×

Heartland Financial USA, Inc. Reports 2017 First Quarter Results

Highlights

  • Quarterly net income available to common stockholders of $18.0 million in comparison with $19.8 million for the first quarter of the prior year
  • Diluted earnings per common share of $0.68 in comparison with $0.82 for the first quarter of the prior year
  • Net interest margin of 3.95%, fully tax-equivalent (non-GAAP)(1) of 4.16%
  • Return on average common equity of 9.71% and return on average tangible common equity (non-GAAP)(2) of 12.25%
  • Non-time deposits increased $269.3 million or 4% since December 31, 2016, and included $111.6 million of organic growth
  • Tangible capital ratio (non-GAAP)(3) of 7.50%
  • Completed acquisition of Founders Bancorp and systems conversion of Founders Community Bank
  • Announced definitive merger agreement with Citywide Banks of Colorado, Inc.

Quarter Ended
March 31,
2017 2016
Net income (in millions)$18.0 $20.0
Net income available to common stockholders (in millions)18.0 19.8
Diluted earnings per common share0.68 0.82
Return on average assets0.89% 0.99%
Return on average common equity9.71 12.68
Return on average tangible common equity (non-GAAP)(2)12.25 16.45
Net interest margin3.95 4.02
Net interest margin, fully tax-equivalent (non-GAAP)(1)4.16 4.19

"Heartland reported first quarter net income of $18 million, or $0.68 per diluted common share, reflective of results that were somewhat mixed. We experienced strong non-time deposit growth, a solid net interest margin and an improved tangible common equity ratio; however, weakness in loan growth and lower mortgage loan activity led to earnings that were a bit short of our expectations."

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

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

DUBUQUE, Iowa, April 24, 2017 (GLOBE NEWSWIRE) -- Heartland Financial USA, Inc. (NASDAQ:HTLF) today reported net income available to common stockholders of $18.0 million, or $0.68 per diluted common share, for the quarter ended March 31, 2017, compared to $19.8 million, or $0.82 per diluted common share, for the first quarter of 2016. Return on average common equity was 9.71% and return on average assets was 0.89% for the first quarter of 2017, compared to 12.68% and 0.99%, respectively, for the same quarter in 2016.

Commenting on Heartland’s first quarter 2017 results, Lynn B. Fuller, Heartland’s chairman and chief executive officer said, "Heartland reported first quarter net income of $18 million, or $0.68 per diluted common share, reflective of results that were somewhat mixed. We experienced strong non-time deposit growth, a solid net interest margin and an improved tangible common equity ratio; however, weakness in loan growth and lower mortgage loan activity led to earnings that were a bit short of our expectations."

On February 28, 2017, Heartland completed the acquisition of Founders Bancorp, parent company of Founders Community Bank, based in San Luis Obispo, California. Based on Heartland's closing common stock price of $49.55 per share as of February 28, 2017, the aggregate consideration was $31.0 million, with 30% of the consideration paid in cash and 70% by delivery of Heartland common stock. Simultaneous with the closing of the transaction, Founders Community Bank merged into Heartland's Premier Valley Bank subsidiary. As of the close date, Founders Community Bank had, at fair value, total assets of $213.3 million, total loans of $96.4 million and total deposits of $181.5 million. The systems conversion for this transaction occurred two weeks after the closing.

On February 13, 2017, Heartland entered into a definitive merger agreement with Citywide Banks of Colorado, Inc., parent company of Citywide Banks, headquartered in Aurora, Colorado. Under the terms of the definitive merger agreement, Heartland will acquire Citywide Banks of Colorado Inc., in a transaction valued at approximately $203.0 million as of the announcement date, subject to certain adjustments. Citywide Banks of Colorado, Inc. common shareholders will receive a combination of Heartland common stock and cash. The transaction is subject to customary closing conditions, including approval by the shareholders of Citywide Banks of Colorado, Inc., and bank regulatory authorities. The transaction is also subject to Heartland shareholders' approval of an increase in the number of authorized shares of common stock. The transaction is expected to close in the third quarter of 2017, and simultaneous with the close, Citywide Banks will merge into Heartland's Centennial Bank and Trust subsidiary. The combined entity will operate as Citywide Banks. As of December 31, 2016, Citywide Banks had total assets of $1.38 billion, including $977.6 million in net loans outstanding, and $1.20 billion of deposits.

Fuller commented, “Expansion of our banking franchise through mergers and acquisitions remains a high priority for Heartland. In the first quarter, we announced the signing of a definitive agreement to acquire Citywide Banks of Colorado, Inc. When the merger is completed, Citywide will join with Centennial Bank and Trust to create a premier community banking organization in Colorado with assets of $2.3 billion and 29 banking centers in one of the country’s best growth markets.”

Fully Tax-Equivalent Net Interest Margin Remains Above 4.00%

Net interest margin, expressed as a percentage of average earning assets, was 3.95% (4.16% on a fully tax-equivalent basis) during the first quarter of 2017, compared to 3.96% (4.14% on a fully tax-equivalent basis) during the fourth quarter of 2016 and 4.02% (4.19% on a fully tax-equivalent basis) during the first quarter of 2016.

