CORRECTING and REPLACING -- Heartland Financial USA, Inc. Reports 2017 Third Quarter Results


DUBUQUE, Iowa, Oct. 31, 2017 (GLOBE NEWSWIRE) -- Heartland Financial USA, Inc. (NASDAQ:HTLF) issued a press release on October 30, 2017, announcing its 2017 third quarter results. Heartland seeks to clarify that the diluted earnings per common share for the nine-month period ended September 30, 2017, was $2.21, and the weighted average shares outstanding-diluted for the nine-month period ended September 30, 2017, totaled 27,833,924. The information in the body of the October 30, 2017, release, revised to reflect the correct information, is repeated below:

Heartland Financial USA, Inc. Reports 2017 Third Quarter Results

Highlights

  • Quarterly net income available to common stockholders of $21.6 million in comparison with $20.2 million for the third quarter of the prior year
  • Diluted earnings per common share of $0.72 in comparison with $0.81 for the third quarter of the prior year
  • Net interest margin of 4.08%, fully tax-equivalent (non-GAAP)(1) of 4.26%
  • Organic loan growth of $62.9 million and organic non-time deposit growth of $89.3 million during the third quarter of 2017
  • Return on average common equity of 8.99% and return on average tangible common equity (non-GAAP)(2) of 12.41%
  • Tangible common equity ratio (non-GAAP)(3) of 7.46%
  • Purchased Citywide Banks of Colorado, Inc., on July 7, 2017 and completed related systems conversions on October 13, 2017
 Quarter Ended
September 30,
 Nine Months Ended
September 30,
 2017 2016 2017 2016
Net income (in millions)$21.6  $20.2  $61.6  $61.2 
Net income available to common stockholders (in millions)21.6  20.2  61.6  61.0 
Diluted earnings per common share0.72  0.81  2.21  2.48 
        
Return on average assets0.89% 0.98% 0.94% 1.00%
Return on average common equity8.99  11.64  9.88  12.28 
Return on average tangible common equity (non-GAAP)(2)12.41  14.93  12.90  15.87 
Net interest margin4.08  3.97  4.00  3.98 
Net interest margin, fully tax-equivalent (non-GAAP)(1)4.26  4.14  4.19  4.15 


"Heartland reported a very good quarter with net income available to common stockholders of $21.6 million, a seven percent increase over the same quarter last year. We had several accomplishments during the quarter including completion of our largest acquisition to date. We achieved net organic growth in loans and deposits while making improvements in net interest margin.”
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.

Heartland Financial USA, Inc. (NASDAQ:HTLF) today reported net income available to common stockholders of $21.6 million, or $0.72 per diluted common share, for the quarter ended September 30, 2017, compared to $20.2 million, or $0.81 per diluted common share, for the third quarter of 2016. Return on average common equity was 8.99% and return on average assets was 0.89% for the third quarter of 2017, compared to 11.64% and 0.98%, respectively, for the same quarter in 2016.

Net income available to common stockholders for the nine months ended September 30, 2017, was $61.6 million or $2.21 per diluted common share, compared to $61.0 million or $2.48 per diluted common share for the nine months ended September 30, 2016. Return on average common equity was 9.88%, and return on average assets was 0.94% for the first nine months of 2017, compared to 12.28% and 1.00%, respectively, for the same period in 2016.

Commenting on Heartland’s third quarter results, Lynn B. Fuller, Heartland’s chairman and chief executive officer said, "Heartland reported a very good quarter with net income available to common stockholders of $21.6 million, a seven percent increase over the same quarter last year. We had several accomplishments during the quarter including completion of our largest acquisition to date. We achieved net organic growth in loans and deposits while making improvements in net interest margin.”

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

On July 7, 2017, Heartland completed the acquisition of Citywide Banks of Colorado, Inc., parent company of Citywide Banks, headquartered in Aurora, Colorado. Simultaneous with the close, Citywide Banks merged into Heartland's Centennial Bank and Trust subsidiary. The aggregate consideration was approximately $211.2 million, of which $58.6 million was cash, and the remainder was settled by delivery of 3,216,161 shares of Heartland common stock. The combined entity operates as Citywide Banks. As of the close date, Citywide Banks of Colorado, Inc., had, at fair value, total assets of $1.49 billion, including $985.4 million in net loans outstanding, and $1.21 billion of deposits. The systems conversion for this transaction occurred on October 13, 2017.

During the third quarter, Heartland sold substantially all of its Government National Mortgage Association ("GNMA") loan servicing portfolio, which contained loans with an unpaid principal balance of approximately $773.9 million. The sale reduced the book value of Heartland's servicing rights by approximately $6.9 million. The transaction did not have a significant impact on Heartland's results of operations.

