Highlights

  • Quarterly net income available to common stockholders of $33.7 million in comparison with $21.6 million for the third quarter of the prior year
  • Diluted earnings per common share of $0.97 in comparison with $0.72 for the third quarter of the prior year
  • Net interest margin of 4.32%, fully tax-equivalent (non-GAAP)(1) of 4.38%
  • Return on average common equity of 10.58% and return on average tangible common equity (non-GAAP)(2) of 16.30%
  • Tangible common equity ratio (non-GAAP)(3) of 7.70%
  • Efficiency ratio, fully tax-equivalent (non-GAAP)(4) of 62.40% in comparison with 64.54% for the third quarter of 2017
  • Completed the systems conversion of First Bank & Trust on August 17, 2018


 Quarter Ended
September 30,
 Nine Months Ended
September 30,
 2018 2017 2018 2017
Net income (in millions)$33.7  $21.6  $84.9  $61.6 
Net income available to common stockholders (in millions)33.7  21.6  84.8  61.6 
Diluted earnings per common share0.97  0.72  2.59  2.21 
        
Return on average assets1.18% 0.89% 1.07% 0.94%
Return on average common equity10.58  8.99  9.95  9.88 
Return on average tangible common equity (non-GAAP)(2)16.30  12.41  14.71  12.90 
Net interest margin4.32  4.08  4.25  4.00 
Net interest margin, fully tax-equivalent (non-GAAP)(1)4.38  4.26  4.32  4.19 
Efficiency ratio, fully-tax equivalent (non-GAAP)(4)62.40  64.54  65.03  66.58 

(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.
(4) Refer to the "Reconciliation of Non-GAAP measure-Efficiency Ratio" table included in this earnings release.

"Heartland reported another excellent quarter with net income available to common stockholders of $33.7 million or $0.97 per diluted common share, which was driven by a strong net interest margin on a fully tax-equivalent basis of 4.38 percent and continued improvement in our efficiency ratio."
Lynn B. Fuller, executive operating chairman, Heartland Financial USA, Inc.

DUBUQUE, Iowa, Oct. 29, 2018 (GLOBE NEWSWIRE) -- Heartland Financial USA, Inc. (NASDAQ: HTLF) today reported net income available to common stockholders of $33.7 million, or $0.97 per diluted common share, for the quarter ended September 30, 2018, compared to $21.6 million, or $0.72 per diluted common share, for the third quarter of 2017. Return on average common equity was 10.58% and return on average assets was 1.18% for the third quarter of 2018, compared to 8.99% and 0.89%, respectively, for the same quarter in 2017.

Net income available to common stockholders for the nine months ended September 30, 2018, was $84.8 million or $2.59 per diluted common share, compared to $61.6 million or $2.21 per diluted common share for the nine months ended September 30, 2017. Return on average common equity was 9.95% and return on average assets was 1.07% for the first nine months of 2018, compared to 9.88% and 0.94% for the same period in 2017.

Commenting on Heartland’s third quarter results, Lynn B. Fuller, Heartland’s executive operating chairman, said, "Heartland reported another excellent quarter with net income available to common stockholders of $33.7 million or $0.97 per diluted common share, which was driven by a strong net interest margin on a fully tax-equivalent basis of 4.38 percent and continued improvement in our efficiency ratio."

On May 18, 2018, Heartland completed the acquisition of Lubbock, Texas based First Bank Lubbock Bancshares, Inc. ("FBLB"), parent company of First Bank & Trust, and PrimeWest Mortgage Corporation, which is a wholly-owned subsidiary of First Bank & Trust. Based on Heartland's closing common stock price of $55.05 per share on May 18, 2018, the aggregate consideration paid to FBLB common shareholders was $189.9 million, with approximately 3% of the consideration paid in cash and 97% paid by delivery of Heartland common stock. As a result of the transaction, First Bank & Trust became a wholly-owned subsidiary of Heartland and its 11th state-chartered bank. First Bank & Trust and PrimeWest Mortgage Corporation continue to operate under their present brands and management teams. As of the closing date, FBLB had, at fair value, total assets of $1.12 billion, total loans held to maturity of $681.1 million and total deposits of $893.8 million. Heartland also assumed, at fair value, $8.2 million of trust preferred debt. The systems conversion for this transaction occurred on August 17, 2018.

In the third quarter of 2018, Heartland closed three branch locations, consisting of one branch at Dubuque Bank and Trust Company, Arizona Bank & Trust and Rocky Mountain Bank. Additionally, Wisconsin Bank & Trust announced the sale of two branches, which resulted in the classification of $31.4 million of loans and $50.3 million of deposits as held for sale at September 30, 2018. The sales transaction is expected to close in the first quarter of 2019, pending regulatory approval. Excluding the pending branch sales, Heartland operated 122 branch locations across its footprint at September 30, 2018.

Bruce K. Lee, Heartland's president and chief executive officer, stated, "We continue to optimize our branch network and capitalize on the favorable market value of our branches. We are focusing our efforts in markets where we are well-positioned for growth."

Net Interest Margin Increases from Third Quarter of 2017

Net interest margin, expressed as a percentage of average earning assets, was 4.32% (4.38% on a fully tax-equivalent basis, non-GAAP) during the third quarter of 2018, compared to 4.08% (4.26% on a fully tax-equivalent basis, non-GAAP) during the third quarter of 2017 and 4.23% (4.30% on a fully tax-equivalent basis, non-GAAP) during the second quarter of 2018.

"We are very pleased with our tax-equivalent net interest margin of 4.38 percent for the third quarter of 2018, which increased 12 basis points from 4.26 percent for the third quarter of 2017. The improved margin was driven by an increase in average earning assets and a favorable deposit mix," Lee said.

Total interest income for the third quarter of 2018 was $124.9 million compared to $99.0 million recorded in the third quarter of 2017, an increase of $25.9 million or 26%. The taxable equivalent adjustment for income taxes saved on the interest earned on nontaxable securities and loans was $1.5 million for the third quarter of 2018 and $3.9 million for the third quarter of 2017. With these adjustments, total interest income on a tax-equivalent basis was $126.4 million for the third quarter of 2018, an increase of $23.5 million or 23%, compared to total interest income on a tax-equivalent basis of $102.9 million for the third quarter of 2017. Average earning assets increased $1.43 billion or 16% from the third quarter of 2017, which was primarily attributable to the acquisitions completed in the first half of 2018. The average rate on earning assets increased 26 basis points to 4.94% for the third quarter of 2018 compared to 4.68% 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.

