53% from $20.3 million in the second quarter of 2019. The average interest rate paid on Heartland's interest bearing liabilities decreased to 0.47% for the second quarter of 2020 compared to 1.18% for the second quarter of 2019, which was primarily due to recent decreases in market interest rates.

Average interest bearing deposits increased $1.28 billion or 20% to $7.79 billion for the quarter ended June 30, 2020, from $6.50 billion in the same quarter in 2019, which was primarily attributable to recent acquisitions and deposit growth. The average interest rate paid on Heartland's interest bearing deposits decreased 67 basis points to 0.32% for the second quarter of 2020 compared to 0.99% for the same quarter in 2019.




Average borrowings decreased $389,000 or less than 1% to $368.9 million during the first quarter of 2020 from $369.3 million during the same quarter in 2019. The average interest rate paid on Heartland's borrowings was 3.80% for the second quarter of 2020 compared to 4.52% in the second quarter of 2019.

Net interest income was $124.1 million during the second quarter of 2020 compared to $106.7 million during the second quarter of 2019, an increase of $17.4 million or 16%. After the tax-equivalent adjustment discussed above, net interest income on a tax-equivalent basis totaled $125.6 million during the second quarter of 2020 compared to net interest income on a tax-equivalent basis of $108.0 million during the second quarter of 2019, an increase of $17.6 million or 16%.

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

Total noninterest income was $30.6 million during the second quarter of 2020 compared to $32.1 million during the second quarter of 2019, a decrease of $1.4 million or 4%. Significant changes by noninterest income category were:
Service charges and fees decreased $3.7 million or 25% to $11.0 million for the second quarter of 2020 compared to $14.6 million for the second quarter of 2019. Overdraft fees and ATM fees for the second quarter of 2020 totaled $3.4 million compared to $7.1 million for the same quarter of 2019. The decrease was primarily attributable to decreased volume due to the COVID-19 pandemic and the impact of the Durbin Amendment, which was effective for Heartland on July 1, 2019.
Loan servicing income totaled $379,000 for the second quarter of 2020 compared to $1.3 million for the second quarter of 2019, which was a decrease of $959,000 or 72%. 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 $7.9 million during the second quarter of 2020 compared to $4.3 million during the same quarter in 2019, which was an increase of $3.5 million or 81%, primarily due to an increase in residential mortgage loan activity in response to the recent declines in mortgage interest rates.

For the second quarter of 2020, total noninterest expense was $90.4 million compared to $75.1 million during the second quarter of 2019, an increase of $15.3 million or 20%. Significant changes by noninterest expense category were:
Net loss on sales/valuations of assets increased $19.0 million as losses totaled $701,000 in the second quarter of 2020 compared to gains of $18.3 million in the second quarter of 2019. The gains recorded in 2019 were related to branch sales and the sale of the mortgage servicing rights of Dubuque Bank and Trust Company.

Heartland's effective tax rate was 19.75% for the second quarter of 2020 compared to 23.12% for the second quarter of 2019. The following items impacted Heartland's second quarter 2020 and 2019 tax calculations:
Solar energy tax credits of $798,000 and $911,000 for the second quarter of 2020 and 2019, respectively.
Federal low-income housing tax credits of $195,000 and $281,000 for the second quarter of 2020 and 2019, respectively.
New markets tax credits of $75,000 during the second quarter of 2020 compared to $0 in the second quarter of 2019.
Tax-exempt interest income as a percentage of pre-tax income increased to 14.19% during the second quarter of 2020 compared to 8.09% for the second quarter of 2019.
Tax expense of $66,000 in the second quarter of 2020 compared to $64,000 in the second quarter of 2019 resulting from the vesting of restricted stock unit awards.

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

Total assets were $15.0 billion at June 30, 2020, an increase of $1.82 billion or 14% from $13.21 billion at year-end 2019. Securities represented 28% and 26% of total assets at June 30, 2020, and December 31, 2019, respectively.

