Highlights and Developments

  
 Three Months Ended
March 31,
 2020 2019
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, April 27, 2020 (GLOBE NEWSWIRE) -- Heartland Financial USA, Inc. (NASDAQ: HTLF) today reported the following results:

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:

"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 properties 436,931  3.92 
Retail real estate 408,506  3.66 
Retail trade 367,764  3.30 
Restaurants and bars 247,239  2.22 
Nursing homes/assisted living 126,267  1.13 
Oil and gas 56,302  0.50 
Childcare facilities 48,455  0.43 
Gaming 34,790  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:

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:

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:

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:

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:

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:

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:

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 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,
 2020 2019
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—  4 
Interest on deposits with other banks and short-term investments721  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
 3/31/2020 12/31/20199/30/2019 6/30/2019 3/31/2019
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—  — —  —  4 
Interest on deposits with other banks and short-term investments721  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
 3/31/2020 12/31/2019 9/30/2019 6/30/2019 3/31/2019
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
 3/31/2020 12/31/2019 9/30/2019 6/30/2019 3/31/2019
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
 3/31/2020 12/31/2019 9/30/2019 6/30/2019 3/31/2019
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 stock36,807,217  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 estate1,431,038  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 lending2,621,487  2,522,958  2,358,318  2,315,452  2,084,369 
Total commercial lending6,603,015  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
 3/31/2020 12/31/2019 9/30/2019 6/30/2019 3/31/2019
Allowance for Credit Losses-Loans         
Balance, beginning of period$70,395  $66,222  $63,850  $62,639  $61,963 
Impact of ASU 2016-13 adoption12,071  —  —  —  — 
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 
          
Provision for Credit Losses         
Provision for credit losses-loans$19,865  $4,903  $5,201  $4,918  $1,635 
Provision for credit losses-unfunded commitments1,616  —  —  —  — 
Provision for credit losses-held to maturity securities(2)39  —  —  —  — 
Total provision for credit losses$21,520  $4,903  $5,201  $4,918  $1,635 
          
(1) Prior to the adoption of ASU 2016-13, the allowance for unfunded commitments was immaterial and therefore prior periods have not been shown in this table.
(2) Prior to ASU 2016-13, there was no requirement to record provision for credit losses for held to maturity securities.



HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
 As of and for the Quarter Ended
 3/31/2020 12/31/2019 9/30/2019 6/30/2019 3/31/2019
Asset Quality         
Nonaccrual loans$79,280  $76,548  $72,208  $79,619  $77,294 
Loans past due ninety days or more—  4,105  40  285  1,706 
Other real estate owned6,074  6,914  6,425  6,646  5,391 
Other repossessed assets17  11  13  39  8 
Total nonperforming assets$85,371  $87,578  $78,686  $86,589  $84,399 
          
Performing troubled debt restructured loans$2,858  $3,794  $3,199  $3,539  $3,460 
          
Nonperforming Assets Activity          
Balance, beginning of period$87,578  $78,686  $86,589  $84,399  $79,281 
Net loan charge offs(4,981) (730) (2,829) (3,707) (959)
New nonperforming loans15,796  13,751  6,818  13,688  15,314 
Acquired nonperforming assets—  3,262  —  230  — 
Reduction of nonperforming loans(1)(11,937) (5,859) (8,861) (6,246) (6,238)
Net OREO/repossessed assets sales proceeds and losses(1,085) (1,532) (3,031) (1,775) (2,999)
Balance, end of period$85,371  $87,578  $78,686  $86,589  $84,399 
          
Asset Quality Ratios         
Ratio of nonperforming loans to total loans0.95  0.96  0.91  1.02  1.08 
Ratio of nonperforming loans and performing trouble debt restructured loans to total loans0.98  1.01  0.95  1.06  1.12 
Ratio of nonperforming assets to total assets0.64  0.66  0.63  0.71  0.75 
Annualized ratio of net loan charge-offs to average loans0.24  0.04  0.14  0.19  0.05 
Allowance for loan credit losses as a percent of loans1.16  0.84  0.83  0.81  0.85 
Allowance for lending related credit losses as a percent of loans(2)1.35  0.84  0.83  0.81  0.85 
Allowance for loan credit losses as a percent of nonperforming loans122.79  87.28  91.66  79.91  79.29 
Loans delinquent 30-89 days as a percent of total loans0.38  0.33  0.28  0.31  0.47 
          
(1) Includes principal reductions, transfers to performing status and transfers to OREO.
(2) Prior to the adoption of ASU 2016-13, the reserve for unfunded commitments was immaterial.