Total interest expense for the third quarter of 2018 was $14.2 million, an increase of $5.1 million or 56% from $9.1 million in the third quarter of 2017. Average interest bearing deposits increased $938.3 million or 18% to $6.13 billion for the quarter ended September 30, 2018, from $5.19 billion in the same quarter in 2017, which was primarily attributable to recent acquisitions. The average interest rate paid on Heartland's interest bearing deposits increased 26 basis points to 0.65% for the third quarter of 2018 compared to 0.39% for the same quarter in 2017. Average borrowings declined $91.1 million or 18% to $419.0 million during the third quarter of 2018 from $510.0 million during the same quarter in 2017. The average interest rate paid on Heartland's borrowings was 3.91% for the third quarter of 2018 compared to 3.16% in the third quarter of 2017. The increase of 75 basis points in the average interest rate paid on Heartland's interest bearing liabilities was primarily due to recent increases in market interest rates.

Net interest income was $110.7 million during the third quarter of 2018 compared to $89.8 million during the third quarter of 2017, an increase of $20.8 million or 23%. After the tax-equivalent adjustment discussed above, net interest income on a tax-equivalent basis totaled $112.2 million during the third quarter of 2018 compared to net interest income on a tax-equivalent basis of $93.8 million during the third quarter of 2017, an increase of $18.5 million or 20%.

Noninterest Income and Noninterest Expense Increase from Third Quarter of 2017

Total noninterest income was $29.8 million during the third quarter of 2018 compared to $25.0 million during the third quarter of 2017, an increase of $4.8 million or 19%. Service charges and fees increased $2.8 million or 27% to $12.9 million for the third quarter of 2018 compared to $10.1 million for the same quarter of 2017. Service charges related to credit card income increased $1.1 million or 54% to $3.1 million for the third quarter of 2018 from $2.0 million for the same quarter of 2017. The remainder of the increase in service charges was primarily attributable to Heartland's larger customer base as a result of recent acquisitions. Securities losses, net, totaled $145,000 for the third quarter of 2018 compared to net securities gains of $1.7 million for the third quarter of 2017. Net gains on sale of loans held for sale totaled $7.4 million during the third quarter of 2018 compared to $5.0 million during the same quarter in 2017, which was an increase of $2.4 million or 48%, primarily due to the acquisition of PrimeWest Mortgage Corporation in the second quarter of 2018.

For the third quarter of 2018, total noninterest expense was $92.5 million compared to $78.8 million during the third quarter of 2017, an increase of $13.8 million or 17%. Salaries and employee benefits increased $4.7 million or 10% to $49.9 million for the third quarter of 2018 compared to $45.2 million for the same quarter in 2017, which was primarily due to the increase in full time equivalent employees from recent acquisitions. Heartland had 2,211 full time equivalent employees at September 30, 2018, compared to 2,024 full time equivalent employees at September 30, 2017. Professional fees increased $3.2 million or 38% to $11.7 million for the third quarter of 2018 compared to $8.5 million for the same period in 2017, which was primarily attributable to the outsourcing of mortgage loan processing, underwriting and loan closing functions. Advertising expenses increased $1.4 million or 103% to $2.8 million for the third quarter of 2018 compared to $1.4 million for the third quarter of 2017, which related to increased marketing efforts to support Heartland's expanding footprint. Other noninterest expenses were $12.9 million for the third quarter of 2018 compared to $10.0 million for the third quarter of 2017, which was an increase of $2.9 million or 29%. Included in this increase was a write-down of $338,000 on a partnership investment that qualifies for solar energy tax credits. The remainder of the increase was primarily attributable to recent acquisitions.

Heartland's effective tax rate was 20.99% for the third quarter of 2018 compared to 28.74% for the third quarter of 2017. Federal low-income housing tax credits included in the determination of Heartland's income taxes totaled $307,000 during both the third quarter of 2018 and 2017. Included in Heartland's third quarter 2018 tax calculation was a solar energy tax credit totaling $223,000. 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. Due to the lower federal tax rate, the level of tax-exempt interest income as a percentage of pre-tax income declined to 13.62% during the third quarter of 2018 from 24.01% during the third quarter of 2017.

Loans and Deposits Increase Since December 31, 2017

Total assets were $11.34 billion at September 30, 2018, an increase of $1.52 billion or 16% from $9.81 billion at year-end 2017. Excluding $427.1 million of assets acquired at fair value in the Signature Bancshares, Inc. transaction and $1.12 billion of assets acquired at fair value in the FBLB transaction, total assets decreased $20.1 million or less than 1% since December 31, 2017. Securities represented 22% and 25% of total assets at September 30, 2018, and December 31, 2017, respectively.

Total loans held to maturity were $7.37 billion at September 30, 2018, compared to $6.39 billion at year-end 2017, an increase of $974.0 million or 15%. This change includes $324.5 million of total loans held to maturity acquired at fair value in the Signature Bancshares, Inc. transaction and $681.1 million of total loans held to maturity acquired at fair value in the FBLB transaction. During the third quarter of 2018, the sale of two branches at Wisconsin Bank & Trust was announced, which included $31.4 million of loans that were classified as held for sale at September 30, 2018. Exclusive of these transactions, total loans held to maturity decreased $140,000 or less than 1% since year-end 2017.

Total deposits were $9.51 billion as of September 30, 2018, compared to $8.15 billion at year-end 2017, an increase of $1.37 billion or 17%. This increase included $357.3 million of deposits, at fair value, acquired in the Signature Bancshares, Inc. transaction and $893.8 million of deposits, at fair value, acquired in the FBLB transaction. The deposits classified as held for sale in conjunction with the branch sale at Wisconsin Bank & Trust totaled $50.3 million at September 30, 2018. Exclusive of these transactions, total deposits increased $164.4 million or 2% since December 31, 2017.

