Heartland Financial USA, Inc. Reports First Quarter 2018 Results

Highlights

  • Total assets exceed $10.0 billion for the first time in company history
  • Quarterly net income available to common stockholders of $23.3 million in comparison with $18.0 million for the first quarter of the prior year
  • Diluted earnings per common share of $0.76 in comparison with $0.68 for the first quarter of the prior year
  • Net interest margin of 4.19%, fully tax-equivalent (non-GAAP)(1) of 4.26%
  • Organic loan growth of $30.1 million and organic non-time deposit growth of $106.4 million
  • Return on average common equity of 9.32% and return on average tangible common equity (non-GAAP)(2) of 13.03%
  • Tangible common equity ratio (non-GAAP)(3) of 7.59%
  • Completed the acquisition of Signature Bancshares, Inc. with systems integrated in April

 Quarter Ended
March 31, 2018 2017Net income (in millions)$23.3  $18.0 Net income available to common stockholders (in millions)23.3  18.0 Diluted earnings per common share0.76  0.68     Return on average assets0.97% 0.89%Return on average common equity9.32  9.71 Return on average tangible common equity (non-GAAP)(2)13.03  12.25 Net interest margin4.19  3.95 Net interest margin, fully tax-equivalent (non-GAAP)(1)4.26  4.16 

“Heartland reported another solid quarter with net income available to common stockholders of $23.3 million, a nearly thirty percent increase over the same quarter last year. For the first time in company history, our total assets exceeded $10 billion, and total stockholders‘ equity exceeded $1 billion.” 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 Tangible Common Equity (non-GAAP)” table included in this earnings release.
(3) Refer to the “Reconciliation of Tangible Common Equity Ratio (non-GAAP)” table included in this earnings release.

DUBUQUE, Iowa, April 30, 2018 (GLOBE NEWSWIRE) — Heartland Financial USA, Inc. (NASDAQ:) today reported net income available to common stockholders of $23.3 million, or $0.76 per diluted common share, for the quarter ended March 31, 2018, compared to $18.0 million, or $0.68 per diluted common share, for the first quarter of 2017. Return on average common equity was 9.32% and return on average assets was 0.97% for the first quarter of 2018, compared to 9.71% and 0.89%, respectively, for the same quarter in 2017.

Commenting on Heartland’s first quarter results, Lynn B. Fuller, Heartland’s chairman and chief executive officer said, “Heartland reported another solid quarter with net income available to common stockholders of $23.3 million, a nearly thirty percent increase over the same quarter last year. For the first time in company history, our total assets exceeded $10 billion, and total stockholders‘ equity exceeded $1 billion.”

On February 23, 2018, Heartland completed the acquisition of Signature Bancshares, Inc., parent company of Signature Bank, based in Minnetonka, Minnesota. Based on Heartland‘s closing common stock price of $53.55 per share as of February 23, 2018, the aggregate consideration was $61.4 million, with approximately 10% of the consideration paid in cash and 90% paid by delivery of Heartland common stock. Simultaneous with the closing of the transaction, Signature Bank merged into Heartland‘s Minnesota Bank & Trust subsidiary. As of the close date, Signature Bank had, at fair value, total assets of $426.5 million, total loans of $324.5 million and total deposits of $357.3 million. The systems conversion for this transaction occurred on April 20, 2018.

In the first quarter of 2018, Heartland recorded $2.6 million of restructuring expenses related to its mortgage lending operation. The restructuring projects are primarily related to outsourcing the loan application processing, underwriting and loan closing functions. These changes will improve the customer experience, streamline operations and reduce the volatility and cost of originating mortgage loans.  The restructuring is expected to be substantially completed by the end of the second quarter of 2018 and will result in a workforce reduction of approximately 100 employees and the discontinued use of several current systems.

Fully Tax-Equivalent Net Interest Margin Increases from First Quarter of 2017

Net interest margin, expressed as a percentage of average earning assets, was 4.19% (4.26% on a fully tax-equivalent basis) during the first quarter of 2018, compared to 4.14% (4.30% on a fully tax-equivalent basis) during the fourth quarter of 2017 and 3.95% (4.16% on a fully tax-equivalent basis) during the first quarter of 2017.

Fuller said, “We were pleased to see net interest margin remained solid at 4.26 percent on a fully tax-equivalent basis, which is an increase of 10 basis points from the first quarter of 2017. The strong margin reflects improved yields on earning assets.”