HEARTLAND FINANCIAL USA, INC.  
CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited)
DOLLARS IN THOUSANDS
 For the Quarter Ended
 March 31, 2020 December 31, 2019 March 31, 2019
 Average
Balance		 Interest Rate Average
Balance		 Interest Rate Average
Balance		 Interest Rate
Earning Assets                 
Securities:                 
Taxable$3,132,103  $21,731  2.79% $3,033,480  $22,581  2.95% $2,169,016  $15,876  2.97%
Nontaxable(1)288,535  2,763  3.85  271,792  2,661  3.88  391,724  3,915  4.05 
Total securities3,420,638  24,494  2.88  3,305,272  25,242  3.03  2,560,740  19,791  3.13 
Interest on deposits with other banks and short-term investments181,320  721  1.60  251,599  953  1.50  218,445  1,292  2.40 
Federal funds sold—  —  —  —  —  —  560  4  2.90 
Loans:(2)(3)                 
Commercial and industrial(1)2,607,513  32,454  5.01  2,444,961  32,006  5.19  2,137,168  30,389  5.77 
Owner occupied commercial real estate1,433,160  18,581  5.21  1,416,338  19,241  5.39  1,262,567  17,531  5.63 
Non-owner occupied commercial real estate1,472,268  19,530  5.34  1,388,677  18,952  5.41  1,326,014  17,423  5.33 
Real estate construction1,045,836  12,845  4.94  1,003,797  13,645  5.39  825,634  11,871  5.83 
Agricultural and agricultural real estate552,968  7,039  5.12  566,419  7,314  5.12  566,878  7,203  5.15 
Residential mortgage819,730  10,421  5.11  830,277  10,454  5.00  880,825  10,286  4.74 
Consumer432,745  6,095  5.66  440,007  6,504  5.86  413,769  6,343  6.22 
Less: allowance for loan losses(74,723) —  —  (67,052) —  —  (62,643) —  — 
Net loans8,289,497  106,965  5.19  8,023,424  108,116  5.35  7,350,212  101,046  5.58 
Total earning assets11,891,455  132,180  4.47% 11,580,295  134,311  4.60% 10,129,957  122,133  4.89%
Nonearning Assets1,256,718      1,218,475      1,137,257     
Total Assets$13,148,173      $12,798,770      $11,267,214     
Interest Bearing Liabilities(4)                 
Savings$6,277,528  $10,082  0.65% $5,986,007  $11,790  0.78% $5,121,179  $10,083  0.80%
Time deposits1,146,619  4,500  1.58  1,135,025  4,611  1.61  1,034,744  3,130  1.23 
Short-term borrowings141,807  296  0.84  115,680  271  0.93  195,390  889  1.85 
Other borrowings275,987  3,660  5.33  276,989  3,785  5.42  270,836  3,664  5.49 
Total interest bearing liabilities7,841,941  18,538  0.95% 7,513,701  20,457  1.08% 6,622,149  17,766  1.09 
Noninterest Bearing Liabilities(3)                 
Noninterest bearing deposits3,547,046      3,583,611      3,200,281     
Accrued interest and other liabilities139,504      131,200      108,534     
Total noninterest bearing liabilities3,686,550      3,714,811      3,308,815     
Common Equity1,619,682      1,570,258      1,336,250     
Total Liabilities and Common Equity$13,148,173      $12,798,770      $11,267,214     
Net interest income, fully tax-equivalent (non-GAAP)(1)  $113,642      $113,854      $104,367   
Net interest spread(1)    3.52%     3.52%     3.80%
Net interest income, fully tax-equivalent (non-GAAP) to total earning assets    3.84%     3.90%     4.18%
Interest bearing liabilities to earning assets65.95      64.88      65.37     
                  
(1) Computed on a tax-equivalent basis using an effective tax rate of 21%.  
(2) Nonaccrual loans and loans held for sale are included in the average loans outstanding.
(3) In conjunction with the adoption of ASU 2016-13, Heartland reclassified loan balances to more closely align with FDIC codes. All prior period balances have been adjusted.
(4) Includes deposits held for sale.