Demand deposits increased $444.7 million or 15% to $3.43 billion at September 30, 2018 compared to $2.98 billion at December 31, 2017. Excluding $299.0 million of demand deposits attributable to the Signature Bancshares, Inc. and FBLB transactions, demand deposits increased $145.7 million or 5% since year-end 2017. For the third quarter of 2018, demand deposits increased $28.2 million or 1% to $3.43 billion from $3.40 billion at June 30, 2018.

Savings deposits increased $718.1 million or 17% to $4.96 billion at September 30, 2018, from $4.24 billion at December 31, 2017. Excluding savings deposits of $619.0 million acquired in the Signature Bancshares, Inc. and FBLB transactions, savings deposits increased $99.1 million or 2% since year-end 2017. Savings deposits increased $93.7 million or 2% during the third quarter to $4.96 billion at September 30, 2018 from $4.86 billion at June 30, 2018.

Time deposits increased $202.5 million or 22% to $1.13 billion at September 30, 2018 from $923.5 million at December 31, 2017. Excluding time deposits acquired in 2018 of $333.1 million, time deposits decreased $130.6 million or 14% since year-end and $98.9 million or 8% since June 30, 2018.

"Organic non-time deposit growth continued to be impressive with a year-to-date increase of $244.7 million or 5 percent annualized. At September 30, 2018, non-time deposits represented 88 percent of total deposits," Lee stated.

Nonperforming Assets Increase Since December 31, 2017

Nonperforming assets were $85.6 million or 0.76% of total assets at September 30, 2018, compared to $74.6 million or 0.76% of total assets at December 31, 2017. Excluding $10.4 million of nonperforming assets acquired in the Signature Bancshares, Inc. and FBLB transactions, nonperforming assets increased $586,000 or 1% since year-end 2017. Nonperforming loans were $73.2 million or 0.99% of total loans at September 30, 2018, compared to $63.4 million or 0.99% of total loans at December 31, 2017. At September 30, 2018, loans delinquent 30-89 days were 0.62% of total loans compared to 0.27% of total loans at December 31, 2017. The increase was primarily attributable to credits from acquired portfolios that were past due at September 30, 2018.

The allowance for loan losses at September 30, 2018, was 0.83% of loans and 83.62% of nonperforming loans, compared to 0.87% of loans and 87.82% of nonperforming loans at December 31, 2017. The provision for loan losses decreased $467,000 to $5.2 million for the third quarter of 2018 compared to $5.7 million for the same quarter in 2017.

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 October 28, 2019, 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 $11.3 billion. The company provides banking, mortgage, private client, investment, insurance and consumer finance services to individuals and businesses. Heartland currently has 122 banking locations serving 91 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 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 Quarter Ended
September 30,
 For the Nine Months Ended
September 30,
 2018 2017 2018 2017
Interest Income       
Interest and fees on loans$105,733  $82,906  $288,171  $217,898 
Interest on securities:       
Taxable14,433  10,394  38,280  27,246 
Nontaxable3,490  5,086  10,653  15,297 
Interest on federal funds sold  34    37 
Interest bearing deposits with the Federal Reserve Bank and other banks and other short-term investments1,238  558  2,413  1,112 
Total Interest Income124,894  98,978  339,517  261,590 
Interest Expense       
Interest on deposits10,092  5,073  23,841  12,966 
Interest on short-term borrowings464  271  1,279  498 
Interest on other borrowings3,660  3,790  10,726  10,674 
Total Interest Expense14,216  9,134  35,846  24,138 
Net Interest Income110,678  89,844  303,671  237,452 
Provision for loan losses5,238  5,705  14,332  10,235 
Net Interest Income After Provision for Loan Losses105,440  84,139  289,339  227,217 
Noninterest Income       
Service charges and fees12,895  10,138  35,046  29,291 
Loan servicing income1,670  1,161  5,231  4,236 
Trust fees4,499  3,872  13,794  11,482 
Brokerage and insurance commissions1,111  950  2,895  2,962 
Securities gains/(losses), net(145) 1,679  1,037  5,553 
Unrealized gain/(loss) on equity securities, net54    97   
Net gains on sale of loans held for sale7,410  4,997  18,261  17,961 
Valuation adjustment on servicing rights230  5  12  29 
Income on bank owned life insurance892  766  2,206  2,039 
Other noninterest income1,149  1,409  3,536  2,941 
Total Noninterest Income29,765  24,977  82,115  76,494 
Noninterest Expense       
Salaries and employee benefits49,921  45,225  149,389  128,118 
Occupancy6,348  6,223  18,706  16,352 
Furniture and equipment3,470  2,826  9,403  7,913 
Professional fees11,681  8,450  30,088  24,342 
FDIC insurance assessments1,119  894  2,792  2,610 
Advertising2,754  1,358  6,839  5,141 
Core deposit intangibles and customer relationship intangibles amortization2,626  1,863  6,763  4,252 
Other real estate and loan collection expenses784  581  2,464  1,774 
(Gain)/loss on sales/valuations of assets, net912  1,342  2,243  1,642 
Restructuring expenses    2,564   
Other noninterest expenses12,924  9,997  33,816  27,653 
Total Noninterest Expense92,539  78,759  265,067  219,797 
Income Before Income Taxes42,666  30,357  106,387  83,914 
Income taxes8,956  8,725  21,530  22,314 
Net Income33,710  21,632  84,857  61,600 
Preferred dividends(13) (13) (39) (45)
Interest expense on convertible preferred debt  3    12 
Net Income Available to Common Stockholders$33,697  $21,622  $84,818  $61,567 
Earnings per common share-diluted$0.97  $0.72  $2.59  $2.21 
Weighted average shares outstanding-diluted34,644,187  29,910,437  32,707,481  27,833,924 


HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
 For the Quarter Ended
 9/30/2018 6/30/2018 3/31/2018 12/31/2017 9/30/2017
Interest Income         
Interest and fees on loans$105,733  $96,787  $85,651  $86,108  $82,906 
Interest on securities:         
Taxable14,433  12,270  11,577  11,119  10,394 
Nontaxable3,490  3,584  3,579  4,401  5,086 
Interest on federal funds sold      5  34 
Interest bearing deposits with the Federal Reserve Bank and other banks and other short-term investments1,238  768  407  435  558 
Total Interest Income124,894  113,409  101,214  102,068  98,978 
Interest Expense         
Interest on deposits10,092  7,983  5,766  5,313  5,073 
Interest on short-term borrowings464  547  268  180  271 
Interest on other borrowings3,660  3,470  3,596  3,719  3,790 
Total Interest Expense14,216  12,000  9,630  9,212  9,134 
Net Interest Income110,678  101,409  91,584  92,856  89,844 
Provision for loan losses5,238  4,831  4,263  5,328  5,705 
Net Interest Income After Provision for Loan Losses105,440  96,578  87,321  87,528  84,139 
Noninterest Income         
Service charges and fees12,895  12,072  10,079  9,892  10,138 
Loan servicing income1,670  1,807  1,754  1,400  1,161 
Trust fees4,499  4,615  4,680  4,336  3,872 
Brokerage and insurance commissions1,111  877  907  1,071  950 
Securities gains/(losses), net(145) (259) 1,441  1,420  1,679 
Unrealized gain/(loss) on equity securities, net54  71  (28)    
Net gains on sale of loans held for sale7,410  6,800  4,051  4,290  4,997 
Valuation adjustment on servicing rights230  (216) (2) (8) 5 
Income on bank owned life insurance892  700  614  733  766 
Other noninterest income1,149  1,167  1,220  2,394  1,409 
Total Noninterest Income29,765  27,634  24,716  25,528  24,977 
Noninterest Expense         
Salaries and employee benefits49,921  50,758  48,710  43,289  45,225 
Occupancy6,348  6,315  6,043  5,892  6,223 
Furniture and equipment3,470  3,184  2,749  3,148  2,826 
Professional fees11,681  9,948  8,459  8,537  8,450 
FDIC insurance assessments1,119  684  989  985  894 
Advertising2,754  2,145  1,940  2,088  1,358 
Core deposit intangibles and customer relationship intangibles amortization2,626  2,274  1,863  1,825  1,863 
Other real estate and loan collection expenses784  948  732  687  581 
(Gain)/loss on sales/valuations of assets, net912  1,528  (197) 833  1,342 
Restructuring expenses    2,564     
Other noninterest expenses12,924  11,098  9,794  10,594  9,997 
Total Noninterest Expense92,539  88,882  83,646  77,878  78,759 
Income Before Income Taxes42,666  35,330  28,391  35,178  30,357 
Income taxes8,956  7,451  5,123  21,506  8,725 
Net Income33,710  27,879  23,268  13,672  21,632 
Preferred dividends(13) (13) (13) (13) (13)
Interest expense on convertible preferred debt        3 
Net Income Available to Common Stockholders$33,697  $27,866  $23,255  $13,659  $21,622 
Earnings per common share-diluted$0.97  $0.85  $0.76  $0.45  $0.72 
Weighted average shares outstanding-diluted34,644,187  32,830,751  30,645,212  30,209,043  29,910,437 


HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
 As of
 9/30/2018 6/30/2018 3/31/2018 12/31/2017 9/30/2017
Assets         
Cash and due from banks$196,847  $193,069  $143,071  $168,723  $180,751 
Interest bearing deposits with the Federal Reserve Bank and other banks and other short-term investments240,528  194,937  123,275  27,280  70,985 
Cash and cash equivalents437,375  388,006  266,346  196,003  251,736 
Time deposits in other financial institutions5,836  6,803  6,297  9,820  19,793 
Securities:         
Carried at fair value2,274,215  2,197,117  2,027,665  2,216,753  2,093,385 
Held to maturity, at cost239,908  244,271  249,766  253,550  256,355 
Other investments, at cost26,656  26,725  22,982  22,563  23,176 
Loans held for sale77,727  55,684  24,376  44,560  35,795 
Loans:         
Held to maturity7,365,493  7,477,697  6,746,015  6,391,464  6,373,415 
Allowance for loan losses(61,221) (61,324) (58,656) (55,686) (54,885)
Loans, net7,304,272  7,416,373  6,687,359  6,335,778  6,318,530 
Premises, furniture and equipment, net198,224  199,959  172,862  174,301  178,961 
Goodwill391,668  391,668  270,305  236,615  236,615 
Core deposit intangibles and customer relationship intangibles, net50,071  52,698  41,063  35,203  37,028 
Servicing rights, net32,039  31,996  25,471  25,857  26,599 
Cash surrender value on life insurance162,216  159,302  143,444  142,818  142,073 
Other real estate, net11,908  11,074  11,801  10,777  13,226 
Other assets123,017  120,244  106,126  106,141  122,355 
Total Assets$11,335,132  $11,301,920  $10,055,863  $9,810,739  $9,755,627 
Liabilities and Equity         
Liabilities         
Deposits:         
Demand$3,427,819  $3,399,598  $3,094,457  $2,983,128  $3,009,940 
Savings4,958,430  4,864,773  4,536,106  4,240,328  4,227,340 
Time1,125,914  1,224,773  910,977  923,453  994,604 
Total deposits9,512,163  9,489,144  8,541,540  8,146,909  8,231,884 
Deposits held for sale50,312         
Short-term borrowings131,139  229,890  131,240  324,691  171,871 
Other borrowings277,563  258,708  276,118  285,011  301,473 
Accrued expenses and other liabilities83,562  68,431  55,460  62,671  68,715 
Total Liabilities10,054,739  10,046,173  9,004,358  8,819,282  8,773,943 
Stockholders' Equity         
Preferred equity  938  938  938  938 
Common stock34,473  34,438  31,068  29,953  29,946 
Capital surplus742,080  740,128  557,990  503,709  503,262 
Retained earnings553,662  524,786  500,959  481,331  468,556 
Accumulated other comprehensive loss(49,822) (44,543) (39,450) (24,474) (21,018)
Total Equity1,280,393  1,255,747  1,051,505  991,457  981,684 
Total Liabilities and Equity$11,335,132  $11,301,920  $10,055,863  $9,810,739  $9,755,627 


HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
 For the Quarter Ended
September 30,
 For the Nine Months Ended
September 30,
2018 2017 2018 2017
Average Balances       
Assets$11,291,289  $9,639,844  $10,570,453  $8,740,703 
Loans, net of unearned7,462,176  6,286,264  7,040,401  5,679,620 
Deposits9,530,743  8,100,028  8,938,297  7,353,399 
Earning assets10,154,591  8,726,228  9,547,147  7,942,810 
Interest bearing liabilities6,544,949  5,697,713  6,151,275  5,346,826 
Common stockholders' equity1,263,226  954,511  1,139,149  833,150 
Total stockholders' equity1,263,795  955,449  1,139,963  834,203 
Tangible common stockholders' equity(1)819,966  691,464  770,884  638,149 
        
Key Performance Ratios       
Annualized return on average assets1.18% 0.89% 1.07% 0.94%
Annualized return on average common equity (GAAP)10.58% 8.99% 9.95% 9.88%
Annualized return on average tangible common equity (non-GAAP)(2)16.30% 12.41% 14.71% 12.90%
Annualized ratio of net charge-offs to average loans0.28% 0.31% 0.17% 0.23%
Annualized net interest margin (GAAP)4.32% 4.08% 4.25% 4.00%
Annualized net interest margin, fully tax-equivalent (non-GAAP)(3)4.38% 4.26% 4.32% 4.19%
Efficiency ratio, fully tax-equivalent(4)62.40% 64.54% 65.03% 66.58%
        
Reconciliation of Return on Average Tangible Common Equity (non-GAAP)(5)       
Net income available to common shareholders (GAAP)$33,697  $21,622  $84,818  $61,567 
        
Average common stockholders' equity (GAAP)$1,263,226  $954,511  $1,139,149  $833,150 
Less average goodwill391,668  226,097  323,058  167,009 
Less average core deposit intangibles and customer relationship intangibles, net51,592  36,950  45,207  27,992 
Average tangible common equity (non-GAAP)$819,966  $691,464  $770,884  $638,149 
Annualized return on average common equity (GAAP)10.58% 8.99% 9.95% 9.88%
Annualized return on average tangible common equity (non-GAAP)16.30% 12.41% 14.71% 12.90%
        
Reconciliation of Annualized Net Interest Margin, Fully Tax-Equivalent (non-GAAP)(6)       
Net Interest Income (GAAP)$110,678  $89,844  $303,671  $237,452 
Plus tax-equivalent adjustment(7)1,544  3,925  4,663  11,581 
Net interest income, tax-equivalent (non-GAAP)

$112,222  $93,769  $308,334  $249,033 
        
Average earning assets$10,154,591  $8,726,228  $9,547,147  $7,942,810 
        
Annualized net interest margin (GAAP)4.32% 4.08% 4.25% 4.00%
Annualized net interest margin, fully tax-equivalent (non-GAAP)

4.38% 4.26% 4.32% 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 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 tangible common equity is net income available to common stockholders divided by average common stockholders' equity less goodwill and core deposit intangibles and customer deposit 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% beginning January 1, 2018, and 35% for all prior periods.


HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
 For the Quarter Ended
 9/30/2018 6/30/2018 3/31/2018 12/31/2017 9/30/2017
Average Balances         
Assets$11,291,289  $10,643,306  $9,759,936  $9,807,621  $9,639,844 
Loans, net of unearned7,462,176  7,123,182  6,525,553  6,343,923  6,286,264 
Deposits9,530,743  9,018,945  8,251,140  8,293,006  8,100,028 
Earning assets10,154,591  9,614,800  8,857,801  8,891,432  8,726,228 
Interest bearing liabilities6,544,949  6,205,187  5,694,337  5,663,816  5,697,713 
Common stockholders' equity1,263,226  1,139,876  1,011,580  986,026  954,511 
Total stockholders' equity1,263,795  1,140,814  1,012,518  986,964  955,449 
Tangible common stockholders' equity(1)819,966  767,732  723,898  713,018  691,464 
          
Key Performance Ratios         
Annualized return on average assets1.18% 1.05% 0.97% 0.55% 0.89%
Annualized return on average common equity (GAAP)10.58% 9.81% 9.32% 5.50% 8.99%
Annualized return on average tangible common equity (non-GAAP)(2)16.30% 14.56% 13.03% 7.60% 12.41%
Annualized ratio of net charge-offs to average loans0.28% 0.12% 0.08% 0.28% 0.31%
Annualized net interest margin (GAAP)4.32% 4.23% 4.19% 4.14% 4.08%
Annualized net interest margin, fully tax-equivalent (non-GAAP)(3)4.38% 4.30% 4.26% 4.30% 4.26%
Efficiency ratio, fully tax-equivalent(4)62.40% 65.04% 68.21% 62.26% 64.54%
          
Reconciliation of Return on Average Tangible Common Equity (non-GAAP)(5)         
Net income available to common shareholders (GAAP)$33,697  $27,866  $23,255  $13,659  $21,622 
          
Average common stockholders' equity (GAAP)$1,263,226  $1,139,876  $1,011,580  $986,026  $954,511 
Less average goodwill391,668  325,781  250,172  236,615  226,097 
Less average core deposit intangibles and customer relationship intangibles, net51,592  46,363  37,510  36,393  36,950 
Average tangible common equity (non-GAAP)$819,966  $767,732  $723,898  $713,018  $691,464 
Annualized return on average common equity (GAAP)10.58% 9.81% 9.32% 5.50% 8.99%
Annualized return on average tangible common equity (non-GAAP)16.30% 14.56% 13.03% 7.60% 12.41%
          
Reconciliation of Annualized Net Interest Margin, Fully Tax-Equivalent (non-GAAP)(6)         
Net Interest Income (GAAP)$110,678  $101,409  $91,584  $92,856  $89,844 
Plus tax-equivalent adjustment(7)1,544  1,575  1,544  3,558  3,925 
Net interest income, fully tax-equivalent (non-GAAP)$112,222  $102,984  $93,128  $96,414  $93,769 
          
Average earning assets$10,154,591  $9,614,800  $8,857,801  $8,891,432  $8,726,228 
          
Annualized net interest margin (GAAP)4.32% 4.23% 4.19% 4.14% 4.08%
Annualized net interest margin, fully tax-equivalent (non-GAAP)4.38% 4.30% 4.26% 4.30% 4.26%
 
(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% beginning January 1, 2018, and 35% for all prior periods.


HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
 For the Quarter Ended
September 30,
 For the Nine Months Ended
September 30,
Reconciliation of Non-GAAP Measure-Efficiency Ratio(1)2018 2017 2018 2017
Net interest income$110,678  $89,844  $303,671  $237,452 
Tax-equivalent adjustment(2)1,544  3,925  4,663  11,581 
Fully tax-equivalent net interest income112,222  93,769  308,334  249,033 
Noninterest income29,765  24,977  82,115  76,494 
Securities (gains)/losses, net145  (1,679) (1,037) (5,553)
Unrealized (gain)/loss on equity securities, net(54)   (97)  
Adjusted income$142,078  $117,067  $389,315  $319,974 
        
Total noninterest expenses$92,539  $78,759  $265,067  $219,797 
Less:       
Core deposit intangibles and customer relationship intangibles amortization2,626  1,863  6,763  4,252 
Partnership investment in tax credit projects338    338  876 
(Gain)/loss on sales/valuations of assets, net912  1,342  2,243  1,642 
Restructuring expenses    2,564   
Adjusted noninterest expenses$88,663  $75,554  $253,159  $213,027 
        
Efficiency ratio, fully tax-equivalent (non-GAAP)62.40% 64.54% 65.03% 66.58%


Reconciliation of Non-GAAP Measure-Efficiency Ratio(1)For the Quarter Ended
9/30/2018 6/30/2018 3/31/2018 12/31/2017 9/30/2017
Net interest income$110,678  $101,409  $91,584  $92,856  $89,844 
Tax-equivalent adjustment(2)1,544  1,575  1,544  3,558  3,925 
Fully tax-equivalent net interest income112,222  102,984  93,128  96,414  93,769 
Noninterest income29,765  27,634  24,716  25,528  24,977 
Securities (gains)/losses, net145  259  (1,441) (1,420) (1,679)
Unrealized (gain)/loss on equity securities, net(54) (71) 28     
Gain on extinguishment of debt      (1,280)  
Adjusted income$142,078  $130,806  $116,431  $119,242  $117,067 
          
Total noninterest expenses$92,539  $88,882  $83,646  $77,878  $78,759 
Less:         
Core deposit intangibles and customer relationship intangibles amortization2,626  2,274  1,863  1,825  1,863 
Partnership investment in tax credit projects338      984   
(Gain)/loss on sales/valuation of assets, net912  1,528  (197) 833  1,342 
Restructuring expenses    2,564     
Adjusted noninterest expenses$88,663  $85,080  $79,416  $74,236  $75,554 
          
Efficiency ratio, fully tax-equivalent (non-GAAP)62.40% 65.04% 68.21% 62.26% 64.54%
          
(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% beginning January 1, 2018, and 35% for all prior periods.


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
 9/30/2018 6/30/2018 3/31/2018 12/31/2017 9/30/2017
Common Share Data         
Book value per common share$37.14  $36.44  $33.81  $33.07  $32.75 
Tangible book value per common share (non-GAAP)(1)$24.33  $23.53  $23.79  $23.99  $23.61 
Common shares outstanding, net of treasury stock34,473,029  34,438,445  31,068,239  29,953,356  29,946,069 
Tangible common equity ratio (non-GAAP)(2)7.70% 7.46% 7.59% 7.53% 7.46%
          
Reconciliation of Tangible Book Value Per Common Share (non-GAAP)(3)         
Common stockholders' equity (GAAP)$1,280,393  $1,254,809  $1,050,567  $990,518  $980,746 
Less goodwill391,668  391,668  270,305  236,615  236,615 
Less core deposit intangibles and customer relationship intangibles, net50,071  52,698  41,063  35,203  37,028 
Tangible common stockholders' equity (non-GAAP)$838,654  $810,443  $739,199  $718,700  $707,103 
          
Common shares outstanding, net of treasury stock34,473,029  34,438,445  31,068,239  29,953,356  29,946,069 
Common stockholders' equity (book value) per share (GAAP)$37.14  $36.44  $33.81  $33.07  $32.75 
Tangible book value per common share (non-GAAP)$24.33  $23.53  $23.79  $23.99  $23.61 
          
Reconciliation of Tangible Common Equity Ratio (non-GAAP)(4)         
Total assets (GAAP)$11,335,132  $11,301,920  $10,055,863  $9,810,739  $9,755,627 
Less goodwill391,668  391,668  270,305  236,615  236,615 
Less core deposit intangibles and customer relationship intangibles, net50,071  52,698  41,063  35,203  37,028 
Total tangible assets (non-GAAP)$10,893,393  $10,857,554  $9,744,495  $9,538,921  $9,481,984 
Tangible common equity ratio (non-GAAP)7.70% 7.46% 7.59% 7.53% 7.46%
          
Loan Data         
Loans held to maturity:         
Commercial and commercial real estate$5,610,953  $5,721,138  $5,129,777  $4,809,875  $4,777,856 
Residential mortgage676,941  683,051  624,725  624,279  635,611 
Agricultural and agricultural real estate574,048  562,353  518,386  511,588  511,764 
Consumer506,181  512,899  474,929  447,484  450,088 
Unearned discount and deferred loan fees(2,630) (1,744) (1,802) (1,762) (1,904)
Total loans held to maturity$7,365,493  $7,477,697  $6,746,015  $6,391,464  $6,373,415 
          
Other Selected Trend Information         
Effective tax rate20.99% 21.09% 18.04% 61.13% 28.74%
Full time equivalent employees2,211  2,216  2,022  2,008  2,024 
Total residential mortgage loan applications$298,602  $341,978  $234,825  $232,946  $271,476 
Residential mortgage loans originated$262,821  $225,563  $149,768  $185,580  $198,911 
Residential mortgage loans sold$238,684  $201,818  $127,963  $168,527  $188,501 
Residential mortgage loan servicing portfolio$4,156,921  $4,158,107  $3,535,988  $3,558,090  $3,557,866 
          