Interest income for the first quarter of 2018 was $101.2 million compared to $80.6 million recorded in the first quarter of 2017. The taxable equivalent adjustment for income taxes saved on the interest earned on nontaxable securities and loans was $1.5 million for the first quarter of 2018 and $3.9 million for the first quarter of 2017. With these adjustments, interest income on a tax-equivalent basis was $102.8 million for the first quarter of 2018, an increase of $18.3 million or 22%, compared to $84.4 million for the first quarter of 2017. Average earning assets acquired in the Signature Bancshares, Inc. transaction totaled $148.9 million. Exclusive of this transaction, average earning assets increased $1.21 billion or 16% from the first quarter of 2017. The average rate on earning assets increased 14 basis points to 4.70% for the first quarter of 2018 compared to 4.56% for the same quarter in 2017. The increase in interest income on a tax-equivalent basis was primarily due to recent increases in market interest rates and the increase in average earning assets.

Interest expense on deposits and borrowings for the first quarter of 2018 was $9.6 million, an increase of $2.1 million or 28% from $7.5 million in the first quarter of 2017. Average interest bearing deposits increased $595.3 million or 13% to $5.27 billion for the quarter ended March 31, 2018, from $4.67 billion in the same quarter in 2017. Average interest bearing deposits acquired with the Signature Bancshares Inc. transaction totaled $100.7 million. Exclusive of this transaction, average interest bearing deposits increased $494.6 million or 11%. The average interest rate paid on Heartland‘s interest bearing deposits increased 12 basis points to 0.44% for the first quarter of 2018 compared to 0.32% for the same quarter in 2017. Average borrowings declined $91.9 million or 18% to $427.9 million during the first quarter of 2018 from $519.8 million during the same quarter in 2017. The average interest rate paid on Heartland‘s borrowings was 3.66% for the first quarter of 2018 compared to 2.96% in the first quarter of 2017. The increase in the average interest rate paid on Heartland‘s interest bearing liabilities is primarily due to recent increases in market interest rates.

Net interest income was $91.6 million during the first quarter of 2018 compared to $73.0 million during the first quarter of 2017, an increase of $18.6 million or 25%. After the tax-equivalent adjustment discussed above, net interest income on a tax-equivalent basis totaled $93.1 million during the first quarter of 2018 compared to $76.9 million during the first quarter of 2017, an increase of $16.2 million or 21%.

Noninterest Income Decreases and Noninterest Expenses Increase from First Quarter of 2017

Noninterest income totaled $24.7 million during the first quarter of 2018 compared to $25.9 million during the first quarter of 2017, a decrease of $1.2 million or 5%. Trust fees, which are based on the market value of managed assets, increased $1.0 million or 29% to $4.7 million recorded in the first quarter of 2018 compared to $3.6 million recorded in the same quarter of 2017. Securities gains, net, decreased $1.0 million or 42% to $1.4 million for the first quarter of 2018 compared to $2.5 million for the first quarter of 2017. Net gains on sale of loans held for sale totaled $4.1 million during the first quarter of 2018 compared to $6.1 million during the first quarter of 2017, a decrease of $2.1 million or 34%, primarily due to lower residential mortgage loan activity.

For the first quarter of 2018, noninterest expenses totaled $83.6 million compared to $71.7 million during the first quarter of 2017, an increase of $11.9 million or 17%. Salaries and employee benefits increased $6.9 million or 17% to $48.7 million for the first quarter of 2018 compared to $41.8 million for the same quarter in 2017, which is primarily due to the increase in full time equivalent employees. Heartland had 2,022 full time equivalent employees at March 31, 2018, compared to 1,896 full time equivalent employees at March 31, 2017. As previously discussed, Heartland recorded $2.6 million of restructuring expenses related to its mortgage lending operation during the first quarter of 2018.

Heartland‘s effective tax rate was 18.04% for the first quarter of 2018 compared to 23.49% for the first quarter of 2017. Federal low-income housing tax credits included in the determination of Heartland‘s income taxes totaled $307,000 during the first quarter of 2018 compared to $304,000 for the first quarter of 2017. Heartland‘s effective tax rate was also affected by the passage of the Tax Cuts and Jobs Act in December 2017, which reduced the federal income tax rate from a maximum of 35% to 21% beginning January 1, 2018. The level of tax-exempt interest income as a percentage of pre-tax income was 20.46% during the first quarter of 2018 compared to 30.46% during the first quarter of 2017.

Loans and Deposits Increase Since December 31, 2017

Total assets were $10.06 billion at March 31, 2018, an increase of $245.1 million or 2% from $9.81 billion at year-end 2017. Excluding $427.1 million of assets acquired at fair value in the Signature Bancshares Inc. transaction, total assets decreased $181.9 million or 2% since December 31, 2017. The decrease in assets was primarily due to a reduction in the securities portfolio, which represented 23% and 25% of total assets at March 31, 2018, and December 31, 2017, respectively.