HEARTLAND FINANCIAL USA, INC.
SELECTED FINANCIAL DATA - SUBSIDIARY BANKS (Unaudited)
DOLLARS IN THOUSANDS
 As of and For the Quarter Ended
 3/31/202012/31/20199/30/20196/30/20193/31/2019
Total Assets     
Citywide Banks$2,271,889 $2,294,512 $2,335,811 $2,261,591 $2,214,105 
New Mexico Bank & Trust1,670,097 1,763,037 1,607,498 1,534,236 1,500,024 
Dubuque Bank and Trust Company1,591,312 1,646,105 1,547,014 1,680,539 1,550,487 
Illinois Bank & Trust1,295,984 1,301,172 839,721 852,830 810,357 
Bank of Blue Valley(1)1,222,358 1,307,688 1,346,342 1,319,226 564,833 
First Bank & Trust1,163,181 1,137,714 1,158,320 1,088,796 1,099,759 
Wisconsin Bank & Trust1,079,582 1,090,412 1,032,016 1,042,463 1,031,305 
Premier Valley Bank889,280 903,220 888,401 847,076 855,473 
Arizona Bank & Trust866,107 784,240 695,236 732,783 669,806 
Minnesota Bank & Trust778,724 718,724 718,035 631,339 657,187 
Rocky Mountain Bank576,245 532,191 528,094 503,126 489,135 
Total Deposits(2)     
Citywide Banks$1,868,404 $1,829,217 $1,895,894 $1,833,259 $1,802,701 
New Mexico Bank & Trust1,451,041 1,565,070 1,413,170 1,346,304 1,313,708 
Dubuque Bank and Trust Company1,363,164 1,290,756 1,275,131 1,157,881 1,245,553 
Illinois Bank & Trust1,139,945 1,167,905 768,267 769,577 735,101 
Bank of Blue Valley(1)1,008,362 1,016,743 1,091,243 1,077,183 473,712 
First Bank & Trust900,399 893,419 903,410 844,793 857,313 
Wisconsin Bank & Trust920,168 941,109 880,217 892,020 872,090 
Premier Valley Bank706,479 707,814 719,141 689,384 676,849 
Arizona Bank & Trust754,464 693,975 578,694 646,728 593,089 
Minnesota Bank & Trust648,560 574,369 600,175 515,310 546,706 
Rocky Mountain Bank496,465 468,314 462,825 438,349 426,503 
 
(1) Formerly known as Morrill & Janes Bank and Trust Company.
(2) Includes deposits held for sale.



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
 3/31/2020 12/31/2019 9/30/2019 6/30/2019 3/31/2019
Reconciliation of Annualized Return on Average Tangible Common Equity (non-GAAP)         
Net income (GAAP)$20,040  $37,851  $34,612  $45,169  $31,497 
Plus core deposit and customer relationship intangibles amortization, net of tax(1)2,355  2,305  2,291  2,617  2,245 
Net income excluding intangible amortization (non-GAAP)$22,395  $40,156  $36,903  $47,786  $33,742 
          
Average common equity (GAAP)$1,619,682  $1,570,258  $1,541,369  $1,442,388  $1,336,250 
Less average goodwill446,345  433,374  427,097  410,642  391,668 
Less average core deposit and customer relationship intangibles, net47,632  49,389  51,704  49,868  46,490 
Average tangible common equity (non-GAAP)$1,125,705  $1,087,495  $1,062,568  $981,878  $898,092 
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)8.00% 14.65% 13.78% 19.52% 15.24%
          
Reconciliation of Annualized Net Interest Margin, Fully Tax-Equivalent (non-GAAP)         
Net Interest Income (GAAP)$112,511  $112,745  $111,321  $106,708  $102,955 
Plus tax-equivalent adjustment(1)1,131  1,109  1,140  1,268  1,412 
Net interest income, fully tax-equivalent (non-GAAP)$113,642  $113,854  $112,461  $107,976  $104,367 
          
Average earning assets$11,891,455  $11,580,295  $11,102,581  $10,552,166  $10,129,957 
Annualized net interest margin (GAAP)3.81% 3.86% 3.98% 4.06% 4.12%
Annualized net interest margin, fully tax-equivalent (non-GAAP)3.84% 3.90% 4.02% 4.10% 4.18%
Purchase accounting discount amortization on loans included in annualized net interest margin0.09% 0.17% 0.23% 0.18% 0.16%


Reconciliation of Tangible Book Value Per Common Share (non-GAAP)         
Common equity (GAAP)$1,553,714  $1,578,137  $1,563,843  $1,521,787  $1,372,102 
Less goodwill446,345  446,345  427,097  427,097  391,668 
Less core deposit and customer relationship intangibles, net45,707  48,688  49,819  52,718  44,637 
Tangible common equity (non-GAAP)$1,061,662  $1,083,104  $1,086,927  $1,041,972  $935,797 
          
Common shares outstanding, net of treasury stock36,807,217  36,704,278  36,696,190  36,690,061  34,603,611 
Common equity (book value) per share (GAAP)$42.21  $43.00  $42.62  $41.48  $39.65 
Tangible book value per common share (non-GAAP)$28.84  $29.51  $29.62  $28.40  $27.04 
          