Total loans held to maturity were $9.25 billion at June 30, 2020, and $8.37 billion at December 31, 2019, which was an increase of $878.9 million or 11%. Loan changes by category were:



Commercial and business lending, which includes commercial and industrial, Paycheck Protection Program ("PPP"), and owner occupied commercial real estate loans, increased $918.6 million or 23% to $4.92 billion at June 30, 2020, compared to $4.00 billion at December 31, 2019. Excluding $1.12 billion of PPP loans, commercial and business lending decreased $205.8 million or 5% since year-end 2019.
Commercial real estate lending, which includes non-owner occupied commercial real estate and construction loans, increased $136.5 million or 5% to $2.66 billion at June 30, 2020 from $2.52 billion at year-end 2019.
Agricultural and agricultural real estate loans totaled $520.8 million at June 30, 2020, compared to $565.8 million at December 31, 2019, which was a decrease of $45.1 million or 8%.
Residential mortgage loans decreased $96.5 million or 12% to $735.8 million at June 30, 2020, from $832.3 million at December 31, 2019.
Consumer loans decreased $34.6 million or 8% to $408.7 million at June 30, 2020, compared to $443.3 million at December 31, 2019.

Total deposits were $12.71 billion as of June 30, 2020, compared to $11.04 billion at year-end 2019, an increase of $1.66 billion or 15%. Deposit changes by category were:
Demand deposits increased $1.29 billion or 36% to $4.83 billion at June 30, 2020, compared to $3.54 billion at December 31, 2019.
Savings deposits increased $502.9 million or 8% to $6.81 billion at June 30, 2020, from $6.31 billion at December 31, 2019.
Time deposits decreased $125.8 million or 11% to $1.07 billion at June 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 for Credit Losses for Loans Increase Since December 31, 2019

Heartland's allowance for credit losses for loans totaled $119.9 million and $70.4 million at June 30, 2020, and December 31, 2019, respectively. The allowance for credit losses for loans totaled $82.5 million after the adoption of CECL on January 1, 2020, which was an increase of $12.1 million since year-end 2019. Provision expense for the second quarter of 2020 totaled $25.0 million compared to $19.9 million for the first quarter of 2020 and $4.9 million in the second quarter of 2019. Heartland recorded $11.6 million of provision expense for one fracking sand company relationship that was individually assessed for allowance for credit losses in the second quarter.

The allowance for credit losses for loans at June 30, 2020, was 1.30% of loans compared to 0.84% of loans at December 31, 2019. Net charge offs for the second quarter of 2020 totaled $2.4 million compared to $3.7 million for the second quarter of 2019, which was a decrease of $1.3 million or 35%. Heartland expects that net charge offs will increase in the second half of 2020 as customers’ ability to repay loans is adversely impacted by economic disruptions caused by the COVID-19 pandemic.

Heartland's allowance for unfunded commitments totaled $13.9 million after the adoption of CECL on January 1, 2020. Heartland recorded $1.9 million of provision for credit losses related to unfunded loan commitments in the second quarter of 2020. At June 30, 2020, the allowance for unfunded commitments was $17.4 million, and unfunded loan commitments totaled $3.06 billion.

The total allowance for credit related lending losses was $137.3 million at June 30, 2020, which was 1.49% of loans as of June 30, 2020.