Fuller said, "We are very pleased with our net interest margin, which reached 4.16% on a fully tax-equivalent basis for the quarter, reflecting our continued pricing discipline. We remain among the leaders in our peer group on this significant financial metric."

Interest income for the first quarter of 2017 was $80.6 million compared to the $80.7 million recorded in the first quarter of 2016. The taxable equivalent adjustment for income taxes saved on the interest earned on nontaxable securities and loans was $3.9 million for the first quarter of 2017 and $3.0 million for the first quarter of 2016. With these adjustments, interest income on a tax-equivalent basis was $84.4 million for the first quarter of 2017, an increase of $686,000 or 1%, compared to $83.7 million for the first quarter of 2016. The increase in interest income on a fully tax-equivalent basis in the first quarter of 2017, as compared to the first quarter of 2016, was primarily due to an increase in average earning assets, which totaled $7.50 billion during the first quarter of 2017 compared to $7.28 billion during the first quarter of 2016, a $225.8 million or 3% increase. A majority of this growth was attributable to the CIC Bancshares, Inc. acquisition completed on February 5, 2016, and the Founders Bancorp acquisition completed on February 28, 2017.

Interest expense for the first quarter of 2017 was $7.5 million, a decrease of $454,000 or 6% from $8.0 million in the first quarter of 2016. Average interest bearing liabilities decreased $82.2 million or 2% for the quarter ended March 31, 2017, from $5.27 billion in the same quarter in 2016, while the average interest rate paid on Heartland's interest bearing deposits and borrowings declined 2 basis points from 0.61% in the first quarter of 2016 to 0.59% in the first quarter of 2017.

Net interest income was $73.0 million during the first quarter of 2017 compared to $72.7 million during the first quarter of 2016, an increase of $321,000 or less than 1%. After the tax-equivalent adjustment discussed above, net interest income on a tax-equivalent basis totaled $76.9 million during the first quarter of 2017 compared to $75.7 million during the first quarter of 2016, an increase of $1.1 million or 2%.

Noninterest Income Decreases and Noninterest Expenses Increase From Same Quarter Last Year

Noninterest income totaled $25.9 million during the first quarter of 2017 compared to $29.6 million during the first quarter of 2016, a decrease of $3.7 million or 12%. Service charges and fees totaled $9.5 million during the first quarter of 2017 compared to $7.2 million during the first quarter of 2016, an increase of $2.3 million or 32%. This increase was primarily attributable to a larger demand deposit customer base, a portion of which was the result of the CIC Bancshares, Inc. acquisition completed during the first quarter of 2016, and increased interchange revenue from commercial card activity. Gains on sale of loans held for sale totaled $6.1 million during the first quarter of 2017 compared to $11.1 million during the first quarter of 2016, a decrease of $4.9 million or 44%, due to lower mortgage loan activity.

For the first quarter of 2017, noninterest expenses totaled $71.7 million compared to $70.3 million during the first quarter of 2016, an increase of $1.4 million or 2%. The categories with the most significant increases were professional fees, which increased $1.3 million or 19%, and advertising, which increased $1.1 million or 89%.

Heartland's effective tax rate was 23.49% for the first quarter of 2017 compared to 33.10% for the first quarter of 2016. Federal low-income housing tax credits included in the determination of Heartland's income taxes totaled $304,000 during the first quarter of both 2017 and 2016. Heartland's effective tax rate was also affected by the level of tax-exempt interest income which, as a percentage of pre-tax income, was 30.46% during the first quarter of 2017 compared to 18.88% during the first quarter of 2016. As a result of the adoption of ASU 2016-09, "Compensation-Stock Compensation (Topic 718)" on January 1, 2017, Heartland's income taxes during the first quarter of 2017 included a tax benefit of $888,000 upon the vesting of outstanding restricted stock unit awards. The majority of Heartland's restricted stock unit awards vest annually in the first quarter. Exclusive of the effect of this tax benefit, Heartland's effective tax rate for the first quarter of 2017 was 27.26%.

Loans and Deposits Increase Since December 31, 2016

Total assets were $8.36 billion at March 31, 2017, an increase of $114.8 million or 1% from $8.25 billion at year-end 2016. Included in this growth, at fair value, were $213.3 million of assets acquired in the Founders Bancorp transaction. Securities represented 26% of total assets at both March 31, 2017, and December 31, 2016.

Total loans held to maturity were $5.36 billion at March 31, 2017, compared to $5.35 billion at year-end 2016, an increase of $9.9 million or less than 1%. This increase includes $96.4 million of total loans held to maturity, at fair value, acquired in the Founders Bancorp transaction. Exclusive of this transaction, total loans held to maturity decreased $86.6 million or 2% during the first quarter of 2017.

Total deposits were $7.09 billion as of March 31, 2017, compared to $6.85 billion at year-end 2016, an increase of $242.5 million or 4%. This increase included $181.5 million of deposits, at fair value, acquired in the Founders Bancorp transaction. Exclusive of this transaction, total deposits increased $61.0 million during the first quarter of 2017. Non-time deposits totaled $6.26 billion at March 31, 2017, an increase of $269.3 million or 4% from $5.99 billion at year-end 2016, with $157.7 million of the increase attributable to the Founders Bancorp transaction. Exclusive of this transaction, non-time deposits increased $111.6 million or 2% during the first quarter of 2017.