Reconciliation of Tangible Common Equity Ratio (non-GAAP)         
Tangible common equity (non-GAAP)$1,061,662  $1,083,104  $1,086,927  $1,041,972  $935,797 
          
Total assets (GAAP)$13,294,509  $13,209,597  $12,569,262  $12,160,290  $11,312,495 
Less goodwill446,345  446,345  427,097  427,097  391,668 
Less core deposit and customer relationship intangibles, net45,707  48,688  49,819  52,718  44,637 
Total tangible assets (non-GAAP)$12,802,457  $12,714,564  $12,092,346  $11,680,475  $10,876,190 
Tangible common equity ratio (non-GAAP)8.29% 8.52% 8.99% 8.92% 8.60%
          
(1) Computed on a tax-equivalent basis using an effective tax rate of 21%.



HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
Reconciliation of Efficiency Ratio (non-GAAP)For the Quarter Ended
3/31/2020 12/31/2019 9/30/2019 6/30/2019 3/31/2019
Net interest income (GAAP)$112,511  $112,745  $111,321  $106,708  $102,955 
Tax-equivalent adjustment(1)1,131  1,109  1,140  1,268  1,412 
Fully tax-equivalent net interest income113,642  113,854  112,461  107,976  104,367 
Noninterest income25,817  28,030  29,400  32,061  26,717 
Securities gains, net(1,658) (491) (2,013) (3,580) (1,575)
Unrealized (gain)/loss on equity securities, net231  (11) (144) (112) (258)
Gain on extinguishment of debt—  —  (375) —  — 
Valuation adjustment on servicing rights1,565  (668) 626  364  589 
Adjusted revenue (non-GAAP)$139,597  $140,714  $139,955  $136,709  $129,840 
          
Total noninterest expenses (GAAP)$90,859  $92,866  $92,967  $75,098  $88,230 
Less:         
Core deposit and customer relationship intangibles amortization2,981  2,918  2,899  3,313  2,842 
Partnership investment in tax credit projects184  3,038  3,052  1,465  475 
(Gain)/loss on sales/valuation of assets, net16  1,512  356  (18,286) (3,004)
Acquisition, integration and restructuring costs1,376  537  1,500  929  3,614 
Adjusted noninterest expenses (non-GAAP)$86,302  $84,861  $85,160  $87,677  $84,303 
Efficiency ratio, fully tax-equivalent (non-GAAP)61.82% 60.31% 60.85% 64.13% 64.93%
          
Acquisition, integration and restructuring costs         
Salaries and employee benefits$44  $—  $100  $100  $616 
Occupancy—  11  —  10  1,194 
Furniture and equipment24  7  (4) 84  — 
Professional fees996  462  855  624  424 
Advertising89  31  115  52  5 
(Gain)/loss on sales/valuations of assets, net—  —  —  —  1,003 
Other noninterest expenses223  26  434  59  372 
Total acquisition, integration and restructuring costs$1,376  $537  $1,500  $929  $3,614 
After tax impact on diluted earnings per share(1)$0.03  $0.01  $0.03  $0.02  $0.08 
          
Reconciliation of Adjusted Net Income and Adjusted Diluted EPS (non-GAAP)         
Net income (GAAP)$20,040  $37,851  $34,612  $45,169  $31,497 
Provision for credit losses(1)17,001  3,873  4,109  3,885  1,292 
Acquisition, integration and restructuring costs(1)1,087  424  1,185  734  2,855 
Adjusted net income (non-GAAP)$38,128  $42,148  $39,906  $49,788  $35,644 
Diluted earnings per share (GAAP)$0.54  $1.03  $0.94  $1.26  $0.91 
Adjusted diluted earnings per share (non-GAAP)$1.03  $1.14  $1.08  $1.39  $1.03 
          
Reconciliation of Annualized Adjusted Return on Average Tangible Common Equity (non-GAAP)         
Adjusted net income (non-GAAP)$38,128  $42,148  $39,906  $49,788  $35,644 
Plus core deposit and customer relationship intangibles amortization, net of tax(1)2,355  2,305  2,291  2,617  2,245 
Adjusted net income excluding intangible amortization (non-GAAP)$40,483  $44,453  $42,197  $52,405  $37,889 
Average tangible common equity (non-GAAP)$1,125,705  $1,087,495  $1,062,568  $981,878  $898,092 
Annualized adjusted return on average tangible common equity (non-GAAP)14.46% 16.22% 15.76% 21.41% 17.11%
          
(1) Computed on a tax-equivalent basis using an effective tax rate of 21%.

CONTACT:
Bryan R. McKeag
Executive Vice President
Chief Financial Officer
(563) 589-1994