Nonperforming Assets Increase Since December 31, 2019

Nonperforming assets increased $11.0 million or 13% to $98.5 million or 0.66% of total assets at June 30, 2020, compared to $87.6 million or 0.66% of total assets at December 31, 2019. Nonperforming loans were $93.0 million or 1.01% of total loans at June 30, 2020, compared to $80.7 million or 0.96% of total loans at December 31, 2019. Included in new nonperforming loans at June 30, 2020 was one fracking sand company relationship with an unpaid principal balance of $14.6 million. At June 30, 2020, loans delinquent 30-89 days were 0.22% 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.
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.
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. 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 July 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 $15.03 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 reports filed with the Securities and Exchange Commission, contained, among others: the impact of the COVID-19 pandemic on Heartland and U.S. and global financial markets; containment measures enacted by the U.S. federal and state governments and 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 Heartland’s provision for credit losses and net charge-offs; civil unrest in the communities that Heartland serves; levels of unemployment in the subsidiary banks’ lending areas; real estate market values in the subsidiary banks’ lending 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/regulatory changes affecting banking, taxes, securities, insurance and monetary and financial matters; monetary and fiscal policies of the U.S. Government including policies of the United States Department of the Treasury and the Federal Reserve; the quality or composition of Heartland’s loan or investment portfolios; 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; Heartland’s ability to implement technological changes as anticipated 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 and its subsidiaries 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 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 Quarter Ended
June 30,
For the Six Months Ended
June 30,
2020201920202019
Interest Income
Interest and fees on loans$107,005  $106,027  $213,419  $206,483  
Interest on securities:
Taxable23,362  16,123  45,093  31,999  
Nontaxable3,344  2,554  5,527  5,647  
Interest on federal funds sold—  —  —   
Interest on deposits with other banks and short-term investments54  2,299  775  3,591  
Total Interest Income133,765  127,003  264,814  247,724  
Interest Expense
Interest on deposits6,134  16,138  20,716  29,351  
Interest on short-term borrowings61  338  357  1,227  
Interest on other borrowings3,424  3,819  7,084  7,483  
Total Interest Expense9,619  20,295  28,157  38,061  
Net Interest Income124,146  106,708  236,657  209,663  
Provision for credit losses26,796  4,918  48,316  6,553  
Net Interest Income After Provision for Credit Losses97,350  101,790  188,341  203,110  
Noninterest Income
Service charges and fees10,972  14,629  22,993  27,423  
Loan servicing income379  1,338  1,342  3,067  
Trust fees4,977  4,825  9,999  9,299  
Brokerage and insurance commissions595  1,028  1,328  1,762  
Securities gains, net2,006  3,580  3,664  5,155  
Unrealized gain/ (loss) on equity securities, net680  112  449  370  
Net gains on sale of loans held for sale7,857  4,343  12,517  7,519  
Valuation adjustment on servicing rights (364) (1,556) (953) 
Income on bank owned life insurance1,167  888  1,665  1,787  
Other noninterest income1,995  1,682  4,053  3,349  
Total Noninterest Income30,637  32,061  56,454  58,778  
Noninterest Expense
Salaries and employee benefits50,118  49,895  100,075  100,180  
Occupancy6,502  6,426  12,973  13,033  
Furniture and equipment2,993  3,136  6,101  5,828  
Professional fees13,676  14,344  26,149  25,366  
Advertising995  2,609  3,200  4,929  
Core deposit and customer relationship intangibles amortization2,696  3,313  5,677  6,155  
Other real estate and loan collection expenses, net203  162  537  863  
(Gain)/loss on sales/valuations of assets, net701  (18,286) 717  (21,290) 
Acquisition, integration and restructuring costs673  929  2,049  4,543  
Partnership investment in tax credit projects791  1,465  975  1,940  
Other noninterest expenses11,091  11,105  22,845  21,781  
Total Noninterest Expense90,439  75,098  181,298  163,328  
Income Before Income Taxes37,548  58,753  63,497  98,560  
Income taxes7,417  13,584  13,326  21,894  
Net Income$30,131  $45,169  $50,171  $76,666  
Earnings per common share-diluted$0.82  $1.26  $1.36  $2.17  
Weighted average shares outstanding-diluted36,915,630  35,879,259  36,919,555  35,295,407  





HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
For the Quarter Ended
6/30/20203/31/202012/31/20199/30/20196/30/2019
Interest Income
Interest and fees on loans$107,005  $106,414  $107,566  $110,566  $106,027  
Interest on securities:
Taxable23,362  21,731  22,581  18,567  16,123  
Nontaxable3,344  2,183  2,102  2,119  2,554  
Interest on federal funds sold—  —  —  —  —  
Interest on deposits with other banks and short-term investments54  721  953  2,151  2,299  
Total Interest Income133,765  131,049  133,202  133,403  127,003  
Interest Expense
Interest on deposits6,134  14,582  16,401  17,982  16,138  
Interest on short-term borrowings61  296  271  250  338  
Interest on other borrowings3,424  3,660  3,785  3,850  3,819  
Total Interest Expense9,619  18,538  20,457  22,082  20,295  
Net Interest Income124,146  112,511  112,745  111,321  106,708  
Provision for credit losses26,796  21,520  4,903  5,201  4,918  
Net Interest Income After Provision for Credit Losses97,350  90,991  107,842  106,120  101,790  
Noninterest Income
Service charges and fees10,972  12,021  12,368  12,366  14,629  
Loan servicing income379  963  955  821  1,338  
Trust fees4,977  5,022  5,141  4,959  4,825  
Brokerage and insurance commissions595  733  1,062  962  1,028  
Securities gains, net2,006  1,658  491  2,013  3,580  
Unrealized gain/ (loss) on equity securities, net680  (231) 11  144  112  
Net gains on sale of loans held for sale7,857  4,660  3,363  4,673  4,343  
Valuation adjustment on servicing rights (1,565) 668  (626) (364) 
Income on bank owned life insurance1,167  498  1,117  881  888  
Other noninterest income1,995  2,058  2,854  3,207  1,682  
Total Noninterest Income30,637  25,817  28,030  29,400  32,061  
Noninterest Expense
Salaries and employee benefits50,118  49,957  50,234  49,927  49,895  
Occupancy6,502  6,471  5,802  6,594  6,426  
Furniture and equipment2,993  3,108  3,323  2,862  3,136  
Professional fees13,676  12,473  11,082  11,276  14,344  
Advertising995  2,205  2,274  2,622  2,609  
Core deposit and customer relationship intangibles amortization2,696  2,981  2,918  2,899  3,313  
Other real estate and loan collection expenses, net203  334  261  (89) 162  
(Gain)/loss on sales/valuations of assets, net701  16  1,512  356  (18,286) 
Acquisition, integration and restructuring costs673  1,376  537  1,500  929  
Partnership investment in tax credit projects791  184  3,038  3,052  1,465  
Other noninterest expenses11,091  11,754  11,885  11,968  11,105  
Total Noninterest Expense90,439  90,859  92,866  92,967  75,098  
Income Before Income Taxes37,548  25,949  43,006  42,553  58,753  
Income taxes7,417  5,909  5,155  7,941  13,584  
Net Income$30,131  $20,040  $37,851  $34,612  $45,169  
Earnings per common share-diluted$0.82  $0.54  $1.03  $0.94  $1.26  
Weighted average shares outstanding-diluted36,915,630  36,895,591  36,840,519  36,835,191  35,879,259  





HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
As of
6/30/20203/31/202012/31/20199/30/20196/30/2019
Assets
Cash and due from banks$211,429  $175,587  $206,607  $243,395  $198,664  
Interest bearing deposits with other banks and short-term investments242,149  64,156  172,127  204,372  443,475  
Cash and cash equivalents453,578  239,743  378,734  447,767  642,139  
Time deposits in other financial institutions3,128  3,568  3,564  3,711  4,430  
Securities:
Carried at fair value4,126,351  3,488,621  3,312,796  3,020,568  2,561,887  
Held to maturity, at cost, less allowance for credit losses90,579  91,875  91,324  87,965  88,166  
Other investments, at cost35,902  35,370  31,321  29,042  31,366  
Loans held for sale54,382  22,957  26,748  35,427  34,575  
Loans:
Held to maturity9,246,830  8,374,236  8,367,917  7,971,608  7,853,051  
 Allowance for credit losses(119,937) (97,350) (70,395) (66,222) (63,850) 
Loans, net9,126,893  8,276,886  8,297,522  7,905,386  7,789,201  
Premises, furniture and equipment, net198,481  200,960  200,525  199,235  198,329  
Goodwill446,345  446,345  446,345  427,097  427,097  
Core deposit and customer relationship intangibles, net43,011  45,707  48,688  49,819  52,718  
Servicing rights, net5,469  5,220  6,736  6,271  7,180  
Cash surrender value on life insurance172,813  172,140  171,625  171,471  170,421  
Other real estate, net5,539  6,074  6,914  6,425  6,646  
Other assets263,682  259,043  186,755  179,078  146,135  
Total Assets$15,026,153  $13,294,509  $13,209,597  $12,569,262  $12,160,290  
Liabilities and Equity
Liabilities
Deposits:
 Demand$4,831,151  $3,696,974  $3,543,863  $3,581,127  $3,426,758  
 Savings6,810,296  6,366,610  6,307,425  5,770,754  5,533,503  
 Time1,067,252  1,110,441  1,193,043  1,117,975  1,148,296  
Total deposits12,708,699  11,174,025  11,044,331  10,469,856  10,108,557  
Short-term borrowings88,631  121,442  182,626  107,853  107,260  
Other borrowings306,459  276,150  275,773  278,417  282,863  
Accrued expenses and other liabilities174,987  169,178  128,730  149,293  139,823  
Total Liabilities13,278,776  11,740,795  11,631,460  11,005,419  10,638,503  
Stockholders' Equity
Preferred equity110,705  —  —  —  —  
Common stock36,845  36,807  36,704  36,696  36,690  
Capital surplus844,202  842,780  839,857  838,543  837,150  
Retained earnings723,067  700,298  702,502  670,816  642,808  
Accumulated other comprehensive income/(loss)32,558  (26,171) (926) 17,788  5,139  
Total Equity1,747,377  1,553,714  1,578,137  1,563,843  1,521,787  
Total Liabilities and Equity$15,026,153  $13,294,509  $13,209,597  $12,569,262  $12,160,290  