Total loans held to maturity were $6.75 billion at March 31, 2018, compared to $6.39 billion at year-end 2017, an increase of $354.6 million or 6%. This change includes $324.5 million of total loans held to maturity acquired at fair value in the Signature Bancshares, Inc. transaction. Exclusive of this transaction, total loans held to maturity increased $30.1 million or less than 1% since December 31, 2017.

Total deposits were $8.54 billion as of March 31, 2018, compared to $8.15 billion at year-end 2017, an increase of $394.6 million or 5%. This increase included $357.3 million of deposits, at fair value, acquired in the Signature Bancshares, Inc. transaction. Exclusive of this transaction, total deposits increased $37.3 million or less than 1% since December 31, 2017. Demand deposits increased $111.3 million or 4% to $3.09 billion at March 31, 2018 compared to $2.98 billion at December 31, 2017. Excluding $105.5 million of demand deposits attributable to the Signature Bancshares, Inc. transaction, demand deposits increased $5.8 million or less than 1% since year-end 2017. Savings deposits increased $295.8 million or 7% to $4.54 billion at March 31, 2018, from $4.24 billion at December 31, 2017. Excluding savings deposits of $195.2 million acquired in the Signature Bancshares, Inc. transaction, savings deposits increased $100.6 million or 2% since year-end 2017.

Bruce K. Lee, Heartland‘s president, said, “We are pleased to see organic loan growth for the third consecutive quarter, which was fueled by growth in the commercial and agricultural loan portfolios. Organic non-time deposit growth was over $106 million during the first quarter of 2018, and demand deposits now represent 36 percent of our total deposit mix.”

Nonperforming Assets Increase Since December 31, 2017

Nonperforming assets were $77.1 million or 0.77% of total assets at March 31, 2018, compared to $74.6 million or 0.76% of total assets at December 31, 2017. Excluding $2.5 million of nonperforming assets acquired in the Signature Bancshares, Inc. transaction, nonperforming assets totaled $74.6 million at March 31, 2018, which is unchanged from year-end 2017. Nonperforming loans were $64.8 million or 0.96% of total loans at March 31, 2018, compared to $63.4 million or 0.99% of total loans at December 31, 2017.

The allowance for loan losses at March 31, 2018, was 0.87% of loans and 90.48% of nonperforming loans, compared to 0.87% of loans and 87.82% of nonperforming loans at December 31, 2017. The provision for loan losses increased $622,000 or 17% to $4.3 million for the first quarter of 2018 compared to $3.6 million for the same quarter in 2017. Given the size of Heartland‘s loan portfolio, the level of organic loan growth, acquired loans that move out of the purchase accounting pool, changes in credit quality and the variability that can occur in the factors considered when determining the appropriateness of the allowance for loan losses, Heartland‘s quarterly provision expense will vary from quarter to quarter.

  

Conference Call Details
Heartland will host a conference call for investors at 5:00 p.m. EDT today. To participate, dial at least five minutes before start time. To listen to the live webcast, log on to www.htlf at least 15 minutes before start time. A replay will be available until April 29, 2019, by logging on to www.htlf.

About Heartland Financial USA, Inc.
Heartland Financial USA, Inc. is a diversified financial services company with assets of $10.1 billion. The company provides banking, mortgage, private client, investment, insurance and consumer finance services to individuals and businesses. Heartland currently has 118 banking locations serving 89 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.

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 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; (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; (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; (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,
 2018 2017Interest Income   Interest and fees on loans$85,651  $66,898 Interest on securities:   Taxable11,577  8,253 Nontaxable3,579  5,191 Interest on federal funds sold—  — Interest bearing deposits with the Federal Reserve Bank and other banks and other short-term investments407  209 Total Interest Income101,214  80,551 Interest Expense   Interest on deposits5,766  3,730 Interest on short-term borrowings268  137 Interest on other borrowings3,596  3,656 Total Interest Expense9,630  7,523 Net Interest Income91,584  73,028 Provision for loan losses4,263  3,641 Net Interest Income After Provision for Loan Losses87,321  69,387 Noninterest Income   Service charges and fees10,079  9,457 Loan servicing income1,754  1,724 Trust fees4,680  3,631 Brokerage and insurance commissions907  1,036 Securities gains, net1,441  2,482 Unrealized loss on equity securities, net(28) — Net gains on sale of loans held for sale4,051  6,147 Valuation adjustment on commercial servicing rights(2) 5 Income on bank owned life insurance614  617 Other noninterest income1,220  794 Total Noninterest Income24,716  25,893 Noninterest Expense   Salaries and employee benefits48,710  41,767 Occupancy6,043  5,073 Furniture and equipment2,749  2,501 Professional fees8,459  8,309 FDIC insurance assessments989  807 Advertising1,940  2,424 Core deposit intangibles and customer relationship intangibles amortization1,863  1,171 Other real estate and loan collection expenses732  828 (Gain)/loss on sales/valuations of assets, net(197) 412 Restructuring expenses2,564  — Other noninterest expenses9,794  8,448 Total Noninterest Expense83,646  71,740 Income Before Income Taxes28,391  23,540 Income taxes5,123  5,530 Net Income23,268  18,010 Preferred dividends(13) (19)Interest expense on convertible preferred debt—  5 Net Income Available to Common Stockholders$23,255  $17,996 Earnings per common share-diluted$0.76  $0.68 Weighted average shares outstanding-diluted30,645,212  26,627,830 