(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
 9/30/2018 6/30/2018 3/31/2018 12/31/2017 9/30/2017
Allowance for Loan Losses         
Balance, beginning of period$61,324  $58,656  $55,686  $54,885  $54,051 
Provision for loan losses5,238  4,831  4,263  5,328  5,705 
Charge-offs(6,120) (3,164) (2,224) (5,628) (5,759)
Recoveries779  1,001  931  1,101  888 
Balance, end of period$61,221  $61,324  $58,656  $55,686  $54,885 
          
Asset Quality         
Nonaccrual loans$73,060  $69,376  $64,806  $62,581  $63,456 
Loans past due ninety days or more as to interest or principal payments154  54  22  830  2,348 
Other real estate owned11,908  11,074  11,801  10,777  13,226 
Other repossessed assets495  499  423  411  773 
Total nonperforming assets$85,617  $81,003  $77,052  $74,599  $79,803 
          
Performing troubled debt restructured loans$4,180  $4,012  $3,206  $6,617  $10,040 
          
Nonperforming Assets Activity         
Balance, beginning of period$81,003  $77,052  $74,599  $79,803  $76,035 
Net loan charge-offs(5,341) (2,163) (1,293) (4,527) (4,871)
New nonperforming loans16,965  16,254  8,546  9,911  9,117 
Acquired nonperforming assets  7,973  2,459    7,991 
Reduction of nonperforming loans(1)(5,085) (15,696) (6,549) (7,177) (5,183)
OREO/Repossessed assets sales proceeds(1,064) (1,541) (657) (2,917) (3,328)
OREO/Repossessed assets writedowns, net(886) (993) (16) (146) (56)
Net activity at Citizens Finance Co.25  117  (37) (348) 98 
Balance, end of period$85,617  $81,003  $77,052  $74,599  $79,803 
 
Asset Quality Ratios         
Ratio of nonperforming loans to total loans0.99% 0.93% 0.96% 0.99% 1.03%
Ratio of nonperforming assets to total assets0.76% 0.72% 0.77% 0.76% 0.82%
Annualized ratio of net loan charge-offs to average loans0.28% 0.12% 0.08% 0.28% 0.31%
Allowance for loan losses as a percent of loans0.83% 0.82% 0.87% 0.87% 0.86%
Allowance for loan losses as a percent of nonperforming loans83.62% 88.32% 90.48% 87.82% 83.41%
Loans delinquent 30-89 days as a percent of total loans0.62% 0.30% 0.21% 0.27% 0.33%
          
(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
 September 30, 2018 September 30, 2017
 Average
Balance
 Interest Rate Average
Balance
 Interest Rate
Earning Assets           
Securities:           
Taxable$2,066,071  $14,433  2.77% $1,667,076  $10,394  2.47%
Nontaxable(1)435,045  4,418  4.03  643,925  7,825  4.82 
Total securities2,501,116  18,851  2.99  2,311,001  18,219  3.13 
Interest bearing deposits with the Federal Reserve Bank and other banks and other short-term investments252,535  1,238  1.94  164,809  558  1.34 
Federal funds sold      18,874  34  0.71 
Loans:(2)           
Commercial and commercial real estate(1)5,637,360  77,443  5.45  4,647,414  59,121  5.05 
Residential mortgage736,875  8,952  4.82  683,186  7,300  4.24 
Agricultural and agricultural real estate(1)571,599  7,725  5.36  504,970  6,175  4.85 
Consumer516,342  10,043  7.72  450,694  9,032  7.95 
Fees on loans  2,186      2,464   
Less: allowance for loan losses(61,236)     (54,720)    
Net loans7,400,940  106,349  5.70  6,231,544  84,092  5.35 
Total earning assets10,154,591  126,438  4.94% 8,726,228  102,903  4.68%
Nonearning Assets1,136,698      913,616     
Total Assets$11,291,289      $9,639,844     
Interest Bearing Liabilities(3)           
Savings$4,932,013  $6,980  0.56% $4,205,946  $3,162  0.30%
Time, $100,000 and over575,810  1,379  0.95  408,560  787  0.76 
Other time deposits618,161  1,733  1.11  573,178  1,124  0.78 
Short-term borrowings148,041  464  1.24  209,795  271  0.51 
Other borrowings270,924  3,660  5.36  300,234  3,790  5.01 
Total interest bearing liabilities6,544,949  14,216  0.86% 5,697,713  9,134  0.64%
Noninterest Bearing Liabilities(3)           
Noninterest bearing deposits3,404,759      2,912,344     
Accrued interest and other liabilities77,786      74,338     
Total noninterest bearing liabilities3,482,545      2,986,682     
Stockholders' Equity1,263,795      955,449     
Total Liabilities and Stockholders' Equity$11,291,289      $9,639,844     
Net interest income, fully tax-equivalent (non-GAAP)(1)  $112,222      $93,769   
Net interest spread(1)    4.08%     4.04%
Net interest income, fully tax-equivalent (non-GAAP) to total earning assets(4)    4.38%     4.26%
Interest bearing liabilities to earning assets64.45%     65.29%    
Reconciliation of annualized net interest margin, fully tax-equivalent (non-GAAP)(4)           
Net interest income, fully tax-equivalent (non-GAAP)  $112,222      $93,769   
Adjustments for tax-equivalent interest(1)  (1,544)     (3,925)  
Net interest income (GAAP)  $110,678      $89,844   
            
Average earning assets$10,154,591      $8,726,228     
Annualized net interest margin (GAAP)  4.32%     4.08%  
Annualized net interest margin, fully tax-equivalent (non-GAAP)  4.38%     4.26%  
            