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
6/30/20203/31/202012/31/20199/30/20196/30/2019
Average Balances
Assets$14,391,856  $13,148,173  $12,798,770  $12,293,332  $11,708,538  
Loans, net of unearned9,186,913  8,364,220  8,090,476  7,883,678  7,648,562  
Deposits12,288,378  10,971,193  10,704,643  10,253,643  9,790,756  
Earning assets13,103,159  11,891,455  11,580,295  11,102,581  10,552,166  
Interest bearing liabilities8,155,753  7,841,941  7,513,701  7,174,944  6,872,449  
Common equity1,574,902  1,619,682  1,570,258  1,541,369  1,442,388  
Total stockholders' equity1,580,997  1,619,682  1,570,258  1,541,369  1,442,388  
Tangible common equity (non-GAAP)(1)
1,083,834  1,125,705  1,087,495  1,062,568  981,878  
Key Performance Ratios
Annualized return on average assets0.84 %0.61 %1.17 %1.12 %1.55 %
Annualized return on average common equity (GAAP)7.69  4.98  9.56  8.91  12.56  
Annualized return on average tangible common equity (non-GAAP)(1)
11.97  8.00  14.65  13.78  19.52  
Annualized adjusted return on average tangible common equity (non-GAAP)(1)
20.02  14.46  16.22  15.76  21.41  
Annualized ratio of net charge-offs to average loans0.11  0.24  0.04  0.14  0.19  
Annualized net interest margin (GAAP)3.81  3.81  3.86  3.98  4.06  
Annualized net interest margin, fully tax-equivalent (non-GAAP)(1)
3.85  3.84  3.90  4.02  4.10  
Efficiency ratio, fully tax-equivalent (non-GAAP)(1)
55.75  61.82  60.31  60.85  64.13  
(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
June 30,
For the Six Months Ended
June 30,
2020201920202019
Average Balances
Assets$14,391,856  $11,708,538  $13,770,015  $11,489,095  
Loans, net of unearned9,186,913  7,648,562  8,775,566  7,531,360  
Deposits12,288,378  9,790,756  11,629,785  9,574,680  
Earning assets13,103,159  10,552,166  12,497,307  10,342,229  
Interest bearing liabilities8,155,753  6,872,449  7,998,847  6,747,990  
Common equity1,574,902  1,442,388  1,597,292  1,389,612  
Total stockholders' equity1,580,997  1,442,388  1,600,340  1,389,612  
Tangible common stockholders' equity1,083,834  981,878  1,104,770  940,217  
Key Performance Ratios
Annualized return on average assets0.84 %1.55 %0.73 %1.35 %
Annualized return on average common equity (GAAP)7.69  12.56  6.32  11.13  
Annualized return on average tangible common equity (non-GAAP)(1)
11.97  19.52  9.95  17.49  
Annualized adjusted return on average tangible common equity (non-GAAP)(1)
20.02  21.41  17.19  19.37  
Annualized ratio of net charge-offs to average loans0.11  0.19  0.17  0.12  
Annualized net interest margin (GAAP)3.81  4.06  3.81  4.09  
Annualized net interest margin, fully tax-equivalent (non-GAAP)(1)
3.85  4.10  3.85  4.14  
Efficiency ratio, fully tax-equivalent (non-GAAP)(1)
55.75  64.13  58.64  64.52  
(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
6/30/20203/31/202012/31/20199/30/20196/30/2019
Common Share Data
Book value per common share$44.42  $42.21  $43.00  $42.62  $41.48  
Tangible book value per common share (non-GAAP)(1)
$31.14  $28.84  $29.51  $29.62  $28.40  
Common shares outstanding, net of treasury stock36,844,744  36,807,217  36,704,278  36,696,190  36,690,061  
Tangible common equity ratio (non-GAAP)(1)
7.89 %8.29 %8.52 %8.99 %8.92 %
Other Selected Trend Information
Effective tax rate19.75 %22.77 %11.99 %18.66 %23.12 %
Full time equivalent employees1,821  1,817  1,908  1,962  2,040  
Loans Held to Maturity(2)
Commercial and industrial$2,364,400  $2,550,490  $2,530,809  $2,388,861  $2,325,025  
Paycheck Protection Program ("PPP") 1,124,430  —  —  —  —  
Owner occupied commercial real estate 1,433,271  1,431,038  1,472,704  1,392,415  1,354,996  
Commercial and business lending4,922,101  3,981,528  4,003,513  3,781,276  3,680,021  
Non-owner occupied commercial real estate1,543,623  1,551,787  1,495,877  1,378,020  1,372,343  
Real estate construction1,115,843  1,069,700  1,027,081  980,298  943,109  
Commercial real estate lending 2,659,466  2,621,487  2,522,958  2,358,318  2,315,