HEARTLAND FINANCIAL USA, INC.CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited)DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA For the Quarter Ended 3/31/2018 12/31/2017 9/30/2017 6/30/2017 3/31/2017Interest Income         Interest and fees on loans$85,651  $86,108  $82,906  $68,094  $66,898 Interest on securities:         Taxable11,577  11,119  10,394  8,599  8,253 Nontaxable3,579  4,401  5,086  5,020  5,191 Interest on federal funds sold—  5  34  3  — Interest bearing deposits with the Federal Reserve Bank and other banks and other short-term investments407  435  558  345  209 Total Interest Income101,214  102,068  98,978  82,061  80,551 Interest Expense         Interest on deposits5,766  5,313  5,073  4,163  3,730 Interest on short-term borrowings268  180  271  90  137 Interest on other borrowings3,596  3,719  3,790  3,228  3,656 Total Interest Expense9,630  9,212  9,134  7,481  7,523 Net Interest Income91,584  92,856  89,844  74,580  73,028 Provision for loan losses4,263  5,328  5,705  889  3,641 Net Interest Income After Provision for Loan Losses87,321  87,528  84,139  73,691  69,387 Noninterest Income         Service charges and fees10,079  9,892  10,138  9,696  9,457 Loan servicing income1,754  1,400  1,161  1,351  1,724 Trust fees4,680  4,336  3,872  3,979  3,631 Brokerage and insurance commissions907  1,071  950  976  1,036 Securities gains, net1,441  1,420  1,679  1,392  2,482 Unrealized loss on equity securities, net(28) —  —  —  — Net gains on sale of loans held for sale4,051  4,290  4,997  6,817  6,147 Valuation adjustment on commercial servicing rights(2) (8) 5  19  5 Income on bank owned life insurance614  733  766  656  617 Other noninterest income1,220  2,394  1,409  738  794 Total Noninterest Income24,716  25,528  24,977  25,624  25,893 Noninterest Expense         Salaries and employee benefits48,710  43,289  45,225  41,126  41,767 Occupancy6,043  5,892  6,223  5,056  5,073 Furniture and equipment2,749  3,148  2,826  2,586  2,501 Professional fees8,459  8,537  8,450  7,583  8,309 FDIC insurance assessments989  985  894  909  807 Advertising1,940  2,088  1,358  1,359  2,424 Core deposit intangibles and customer relationship intangibles amortization1,863  1,825  1,863  1,218  1,171 Other real estate and loan collection expenses732  687  581  365  828 (Gain)/loss on sales/valuations of assets, net(197) 833  1,342  (112) 412 Restructuring expenses2,564  —  —  —  — Other noninterest expenses9,794  10,594  9,997  9,208  8,448 Total Noninterest Expense83,646  77,878  78,759  69,298  71,740 Income Before Income Taxes28,391  35,178  30,357  30,017  23,540 Income taxes5,123  21,506  8,725  8,059  5,530 Net Income23,268  13,672  21,632  21,958  18,010 Preferred dividends(13) (13) (13) (13) (19)Interest expense on convertible preferred debt—  —  3  4  5 Net Income Available to Common Stockholders$23,255  $13,659  $21,622  $21,949  $17,996 Earnings per common share-diluted$0.76  $0.45  $0.72  $0.81  $0.68 Weighted average shares outstanding-diluted30,645,212  30,209,043  29,910,437  26,972,580  26,627,830 