Fuller said, “In addition to solid growth in non-time deposits, we are delighted to see a continuing favorable shift in our deposit mix with non-time funding representing 88% of total deposits, up from 83.5% one year ago. Likewise, our demand deposits now constitute almost 33% of the mix, up from 30% one year ago.”

Nonperforming Assets Increase Since December 31, 2016

Nonperforming assets were $75.7 million or 0.90% of total assets at March 31, 2017, compared to $74.8 million or 0.91% of total assets at December 31, 2016. Nonperforming loans were $63.7 million or 1.19% of total loans at March 31, 2017, compared to $64.4 million or 1.20% of total loans at December 31, 2016.

The allowance for loan losses at March 31, 2017, was 1.03% of loans and 86.29% of nonperforming loans, compared to 1.02% of loans and 84.37% of nonperforming loans at December 31, 2016. The provision for loan losses was $3.6 million for the first quarter of 2017 compared to $2.1 million for the first quarter of 2016.

Conference Call Details
Heartland will host a conference call for investors at 5:00 p.m. EDT today. To participate, dial 877-407-0782 at least five minutes before start time. To listen to the live webcast, log on to www.htlf.com at least 15 minutes before start time. A replay will be available until April 23, 2018, by logging on to www.htlf.com.

About Heartland Financial USA, Inc.
Heartland Financial USA, Inc. is a diversified financial services company with assets exceeding $8 billion. The company provides banking, mortgage, private client, investment, insurance and consumer finance services to individuals and businesses. Heartland currently has 110 banking locations serving 87 communities in Iowa, Illinois, Wisconsin, New Mexico, Arizona, Montana, Colorado, Minnesota, Kansas, Missouri, Texas and California. Additional information about Heartland Financial USA, Inc. is available at www.htlf.com.

Safe Harbor Statement
This release, and future oral and written statements of Heartland and its management, may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 about Heartland's financial condition, results of operations, plans, objectives, future performance and business. Although these forward-looking statements are based upon the beliefs, expectations and assumptions of Heartland's management, there are a number of factors, many of which are beyond the ability of management to control or predict, that could cause actual results to differ materially from those in its forward-looking statements. These factors, which are detailed in the risk factors included in Heartland's Annual Report on Form 10-K filed with the Securities and Exchange Commission, include, among others: (i) the strength of the local and national economy; (ii) the economic impact of past and any future terrorist threats and attacks and any acts of war; (iii) changes in state and federal laws, regulations and governmental policies concerning the company's general business; (iv) changes in interest rates and prepayment rates of 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; (viii) the loss of key executives or employees; (ix) changes in consumer spending; (x) unexpected outcomes of existing or new litigation involving the company; and (xi) changes in accounting policies and practices. All statements in this release, including forward-looking statements, speak only as of the date they are made, and Heartland undertakes no obligation to update any statement in light of new information or future events.

-FINANCIAL TABLES FOLLOW-

HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
For the Three Months
Ended March 31,
2017 2016
Interest Income
Interest and fees on loans$66,898 $68,425
Interest on securities:
Taxable8,253 8,644
Nontaxable5,191 3,510
Interest on federal funds sold 10
Interest bearing deposits with the Federal Reserve Bank and other banks and other short-term investments209 95
Total Interest Income80,551 80,684
Interest Expense
Interest on deposits3,730 4,173
Interest on short-term borrowings137 329
Interest on other borrowings3,656 3,475
Total Interest Expense7,523 7,977
Net Interest Income73,028 72,707
Provision for loan losses3,641 2,067
Net Interest Income After Provision for Loan Losses69,387 70,640
Noninterest Income
Service charges and fees9,457 7,162
Loan servicing income1,724 1,268
Trust fees3,631 3,813
Brokerage and insurance commissions1,036 1,022
Securities gains, net2,482 3,526
Net gains on sale of loans held for sale6,147 11,065
Valuation adjustment on commercial servicing rights5
Income on bank owned life insurance617 522
Other noninterest income794 1,200
Total Noninterest Income25,893 29,578
Noninterest Expense
Salaries and employee benefits41,767 41,714
Occupancy5,073 5,003
Furniture and equipment2,501 2,113
Professional fees8,309 7,010
FDIC insurance assessments807 1,168
Advertising2,424 1,284
Core deposit intangibles and customer relationship intangibles amortization1,171 1,895
Other real estate and loan collection expenses828 572
(Gain)/loss on sales/valuations of assets, net412 313
Other noninterest expenses8,448 9,237
Total Noninterest Expense71,740 70,309
Income Before Income Taxes23,540 29,909
Income taxes5,530 9,900
Net Income18,010 20,009
Preferred dividends(19) (168)
Interest expense on convertible preferred debt5
Net Income Available to Common Stockholders$17,996 $19,841
Earnings per common share-diluted$0.68 $0.82
Weighted average shares outstanding-diluted26,627,830 24,117,384


HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
For the Quarter Ended
3/31/2017 12/31/2016 9/30/2016 6/30/2016 3/31/2016
Interest Income
Interest and fees on loans$66,898 $69,848 $70,046 $69,809 $68,425
Interest on securities:
Taxable8,253 8,480 7,831 7,903 8,644
Nontaxable5,191 4,292 3,717 3,566 3,510
Interest on federal funds sold 1 1 10
Interest bearing deposits with the Federal Reserve Bank and other banks and other short-term investments209 157 92 52 95
Total Interest Income80,551 82,777 81,687 81,331 80,684
Interest Expense
Interest on deposits3,730 3,744 4,001 4,021 4,173
Interest on short-term borrowings137 119 235 519 329
Interest on other borrowings3,656 3,754 3,770 3,673 3,475
Total Interest Expense7,523 7,617 8,006 8,213 7,977
Net Interest Income73,028 75,160 73,681 73,118 72,707
Provision for loan losses3,641 2,181 5,328 2,118 2,067
Net Interest Income After Provision for Loan Losses69,387 72,979 68,353 71,000 70,640
Noninterest Income
Service charges and fees9,457 8,128 8,278 8,022 7,162
Loan servicing income1,724 1,068 873 1,292 1,268
Trust fees3,631 3,718 3,689 3,625 3,813
Brokerage and insurance commissions1,036 955 1,006 886 1,022
Securities gains, net2,482 1,608 1,584 4,622 3,526
Net gains on sale of loans held for sale6,147 5,840 11,459 11,270 11,065
Valuation adjustment on commercial servicing rights5 8 5 (46)
Income on bank owned life insurance617 542 620 591 522
Other noninterest income794 2,588 1,028 764 1,200
Total Noninterest Income25,893 24,455 28,542 31,026 29,578
Noninterest Expense
Salaries and employee benefits41,767 39,115 40,733 41,985 41,714
Occupancy5,073 5,076 5,099 5,220 5,003
Furniture and equipment2,501 2,944 2,746 2,442 2,113
Professional fees8,309 7,195 5,985 7,486 7,010
FDIC insurance assessments807 717 1,180 1,120 1,168
Advertising2,424 2,274 1,339 1,551 1,284
Core deposit intangibles and customer relationship intangibles amortization1,171 1,147 1,291 1,297 1,895
Other real estate and loan collection expenses828 572 640 659 572
(Gain)/loss on sales/valuations of assets, net412 414 794 (43) 313
Other noninterest expenses8,448 10,458 8,620 9,303 9,237
Total Noninterest Expense71,740 69,912 68,427 71,020 70,309
Income Before Income Taxes23,540 27,522 28,468 31,006 29,909
Income taxes5,530 8,360 8,260 10,036 9,900
Net Income18,010 19,162 20,208 20,970 20,009
Preferred dividends(19) (19) (53) (52) (168)
Interest expense on convertible preferred debt5 3 17 31
Net Income Available to Common Stockholders$17,996 $19,146 $20,172 $20,949 $19,841
Earnings per common share-diluted$0.68 $0.74 $0.81 $0.84 $0.82
Weighted average shares outstanding-diluted26,627,830 25,800,472 24,922,946 24,974,995 24,117,384


HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
As Of
3/31/2017 12/31/2016 9/30/2016 6/30/2016 3/31/2016
Assets
Cash and due from banks$129,386 $151,290 $196,234 $222,718 $124,060
Interest bearing deposits with the Federal Reserve Bank and other banks and other short-term investments43,765 7,434 5,855 7,232 9,168
Cash and cash equivalents173,151 158,724 202,089 229,950 133,228
Time deposits in other financial institutions41,539 2,105 2,105 2,105 2,355
Securities:
Available for sale, at fair value1,893,528 1,845,864 1,655,696 1,566,592 1,690,516
Held to maturity, at cost260,616 263,662 265,302 270,423 271,300
Other investments, at cost21,557 21,560 22,082 22,680 22,325
Loans held for sale49,009 61,261 78,317 82,538 76,565
Loans:
Held to maturity5,361,604 5,351,719 5,438,715 5,482,258 5,503,005
Allowance for loan losses(54,999) (54,324) (54,653) (51,756) (49,738)
Loans, net5,306,605 5,297,395 5,384,062 5,430,502 5,453,267
Premises, furniture and equipment, net165,425 164,028 165,841 168,701 164,788
Goodwill141,461 127,699 127,699 127,699 127,699
Core deposit intangibles and customer relationship intangibles, net24,068 22,775 23,922 25,213 26,510
Servicing rights, net35,441 35,778 35,906 35,654 34,910
Cash surrender value on life insurance117,613 112,615 112,060 111,425 110,834
Other real estate, net11,188 9,744 10,740 11,003 11,338
Other assets120,644 123,869 116,394 119,916 128,144
Total Assets$8,361,845 $8,247,079 $8,202,215 $8,204,401 $8,253,779
Liabilities and Equity
Liabilities
Deposits:
Demand$2,319,256 $2,202,036 $2,238,736 $2,149,911 $2,079,521
Savings3,940,146 3,788,089 3,753,300 3,691,791 3,702,431
Time830,459 857,286 920,657 995,870 1,142,368
Total deposits7,089,861 6,847,411 6,912,693 6,837,572 6,924,320
Short-term borrowings155,025 306,459 214,105 303,707 325,741
Other borrowings282,051 288,534 294,493 296,895 265,760
Accrued expenses and other liabilities53,596 63,759 76,536 78,264 68,415
Total Liabilities7,580,533 7,506,163 7,497,827 7,516,438 7,584,236
Stockholders' Equity
Preferred equity938 1,357 1,357 3,777 3,777
Common stock26,674 26,120 24,683 24,544 24,520
Capital surplus351,423 328,376 279,316 274,682 273,310
Retained earnings431,219 416,109 402,179 384,479 366,014
Accumulated other comprehensive income (loss)(28,942) (31,046) (3,079) 513 1,924
Treasury stock at cost (68) (32) (2)
Total Equity781,312 740,916 704,388 687,963 669,543
Total Liabilities and Equity$8,361,845 $8,247,079 $8,202,215 $8,204,401 $8,253,779


HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
For the Quarter Ended
3/31/2017 12/31/2016 9/30/2016 6/30/2016 3/31/2016
Average Balances
Assets$8,233,510 $8,280,042 $8,172,683 $8,211,326 $8,025,070
Loans, net of unearned5,365,654 5,473,001 5,538,088 5,582,878 5,358,102
Deposits6,896,821 6,928,978 6,839,334 6,806,259 6,679,010
Earning assets7,502,496 7,551,997 7,382,860 7,446,849 7,276,703
Interest bearing liabilities5,190,955 5,206,393 5,224,172 5,363,477 5,273,164
Common stockholders' equity751,671 726,455 689,637 669,930 629,294
Total stockholders' equity752,958 727,812 692,404 673,707 695,771
Tangible common stockholders' equity(1)596,006 575,412 537,375 516,347 485,108
Key Performance Ratios
Annualized return on average assets0.89% 0.92% 0.98% 1.03% 0.99%
Annualized return on average common equity (GAAP)9.71% 10.48% 11.64% 12.58% 12.68%
Annualized return on average common tangible equity (non-GAAP)(2)12.25% 13.24% 14.93% 16.32% 16.45%
Annualized ratio of net charge-offs to average loans0.22% 0.18% 0.17% 0.01% 0.08%
Annualized net interest margin (GAAP)3.95% 3.96% 3.97% 3.95% 4.02%
Annualized net interest margin, fully tax-equivalent (non-GAAP)(3)4.16% 4.14% 4.14% 4.12% 4.19%
Efficiency ratio, fully tax-equivalent(4)69.95% 66.29% 63.88% 67.95% 66.90%
Reconciliation of Return on Average Common Tangible Equity (non-GAAP)(5)
Net income available to common shareholders (GAAP)$17,996 $19,146 $20,172 $20,949 $19,841
Average common stockholders' equity (GAAP)$751,671 $726,455 $689,637 $669,930 $629,294
Less average goodwill132,440 127,699 127,699 127,699 119,750
Less average core deposit intangibles and customer relationship intangibles, net23,225 23,344 24,563 25,884 24,436
Average common tangible equity (non-GAAP)$596,006 $575,412 $537,375 $516,347 $485,108
Annualized return on average common equity (GAAP)9.71% 10.48% 11.64% 12.58% 12.68%
Annualized return on average common tangible equity (non-GAAP)12.25% 13.24% 14.93% 16.32% 16.45%
Reconciliation of Annualized Net Interest Margin, Fully Tax-Equivalent (non-GAAP)(6)
Net Interest Income (GAAP)$73,028 $75,160 $73,681 $73,118 $72,707
Plus taxable equivalent adjustment(7)3,860 3,511 3,221 3,146 3,041
Net interest income, fully tax-equivalent (non-GAAP)$76,888 $78,671 $76,902 $76,264 $75,748
Average earning assets$7,502,496 $7,551,997 $7,382,860 $7,446,849 $7,276,703
Annualized net interest margin (GAAP)3.95% 3.96% 3.97% 3.95% 4.02%
Annualized net interest margin, fully tax-equivalent (non-GAAP)4.16% 4.14% 4.14% 4.12% 4.19%
(1) Calculated as common stockholders' equity less goodwill and core deposit intangibles and customer relationship intangibles, net.
(2) Refer to the "Reconciliation of Return on Average Common Tangible Equity (non-GAAP)" table.
(3) Refer to the "Reconciliation of Annualized Net Interest Margin, Fully Tax-Equivalent (non-GAAP)" table.
(4) Refer to the "Reconciliation of Non-GAAP Measure-Efficiency Ratio" table that follows for details of this non-GAAP measure.
(5) Return on average common tangible equity is net income available to common stockholders divided by average common stockholders' equity less goodwill and core deposit intangibles and customer relationship intangibles, net. This financial measure is included as it is considered to be a critical metric to analyze and evaluate financial condition and capital strength. This measure should not be considered a substitute for operating results determined in accordance with GAAP.
(6) Annualized net interest margin, fully tax-equivalent is a non-GAAP measure, which adjusts net interest income for the tax-favored status of certain loans and securities. Management believes this measure enhances the comparability of net interest income arising from taxable and tax-exempt sources. This measure should not be considered a substitute for operating results determined in accordance with GAAP.
(7) Computed on a tax-equivalent basis using an effective tax rate of 35%.


HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
For the Quarter Ended
Reconciliation of Non-GAAP Measure-Efficiency Ratio(1)3/31/2017 12/31/2016 9/30/2016 6/30/2016 3/31/2016
Net interest income$73,028 $75,160 $73,681 $73,118 $72,707
Tax-equivalent adjustment(2)3,860 3,511 3,221 3,146 3,041
Fully tax-equivalent net interest income76,888 78,671 76,902 76,264 75,748
Noninterest income25,893 24,455 28,542 31,026 29,578
Securities gains, net(2,482) (1,608) (1,584) (4,622) (3,526)
Adjusted income$100,299 $101,518 $103,860 $102,668 $101,800
Total noninterest expenses$71,740 $69,912 $68,427 $71,020 $70,309
Less:
Core deposit intangibles and customer relationship intangibles amortization1,171 1,147 1,291 1,297 1,895
Partnership investment in historic rehabilitation tax credits 1,051
(Gain)/loss on sales/valuation of assets, net412 414 794 (43) 313
Adjusted noninterest expenses$70,157 $67,300 $66,342 $69,766 $68,101
Efficiency ratio, fully tax-equivalent (non-GAAP)69.95% 66.29% 63.88% 67.95% 66.90%
(1) 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 historic rehabilitation tax credits. 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 the table. This measure should not be considered a substitute for operating results determined in accordance with GAAP.
(2) Computed on a tax-equivalent basis using an effective tax rate of 35%.


HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND FULL TIME EQUIVALENT EMPLOYEE DATA
As of and for the Quarter Ended
3/31/2017 12/31/2016 9/30/2016 6/30/2016 3/31/2016
Common Share Data
Book value per common share$29.26 $28.31 $28.48 $27.88 $27.15
Tangible book value per common share (non-GAAP)(1)$23.05 $22.55 $22.34 $21.65 $20.86
ASC 320 effect on book value per common share$(1.06) $(1.15) $0.03 $0.21 $0.23
Common shares outstanding, net of treasury stock26,674,121 26,119,929 24,681,380 24,543,376 24,519,928
Tangible capital ratio (non-GAAP)(2)7.50% 7.28% 6.85% 6.60% 6.32%
Reconciliation of Tangible Book Value Per Common Share (non-GAAP)(3)
Common stockholders' equity (GAAP)$780,374 $739,559 $703,031 $684,186 $665,766
Less goodwill141,461 127,699 127,699 127,699 127,699
Less core deposit intangibles and customer relationship intangibles, net24,068 22,775 23,922 25,213 26,510
Tangible common stockholders' equity (non-GAAP)$614,845 $589,085 $551,410 $531,274 $511,557
Common shares outstanding, net of treasury stock26,674,121 26,119,929 24,681,380 24,543,376 24,519,928
Common stockholders' equity (book value) per share (GAAP)$29.26 $28.31 $28.48 $27.88 $27.15
Tangible book value per common share (non-GAAP)$23.05 $22.55 $22.34 $21.65 $20.86
Reconciliation of Tangible Capital Ratio (non-GAAP)(4)
Total assets (GAAP)$8,361,845 $8,247,079 $8,202,215 $8,204,401 $8,253,779
Less goodwill141,461 127,699 127,699 127,699 127,699
Less core deposit intangibles and customer relationship intangibles, net24,068 22,775 23,922 25,213 26,510
Total tangible assets (non-GAAP)$8,196,316 $8,096,605 $8,050,594 $8,051,489 $8,099,570
Tangible capital ratio (non-GAAP)7.50% 7.28% 6.85% 6.60% 6.32%
Loan Data
Loans held to maturity:
Commercial and commercial real estate$3,849,748 $3,825,847 $3,900,612 $3,930,879 $3,951,839
Residential mortgage604,902 617,924 625,965 644,267 666,184
Agricultural and agricultural real estate481,125 489,318 489,387 480,883 471,271
Consumer427,962 420,613 425,582 428,730 417,114
Unearned discount and deferred loan fees(2,133) (1,983) (2,831) (2,501) (3,403)
Total loans held to maturity$5,361,604 $5,351,719 $5,438,715 $5,482,258 $5,503,005
Other Selected Trend Information
Effective tax rate23.49% 30.38% 29.02% 32.37% 33.10%
Full time equivalent employees1,896 1,864 1,846 1,888 1,907
Total residential mortgage loan applications$248,614 $304,018 $445,107 $440,907 $406,999
Residential mortgage loans originated$161,851 $278,065 $324,337 $324,633 $238,266
Residential mortgage loans sold$172,521 $269,333 $315,917 $302,448 $220,381
Residential mortgage loan servicing portfolio$4,338,311 $4,308,580 $4,259,459 $4,203,429 $4,112,519
(1) Refer to the "Reconciliation of Tangible Book Value Per Common Share (non-GAAP)" table.
(2) Refer to the "Reconciliation of Tangible Capital Ratio (non-GAAP)" table.
(3) Tangible book value per common share is total common stockholders' equity less goodwill and core deposit intangibles and customer relationship intangibles, net, divided by common shares outstanding, net of treasury. This is a non-GAAP financial measure but has been included as it is considered to be a critical metric with which to analyze and evaluate financial condition and capital strength. This measure should not be considered a substitute for operating results determined in accordance with GAAP.
(4) The tangible capital ratio is total common stockholders' equity less goodwill and core deposit intangibles and customer relationship intangibles, net, divided by total assets less goodwill and core deposit intangibles and customer relationship intangibles, net. This is a non-GAAP financial measure but has been included as it is considered to be a critical metric with which to analyze and evaluate financial condition and capital strength. This measure should not be considered a substitute for operating results determined in accordance with GAAP.


HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
As of and for the Quarter Ended
3/31/2017 12/31/2016 9/30/2016 6/30/2016 3/31/2016
Allowance for Loan Losses
Balance, beginning of period$54,324 $54,653 $51,756 $49,738 $48,685
Provision for loan losses3,641 2,181 5,328 2,118 2,067
Charge-offs(3,718) (3,555) (3,283) (2,951) (1,605)
Recoveries752 1,045 852 2,851 591
Balance, end of period$54,999 $54,324 $54,653 $51,756 $49,738
Asset Quality
Nonaccrual loans$62,868 $64,299 $57,799 $57,053 $47,750
Loans past due ninety days or more as to interest or principal payments872 86 105 639
Other real estate owned11,188 9,744 10,740 11,003 11,338
Other repossessed assets739 663 821 564 426
Total nonperforming assets$75,667 $74,792 $69,465 $68,620 $60,153
Performing troubled debt restructured loans$11,010 $10,380 $10,281 $9,923 $10,711
Nonperforming Assets Activity
Balance, beginning of period$74,792 $69,465 $68,620 $60,153 $51,664
Net loan charge offs(2,966) (2,510) (2,431) (100) (1,014)
New nonperforming loans14,819 23,035 10,884 19,994 12,171
Acquired nonperforming assets 3,516
Reduction of nonperforming loans (1)(10,037) (13,707) (6,983) (10,313) (3,563)
OREO/Repossessed assets sales proceeds(715) (1,037) (343) (918) (2,411)
OREO/Repossessed assets writedowns, net(279) (274) (521) (337) (182)
Net activity at Citizens Finance Co.53 (180) 239 141 (28)
Balance, end of period$75,667 $74,792 $69,465 $68,620 $60,153
Asset Quality Ratios
Ratio of nonperforming loans to total loans1.19% 1.20% 1.06% 1.04% 0.88%
Ratio of nonperforming assets to total assets0.90% 0.91% 0.85% 0.84% 0.73%
Annualized ratio of net loan charge-offs to average loans0.22% 0.18% 0.17% 0.01% 0.08%
Allowance for loan losses as a percent of loans1.03% 1.02% 1.00% 0.94% 0.90%
Allowance for loan losses as a percent of nonperforming loans86.29% 84.37% 94.39% 90.72% 102.79%
Loans delinquent 30-89 days as a percent of total loans0.44% 0.37% 0.40% 0.73% 0.45%
(1) Includes principal reductions, transfers to performing status and transfers to OREO.


HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited)
DOLLARS IN THOUSANDS
For the Quarter Ended
March 31, 2017 March 31, 2016
Average
Balance
Interest Rate Average
Balance
Interest Rate
Earning Assets
Securities:
Taxable$1,449,054 $8,253 2.31% $1,508,432 $8,735 2.33%
Nontaxable(1)645,534 7,986 5.02 417,224 5,400 5.21
Total securities2,094,588 16,239 3.14 1,925,656 14,135 2.95
Interest bearing deposits with the Federal Reserve Bank and other banks and other short-term investments96,270 209 0.88 11,634 4 0.14
Federal funds sold314 31,126 10 0.13
Loans:(2)
Commercial and commercial real estate(1)3,813,258 45,913 4.88 3,743,940 46,754 5.02
Residential mortgage646,532 6,683 4.19 734,134 7,599 4.16
Agricultural and agricultural real estate(1)483,079 5,554 4.66 467,978 5,729 4.92
Consumer422,785 8,053 7.72 412,050 7,923 7.73
Fees on loans 1,760 1,571
Less: allowance for loan losses(54,330) (49,815)
Net loans5,311,324 67,963 5.19 5,308,287 69,576 5.27
Total earning assets7,502,496 84,411 4.56% 7,276,703 83,725 4.63%
Nonearning Assets731,014 748,367
Total Assets$8,233,510 $8,025,070
Interest Bearing Liabilities
Savings$3,838,001 $2,105 0.22% $3,556,207 $1,894 0.21%
Time, $100,000 and over348,782 725 0.84 498,620 871 0.70
Other time deposits484,336 900 0.75 642,301 1,408 0.88
Short-term borrowings235,432 137 0.24 311,161 329 0.43
Other borrowings284,404 3,656 5.21 264,875 3,475 5.28
Total interest bearing liabilities5,190,955 7,523 0.59% 5,273,164 7,977 0.61%
Noninterest Bearing Liabilities
Noninterest bearing deposits2,225,702 1,981,882
Accrued interest and other liabilities63,895 74,253
Total noninterest bearing liabilities2,289,597 2,056,135
Stockholders' Equity752,958 695,771
Total Liabilities and Stockholders' Equity$8,233,510 $8,025,070
Net interest income, fully tax-equivalent (non-GAAP)(1) $76,888 $75,748
Net interest spread(1) 3.97% 4.02%
Net interest income, fully tax-equivalent (non-GAAP) to total earning assets(3) 4.16% 4.19%
Interest bearing liabilities to earning assets69.19% 72.47%
Reconciliation of annualized net interest margin, fully tax-equivalent (non-GAAP)3
Net interest income, fully taxable equivalent (non-GAAP) $76,888 $75,748
Adjustments for tax-equivalent interest(1) (3,860) (3,041)
Net interest income (GAAP) $73,028 $72,707
Average earning assets$7,502,496 $7,276,703
Annualized net interest margin (GAAP) 3.95% 4.02%
Annualized net interest margin, fully tax-equivalent (non-GAAP) 4.16% 4.19%
(1) Computed on a tax-equivalent basis using an effective tax rate of 35%.
(2) Nonaccrual loans are included in the average loans outstanding.
(3) Annualized net interest margin, fully tax-equivalent is a non-GAAP measure, which adjusts net interest income for the tax-favored status of certain loans and securities. Management believes this measure enhances the comparability of net interest income arising from taxable and tax exempt sources. This measure should not be considered a substitute for operating results determined in accordance with GAAP.