(1) Computed on a tax-equivalent basis using an effective tax rate of 21% beginning January 1, 2018, and 35% for all prior periods.
(2) Nonaccrual loans and loans held for sale are included in the average loans outstanding.
(3) Includes deposits held for sale
(4) 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.
CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited)
DOLLARS IN THOUSANDS
 For the Nine Months Ended
 September 30, 2018 September 30, 2017
 Average
Balance
 Interest Rate Average
Balance
 Interest Rate
Earning Assets           
Securities:           
Taxable$1,937,053  $38,280  2.64% $1,545,091  $27,246  2.36%
Nontaxable(1)444,127  13,485  4.06  638,119  23,534  4.93 
Total securities2,381,180  51,765  2.91  2,183,210  50,780  3.11 
Interest bearing deposits with the Federal Reserve Bank and other banks and other short-term investments183,905  2,413  1.75  127,870  1,112  1.16 
Federal funds sold471      6,885  37  0.72 
Loans:(2)           
Commercial and commercial real estate(1)5,319,862  211,557  5.32  4,097,967  151,946  4.96 
Residential mortgage688,367  23,365  4.54  654,488  20,492  4.19 
Agricultural and agricultural real estate(1)542,755  20,579  5.07  492,170  17,536  4.76 
Consumer489,417  27,895  7.62  434,995  25,374  7.80 
Fees on loans  6,606      5,894   
Less: allowance for loan losses(58,810)     (54,775)    
Net loans6,981,591  290,002  5.55  5,624,845  221,242  5.26 
Total earning assets9,547,147  344,180  4.82% 7,942,810  273,171  4.60%
Nonearning Assets1,023,306      797,893     
Total Assets$10,570,453      $8,740,703     
Interest Bearing Liabilities(3)           
Savings$4,681,710  $16,306  0.47% $3,976,403  $7,772  0.26%
Time, $100,000 and over479,342  3,221  0.90  369,595  2,239  0.81 
Other time deposits569,536  4,314  1.01  512,551  2,955  0.77 
Short-term borrowings149,453  1,279  1.14  199,503  498  0.33 
Other borrowings271,234  10,726  5.29  288,774  10,674  4.94 
Total interest bearing liabilities6,151,275  35,846  0.78% 5,346,826  24,138  0.60%
Noninterest Bearing Liabilities(3)           
Noninterest bearing deposits3,207,709      2,494,850     
Accrued interest and other liabilities71,506      64,824     
Total noninterest bearing liabilities3,279,215      2,559,674     
Stockholders' Equity1,139,963      834,203     
Total Liabilities and Stockholders' Equity$10,570,453      $8,740,703     
Net interest income, fully tax-equivalent (non-GAAP)(1)  $308,334      $249,033   
Net interest spread(1)    4.04%     4.00%
Net interest income, fully tax-equivalent (non-GAAP) to total earning assets(4)    4.32%     4.19%
Interest bearing liabilities to earning assets64.43%     67.32%    
Reconciliation of annualized net interest margin, fully tax-equivalent (non-GAAP)(4)           
Net interest income, fully tax-equivalent (non-GAAP)  $308,334      $249,033   
Adjustments for tax-equivalent interest(1)  (4,663)     (11,581)  
Net interest income (GAAP)  $303,671      $237,452   
            
Average earning assets$9,547,147      $7,942,810     
Annualized net interest margin (GAAP)  4.25%     4.00%  
Annualized net interest margin, fully tax-equivalent (non-GAAP)  4.32%     4.19%  
            
(1) Computed on a tax-equivalent basis using an effective tax rate of 21% beginning January 1, 2018, and 35% for all prior periods.
(2) Nonaccrual loans and loans held for sale are included in the average loans outstanding.
(3) Includes deposits held for sale
(4) 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
 9/30/20186/30/20183/31/201812/31/20179/30/2017
Total Assets     
Citywide Banks$2,300,018 $2,295,261 $2,299,818 $2,289,956 $2,391,727 
Dubuque Bank and Trust Company1,523,447 1,500,108 1,490,100 1,443,419 1,479,647 
New Mexico Bank & Trust1,465,020 1,466,311 1,416,788 1,453,534 1,425,185 
First Bank & Trust1,112,464 1,123,559    
Wisconsin Bank & Trust1,051,160 1,034,075 1,017,053 1,079,222 1,030,192 
Premier Valley Bank851,358 846,215 805,014 925,078 886,495 
Illinois Bank & Trust795,132 815,905 751,371 783,127 761,285 
Arizona Bank & Trust650,032 653,596 633,474 602,182 566,951 
Minnesota Bank & Trust649,179 660,469 631,852 210,157 217,246 
Morrill & Janes Bank and Trust Company592,786 602,630 648,568 654,871 719,246 
Rocky Mountain Bank492,063 504,243 490,917 487,136 486,790 
Total Deposits     
Citywide Banks$1,905,830 $1,867,626 $1,914,726 $1,895,540 $1,924,605 
Dubuque Bank and Trust Company1,217,976 1,136,431 1,193,271 1,084,415 1,139,512 
New Mexico Bank & Trust1,267,844 1,242,673 1,202,051 1,229,324 1,221,134 
First Bank & Trust875,170 887,181    
Wisconsin Bank & Trust891,167 874,035 835,919 890,835 852,489 
Premier Valley Bank706,125 696,460 660,070 705,142 714,605 
Illinois Bank & Trust726,790 753,022 674,391 692,227 691,680 
Arizona Bank & Trust550,530 558,895 567,515 522,490 500,270 
Minnesota Bank & Trust544,513 561,257 533,893 178,036 189,749 
Morrill & Janes Bank and Trust Company511,154 498,798 558,174 563,638 605,390 
Rocky Mountain Bank429,167 443,359 429,000 424,487 426,405 
Net Income     
Citywide Banks$7,762 $7,018 $5,463 $1,069 $4,541 
Dubuque Bank and Trust Company4,458 4,426 3,214 9,027 703 
New Mexico Bank & Trust7,104 7,043 6,444 2,954 4,972 
First Bank & Trust3,932 1,925    
Wisconsin Bank & Trust3,735 2,470 2,617 2,210 3,368 
Premier Valley Bank3,006 2,664 2,373 1,508 2,907 
Illinois Bank & Trust2,419 2,421 2,712 794 2,286 
Arizona Bank & Trust2,660 3,623 2,104 (103)1,451 
Minnesota Bank & Trust2,167 581 762 106 791 
Morrill & Janes Bank and Trust Company165 961 1,186 650 1,760 
Rocky Mountain Bank1,210 1,185 1,172 1,769 1,631