HEARTLAND FINANCIAL USA, INC.CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited)DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA  As Of  3/31/2018 12/31/2017 9/30/2017 6/30/2017 3/31/2017Assets          Cash and due from banks $143,071  $168,723  $180,751  $141,100  $129,386 Interest bearing deposits with the Federal Reserve Bank and other banks and other short-term investments 123,275  27,280  70,985  40,676  43,765 Cash and cash equivalents 266,346  196,003  251,736  181,776  173,151 Time deposits in other financial institutions 6,297  9,820  19,793  30,241  41,539 Securities:          Available for sale, at fair value 2,027,665  2,216,753  2,093,385  1,789,441  1,893,528 Held to maturity, at cost 249,766  253,550  256,355  259,586  260,616 Other investments, at cost 22,982  22,563  23,176  21,094  21,557 Loans held for sale 24,376  44,560  35,795  48,848  49,009 Loans:          Held to maturity 6,746,015  6,391,464  6,373,415  5,325,082  5,361,604  Allowance for loan losses (58,656) (55,686) (54,885) (54,051) (54,999)Loans, net 6,687,359  6,335,778  6,318,530  5,271,031  5,306,605 Premises, furniture and equipment, net 172,862  174,301  178,961  163,003  165,425 Goodwill 270,305  236,615  236,615  141,461  141,461 Core deposit intangibles and customer relationship intangibles, net 41,063  35,203  37,028  22,850  24,068 Servicing rights, net 25,471  25,857  26,599  34,736  35,441 Cash surrender value on life insurance 143,444  142,818  142,073  120,281  117,613 Other real estate, net 11,801  10,777  13,226  9,269  11,188 Other assets 106,126  106,141  122,355  111,104  120,644 Total Assets $10,055,863  $9,810,739  $9,755,627  $8,204,721  $8,361,845 Liabilities and Equity          Liabilities          Deposits:           Demand $3,094,457  $2,983,128  $3,009,940  $2,355,410  $2,319,256  Savings 4,536,106  4,240,328  4,227,340  3,704,579  3,940,146  Time 910,977  923,453  994,604  870,180  830,459 Total deposits 8,541,540  8,146,909  8,231,884  6,930,169  7,089,861 Short-term borrowings 131,240  324,691  171,871  139,130  155,025 Other borrowings 276,118  285,011  301,473  281,096  282,051 Accrued expenses and other liabilities 55,460  62,671  68,715  48,356  53,596 Total Liabilities 9,004,358  8,819,282  8,773,943  7,398,751  7,580,533 Stockholders‘ Equity          Preferred equity 938  938  938  938  938 Common stock 31,068  29,953  29,946  26,701  26,674 Capital surplus 557,990  503,709  503,262  352,500  351,423 Retained earnings 500,959  481,331  468,556  450,228  431,219 Accumulated other comprehensive loss (39,450) (24,474) (21,018) (24,397) (28,942)Total Equity 1,051,505  991,457  981,684  805,970  781,312 Total Liabilities and Equity $10,055,863  $9,810,739  $9,755,627  $8,204,721  $8,361,845 

HEARTLAND FINANCIAL USA, INC.CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited)DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA For the Quarter Ended 3/31/2018 12/31/2017 9/30/2017 6/30/2017 3/31/2017Average Balances         Assets$9,759,936  $9,807,621  $9,639,844  $8,333,301  $8,233,510 Loans, net of unearned6,525,553  6,343,923  6,286,264  5,376,826  5,365,654 Deposits8,251,140  8,293,006  8,100,028  7,050,126  6,896,821 Earning assets8,857,801  8,891,432  8,726,228  7,586,256  7,502,496 Interest bearing liabilities5,694,337  5,663,816  5,697,713  5,146,243  5,190,955 Common stockholders‘ equity1,011,580  986,026  954,511  791,039  751,671 Total stockholders‘ equity1,012,518  986,964  955,449  791,977  752,958 Tangible common stockholders‘ equity(1)723,898  713,018  691,464  625,929  596,006           Key Performance Ratios         Annualized return on average assets0.97% 0.55% 0.89% 1.06% 0.89%Annualized return on average common equity (GAAP)9.32% 5.50% 8.99% 11.13% 9.71%Annualized return on average tangible common equity (non-GAAP)(2)13.03% 7.60% 12.41% 14.07% 12.25%Annualized ratio of net charge-offs to average loans0.08% 0.28% 0.31% 0.14% 0.22%Annualized net interest margin (GAAP)4.19% 4.14% 4.08% 3.94% 3.95%Annualized net interest margin, fully tax-equivalent (non-GAAP)(3)4.26% 4.30% 4.26% 4.14% 4.16%Efficiency ratio, fully tax-equivalent(4)68.21% 62.26% 64.54% 65.61% 69.95%          Reconciliation of Return on Average Tangible Common Equity (non-GAAP)(5)         Net income available to common shareholders (GAAP)$23,255  $13,659  $21,622  $21,949  $17,996           Average common stockholders‘ equity (GAAP)$1,011,580  $986,026  $954,511  $791,039  $751,671   Less average goodwill250,172  236,615  226,097  141,461  132,440 Less average core deposit intangibles and customer relationship intangibles, net37,510  36,393  36,950  23,649  23,225 Average tangible common equity (non-GAAP)$723,898  $713,018  $691,464  $625,929  $596,006 Annualized return on average common equity (GAAP)9.32% 5.50% 8.99% 11.13% 9.71%Annualized return on average tangible common equity (non-GAAP)13.03% 7.60% 12.41% 14.07% 12.25%          Reconciliation of Annualized Net Interest Margin, Fully Tax-Equivalent (non-GAAP)(6)         Net Interest Income (GAAP)$91,584  $92,856  $89,844  $74,580  $73,028   Plus tax-equivalent adjustment(7)1,544  3,558  3,925  3,796  3,860 Net interest income, fully tax-equivalent (non-GAAP)$93,128  $96,414  $93,769  $78,376  $76,888           Average earning assets$8,857,801  $8,891,432  $8,726,228  $7,586,256  $7,502,496           Annualized net interest margin (GAAP)4.19% 4.14% 4.08% 3.94% 3.95%Annualized net interest margin, fully tax-equivalent (non-GAAP)4.26% 4.30% 4.26% 4.14% 4.16% (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 Tangible Common 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 21% for the quarter ended March 31, 2018, and 35% for all prior quarters.