HEARTLAND FINANCIAL USA, INC.
SELECTED FINANCIAL DATA - SUBSIDIARY BANKS (Unaudited)
DOLLARS IN THOUSANDS
As of and For the Quarter Ended
3/31/201712/31/20169/30/20166/30/20163/31/2016
Total Assets
Dubuque Bank and Trust Company$1,436,038 $1,497,775 $1,448,796 $1,473,461 $1,498,771
New Mexico Bank & Trust1,382,480 1,374,647 1,318,203 1,321,113 1,304,886
Wisconsin Bank & Trust1,033,633 1,065,715 1,068,288 1,080,224 1,094,872
Morrill & Janes Bank and Trust Company871,819 863,544 862,767 843,069 872,274
Premier Valley Bank854,838 640,684 635,620 629,423 751,137
Centennial Bank and Trust839,505 901,782 892,723 909,697 927,040
Illinois Bank & Trust746,669 742,173 748,801 742,697 718,074
Arizona Bank & Trust578,597 582,266 574,561 577,002 558,369
Rocky Mountain Bank479,121 477,063 481,346 473,583 479,010
Minnesota Bank & Trust213,789 229,114 238,745 230,004 220,955
Total Portfolio Loans
Dubuque Bank and Trust Company$903,617 $905,242 $906,347 $928,869 $941,683
New Mexico Bank & Trust906,477 924,249 917,679 870,109 815,739
Wisconsin Bank & Trust644,380 650,254 711,714 732,503 758,789
Morrill & Janes Bank and Trust Company546,123 548,544 538,666 522,518 536,738
Premier Valley Bank440,406 348,879 354,610 376,275 376,840
Centennial Bank and Trust572,254 609,760 638,006 668,547 683,085
Illinois Bank & Trust469,105 473,008 469,236 466,983 465,783
Arizona Bank & Trust384,028 384,706 385,926 390,078 402,431
Rocky Mountain Bank330,921 347,839 357,346 362,475 364,189
Minnesota Bank & Trust142,736 144,098 139,581 144,009 137,412
Total Deposits
Dubuque Bank and Trust Company$1,212,899 $1,231,016 $1,182,947 $1,159,942 $1,144,470
New Mexico Bank & Trust1,184,675 1,091,436 1,101,550 1,062,410 1,066,076
Wisconsin Bank & Trust868,033 899,676 889,957 911,915 921,071
Morrill & Janes Bank and Trust Company721,075 738,036 676,176 696,073 698,365
Premier Valley Bank708,226 510,142 520,814 514,522 635,188
Centennial Bank and Trust712,377 733,449 767,128 775,417 779,607
Illinois Bank & Trust641,750 636,419 671,104 653,582 629,235
Arizona Bank & Trust501,111 477,213 493,331 497,599 468,312
Rocky Mountain Bank420,067 414,344 420,581 405,888 409,787
Minnesota Bank & Trust189,324 194,368 214,651 207,228 200,343
Net Income
Dubuque Bank and Trust Company$2,056 $806 $5,112 $4,475 $6,073
New Mexico Bank & Trust4,419 4,061 3,824 5,642 4,094
Wisconsin Bank & Trust1,968 2,970 3,368 3,399 3,379
Morrill & Janes Bank and Trust Company2,227 2,519 1,707 2,133 2,525
Premier Valley Bank1,306 2,969 1,804 1,695 1,960
Centennial Bank and Trust1,366 1,572 925 256 824
Illinois Bank & Trust1,991 1,917 2,179 2,397 2,027
Arizona Bank & Trust1,486 1,305 2,034 2,121 1,841
Rocky Mountain Bank1,521 1,229 1,456 1,484 1,064
Minnesota Bank & Trust591 888 675 559 531

Bryan R. McKeag Executive Vice President Chief Financial Officer (563) 589-1994 bmckeag@htlf.com

Source:Heartland Financial USA, Inc.