HEARTLAND FINANCIAL USA, INC. CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited) DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA Reconciliation of Non-GAAP Measure-Efficiency Ratio(1)For the Quarter Ended 3/31/2018 12/31/2017 9/30/2017 6/30/2017 3/31/2017Net interest income$91,584  $92,856  $89,844  $74,580  $73,028 Tax-equivalent adjustment(2)1,544  3,558  3,925  3,796  3,860 Fully tax-equivalent net interest income93,128  96,414  93,769  78,376  76,888 Noninterest income24,716  25,528  24,977  25,624  25,893 Securities gains, net(1,441) (1,420) (1,679) (1,392) (2,482)Unrealized loss on equity securities28  —  —  —  — Gain on extinguishment of debt—  (1,280) —  —  — Adjusted income$116,431  $119,242  $117,067  $102,608  $100,299           Total noninterest expenses$83,646  $77,878  $78,759  $69,298  $71,740 Less:         Core deposit intangibles and customer relationship intangibles amortization1,863  1,825  1,863  1,218  1,171 Partnership investment in tax credit projects—  984  —  876  — (Gain)/loss on sales/valuation of assets, net(197) 833  1,342  (112) 412   Restructuring expenses2,564  —  —  —  — Adjusted noninterest expenses$79,416  $74,236  $75,554  $67,316  $70,157           Efficiency ratio, fully tax-equivalent (non-GAAP)68.21% 62.26% 64.54% 65.61% 69.95%          (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 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 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 21% for the quarter ended March 31, 2018, and 35% for all prior quarters.

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 3/31/2018 12/31/2017 9/30/2017 6/30/2017 3/31/2017Common Share Data         Book value per common share$33.81  $33.07  $32.75  $30.15  $29.26 Tangible book value per common share (non-GAAP)(1)$23.79  $23.99  $23.61  $24.00  $23.05 Common shares outstanding, net of treasury stock31,068,239  29,953,356  29,946,069  26,701,226  26,674,121 Tangible common equity ratio (non-GAAP)(2)7.59% 7.53% 7.46% 7.97% 7.50%          Reconciliation of Tangible Book Value Per Common Share (non-GAAP)(3)         Common stockholders‘ equity (GAAP)$1,050,567  $990,518  $980,746  $805,032  $780,374 Less goodwill270,305  236,615  236,615  141,461  141,461 Less core deposit intangibles and customer relationship intangibles, net41,063  35,203  37,028  22,850  24,068 Tangible common stockholders‘ equity (non-GAAP)$739,199  $718,700  $707,103  $640,721  $614,845           Common shares outstanding, net of treasury stock31,068,239  29,953,356  29,946,069  26,701,226  26,674,121 Common stockholders‘ equity (book value) per share (GAAP)$33.81  $33.07  $32.75  $30.15  $29.26 Tangible book value per common share (non-GAAP)$23.79  $23.99  $23.61  $24.00  $23.05           Reconciliation of Tangible Common Equity Ratio (non-GAAP)(4)         Total assets (GAAP)$10,055,863  $9,810,739  $9,755,627  $8,204,721  $8,361,845    Less goodwill270,305  236,615  236,615  141,461  141,461  Less core deposit intangibles and customer relationship intangibles, net41,063  35,203  37,028  22,850  24,068 Total tangible assets (non-GAAP)$9,744,495  $9,538,921  $9,481,984  $8,040,410  $8,196,316 Tangible common equity ratio (non-GAAP)7.59% 7.53% 7.46% 7.97% 7.50%          Loan Data         Loans held to maturity:         Commercial and commercial real estate$5,129,777  $4,809,875  $4,777,856  $3,803,011  $3,849,748 Residential mortgage624,725  624,279  635,611  596,385  604,902 Agricultural and agricultural real estate518,386  511,588  511,764  495,243  481,125 Consumer474,929  447,484  450,088  431,052  427,962 Unearned discount and deferred loan fees(1,802) (1,762) (1,904) (609) (2,133)Total loans held to maturity$6,746,015  $6,391,464  $6,373,415  $5,325,082  $5,361,604           Other Selected Trend Information         Effective tax rate18.04% 61.13% 28.74% 26.85% 23.49%Full time equivalent employees2,022  2,008  2,024  1,862  1,896 Total residential mortgage loan applications$234,825  $232,946  $271,476  $308,113  $248,614 Residential mortgage loans originated$149,768  $185,580  $198,911  $216,637  $161,851 Residential mortgage loans sold$127,963  $168,527  $188,501  $180,296  $172,521 Residential mortgage loan servicing portfolio$3,535,988  $3,558,090  $3,557,866  $4,340,243  $4,338,311           (1) Refer to the “Reconciliation of Tangible Book Value Per Common Share (non-GAAP)” table.(2) Refer to the “Reconciliation of Tangible Common Equity 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 common equity 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 3/31/2018 12/31/2017 9/30/2017 6/30/2017 3/31/2017Allowance for Loan Losses         Balance, beginning of period$55,686  $54,885  $54,051  $54,999  $54,324 Provision for loan losses4,263  5,328  5,705  889  3,641 Charge-offs(2,224) (5,628) (5,759) (2,766) (3,718)Recoveries931  1,101  888  929  752 Balance, end of period$58,656  $55,686  $54,885  $54,051  $54,999           Asset Quality         Nonaccrual loans$64,806  $62,581  $63,456  $65,393  $62,868 Loans past due ninety days or more as to interest or principal payments22  830  2,348  698  872 Other real estate owned11,801  10,777  13,226  9,269  11,188 Other repossessed assets423  411  773  675  739 Total nonperforming assets$77,052  $74,599  $79,803  $76,035  $75,667           Performing troubled debt restructured loans$3,206  $6,617  $10,040  $11,157  $11,010           Nonperforming Assets Activity         Balance, beginning of period$74,599  $79,803  $76,035  $75,667  $74,792 Net loan charge offs(1,293) (4,527) (4,871) (1,837) (2,966)New nonperforming loans8,546  9,911  9,117  13,700  14,819 Acquired nonperforming assets2,459  —  7,991  —  — Reduction of nonperforming loans(1)(6,549) (7,177) (5,183) (7,443) (10,037)OREO/Repossessed assets sales proceeds(657) (2,917) (3,328) (3,734) (715)OREO/Repossessed assets writedowns, net(16) (146) (56) (259) (279)Net activity at Citizens Finance Co.(37) (348) 98  (59) 53 Balance, end of period$77,052  $74,599  $79,803  $76,035  $75,667  Asset Quality Ratios         Ratio of nonperforming loans to total loans0.96% 0.99% 1.03% 1.24% 1.19%Ratio of nonperforming assets to total assets0.77% 0.76% 0.82% 0.93% 0.90%Annualized ratio of net loan charge-offs to average loans0.08% 0.28% 0.31% 0.14% 0.22%Allowance for loan losses as a percent of loans0.87% 0.87% 0.86% 1.02% 1.03%Allowance for loan losses as a percent of nonperforming loans90.48% 87.82% 83.41% 81.78% 86.29%Loans delinquent 30-89 days as a percent of total loans0.21% 0.27% 0.33% 0.38% 0.44%          (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, 2018 March 31, 2017 Average
Balance
 Interest Rate Average
Balance
 Interest RateEarning Assets           Securities:           Taxable$1,827,611  $11,577  2.57% $1,449,054  $8,253  2.31%Nontaxable(1)448,641  4,530  4.09  645,534  7,986  5.02 Total securities2,276,252  16,107  2.87  2,094,588  16,239  3.14 Interest bearing deposits with the Federal Reserve Bank and other banks and other short-term investments112,024  407  1.47  96,270  209  0.88 Federal funds sold—  —  —  314  —  — Loans:(2)           Commercial and commercial real estate(1)4,910,797  62,813  5.19  3,813,258  45,913  4.88 Residential mortgage642,181  6,851  4.33  646,532  6,683  4.19 Agricultural and agricultural real estate(1)513,780  6,004  4.74  483,079  5,554  4.66 Consumer458,795  8,660  7.66  422,785  8,053  7.72 Fees on loans  1,916  —    1,760  — Less: allowance for loan losses(56,028) —  —  (54,330) —  — Net loans6,469,525  86,244  5.41  5,311,324  67,963  5.19 Total earning assets8,857,801  102,758  4.70% 7,502,496  84,411  4.56%Nonearning Assets902,135      731,014     Total Assets$9,759,936      $8,233,510     Interest Bearing Liabilities           Savings$4,358,508  $3,791  0.35% $3,838,001  $2,105  0.22%Time, $100,000 and over377,443  776  0.83  348,782  725  0.84 Other time deposits530,485  1,199  0.92  484,336  900  0.75 Short-term borrowings147,738  268  0.74  235,432  137  0.24 Other borrowings280,163  3,596  5.21  284,404  3,656  5.21 Total interest bearing liabilities5,694,337  9,630  0.69% 5,190,955  7,523  0.59%Noninterest Bearing Liabilities           Noninterest bearing deposits2,984,704      2,225,702     Accrued interest and other liabilities68,377      63,895     Total noninterest bearing liabilities3,053,081      2,289,597     Stockholders‘ Equity1,012,518      752,958     Total Liabilities and Stockholders‘ Equity$9,759,936      $8,233,510     Net interest income, fully tax-equivalent (non-GAAP)(1)  $93,128      $76,888   Net interest spread(1)    4.01%     3.97%Net interest income, fully tax-equivalent (non-GAAP) to total earning assets(3)    4.26%     4.16%Interest bearing liabilities to earning assets64.29%     69.19%                Reconciliation of annualized net interest margin, fully tax-equivalent (non-GAAP)(3)           Net interest income, fully tax-equivalent (non-GAAP)  $93,128      $76,888   Adjustments for tax-equivalent interest(1)  (1,544)     (3,860)  Net interest income (GAAP)  $91,584      $73,028               Average earning assets$8,857,801      $7,502,496     Annualized net interest margin (GAAP)  4.19%     3.95%  Annualized net interest margin, fully tax-equivalent (non-GAAP)  4.26%     4.16%              (1) Computed on a tax-equivalent basis using an effective tax rate of 21% for the quarter ended March 31, 2018, and 35% for all prior quarters.(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 3/31/201812/31/20179/30/20176/30/20173/31/2017Total Assets     Citywide Banks(1)$2,299,818 $2,289,956 $2,391,727 $817,859 $839,505 Dubuque Bank and Trust Company1,490,100 1,443,419 1,479,647 1,441,655 1,436,038 New Mexico Bank & Trust1,416,788 1,453,534 1,425,185 1,407,991 1,382,480 Wisconsin Bank & Trust1,017,053 1,079,222 1,030,192 1,035,628 1,033,633 Premier Valley Bank805,014 925,078 886,495 850,956 854,838 Illinois Bank & Trust751,371 783,127 761,285 740,153 746,669 Morrill & Janes Bank and Trust Company648,568 654,871 719,246 748,286 871,819 Arizona Bank & Trust633,474 602,182 566,951 566,339 578,597 Minnesota Bank & Trust631,852 210,157 217,246 216,957 213,789 Rocky Mountain Bank490,917 487,136 486,790 476,829 479,121 Total Deposits     Citywide Banks(1)$1,914,726 $1,895,540 $1,924,605 $682,872 $712,377 Dubuque Bank and Trust Company1,193,271 1,084,415 1,139,512 1,178,368 1,212,899 New Mexico Bank & Trust1,202,051 1,229,324 1,221,134 1,190,758 1,184,675 Wisconsin Bank & Trust835,919 890,835 852,489 874,845 868,033 Premier Valley Bank660,070 705,142 714,605 681,298 708,226 Illinois Bank & Trust674,391 692,227 691,680 669,532 641,750 Morrill & Janes Bank and Trust Company558,174 563,638 605,390 627,857 721,075 Arizona Bank & Trust567,515 522,490 500,270 493,419 501,111 Minnesota Bank & Trust533,893 178,036 189,749 193,365 189,324 Rocky Mountain Bank429,000 424,487 426,405 416,436 420,067 Net Income     Citywide Banks(1)$5,463 $1,069 $4,541 $746 $1,366 Dubuque Bank and Trust Company3,214 9,027 703 3,477 2,056 New Mexico Bank & Trust6,444 2,954 4,972 5,855 4,419 Wisconsin Bank & Trust2,617 2,210 3,368 3,448 1,968 Premier Valley Bank2,373 1,508 2,907 2,573 1,306 Illinois Bank & Trust2,712 794 2,286 1,984 1,991 Morrill & Janes Bank and Trust Company1,186 650 1,760 2,210 2,227 Arizona Bank & Trust2,104 (103)1,451 1,073 1,486 Minnesota Bank & Trust762 106 791 563 591 Rocky Mountain Bank1,172 1,769 1,631 1,732 1,521       (1) Formerly known as Centennial Bank and Trust.

:Bryan R. McKeagExecutive Vice PresidentChief Financial Officerbmckeag