Fully Tax-Equivalent Net Interest Margin Increases

Net interest margin, expressed as a percentage of average earning assets, was 4.08% (4.26% on a fully tax-equivalent basis) during the third quarter of 2017, compared to 3.94% (4.14% on a fully tax-equivalent basis) during the second quarter of 2017 and 3.97% (4.14% on a fully tax-equivalent basis) during the third quarter of 2016.

Fuller said, “We were very pleased to see a solid increase in net interest margin on a fully tax-equivalent basis, which increased by 12 basis points to 4.26 percent from the previous quarter and stands at 4.19 percent year-to-date. The strong margin reflects improved yields on earning assets."

Interest income for the third quarter of 2017 was $99.0 million compared to $81.7 million recorded in the third quarter of 2016. The taxable equivalent adjustment for income taxes saved on the interest earned on nontaxable securities and loans was $3.9 million for the third quarter of 2017 and $3.2 million for the third quarter of 2016. With these adjustments, interest income on a tax-equivalent basis was $102.9 million for the third quarter of 2017, an increase of $18.0 million or 21%, compared to $84.9 million for the third quarter of 2016. The increase in interest income on a fully tax-equivalent basis in the third quarter of 2017, as compared to the third quarter of 2016, was primarily due to the acquisitions completed in 2017. Average earning assets acquired in the Founders Bancorp transaction totaled $147.6 million, and the Citywide Banks of Colorado, Inc. transaction added $1.20 billion of average earning assets. Exclusive of these transactions, average earning assets increased $140.2 million or 2% from the third quarter of 2016.  The average rate on earning assets increased 10 basis points to 4.68% for the third quarter of 2017 compared to 4.58% for the same quarter in 2016.

Interest expense for the third quarter of 2017 was $9.1 million, an increase of $1.1 million or 14% from $8.0 million in the third quarter of 2016. Average interest bearing deposits increased $520.3 million or 11% to $5.19 billion for the quarter ended September 30, 2017, from $4.67 billion in the same quarter in 2016. Average interest bearing deposits acquired with the Founders Bancorp transaction and the Citywide Banks of Colorado, Inc., transaction totaled $713.3 million. Exclusive of these transactions, average interest bearing deposits decreased $193.0 million or 3%. The average interest rate paid on Heartland's interest bearing deposits increased 5 basis points to 0.39% for the third quarter of 2017 compared to 0.34% for the same quarter in 2016. Average borrowings acquired in the Citywide Banks of Colorado, Inc., transaction totaled $51.8 million, and exclusive of this transaction, average borrowings declined $98.6 million or 18% during the third quarter of 2017 compared to the same quarter in 2016. The average interest rate paid on Heartland's borrowings was 3.16% for the third quarter of 2017 compared to 2.86% in the third quarter of 2016.

Net interest income was $89.8 million during the third quarter of 2017 compared to $73.7 million during the third quarter of 2016, an increase of $16.2 million or 22%. After the tax-equivalent adjustment discussed above, net interest income on a tax-equivalent basis totaled $93.8 million during the third quarter of 2017 compared to $76.9 million during the third quarter of 2016, an increase of $16.9 million or 22%.

Noninterest Income Decreases and Noninterest Expenses Increase From Third Quarter 2016

Noninterest income totaled $25.0 million during the third quarter of 2017 compared to $28.5 million during the third quarter of 2016, a decrease of $3.6 million or 12%. Service charges and fees totaled $10.1 million during the third quarter of 2017 compared to $8.3 million during the third quarter of 2016, an increase of $1.9 million or 22%. This increase was primarily attributable to a larger demand deposit customer base, a portion of which was the result of the Founders Bancorp acquisition completed in the first quarter of 2017, and the recent Citywide Banks of Colorado, Inc., transaction and increased interchange revenue from commercial card activity. Net gains on sale of loans held for sale totaled $5.0 million during the third quarter of 2017 compared to $11.5 million during the third quarter of 2016, a decrease of $6.5 million or 56%, due to lower mortgage loan activity.

For the third quarter of 2017, noninterest expenses totaled $78.8 million compared to $68.4 million during the third quarter of 2016, an increase of $10.3 million or 15%. Salaries and employee benefits increased $4.5 million or 11% to $45.2 million for the third quarter of 2017 compared to $40.7 million for the same quarter in 2016. At September 30, 2017, Heartland had 2,024 full time equivalent employees compared to 1,846 full time equivalent employees at September 30, 2016. Professional fees increased $2.5 million or 41% to $8.5 million for the third quarter of 2017 from $6.0 million in the third quarter of 2016. The noninterest expenses in the third quarter of 2017 included $2.8 million of expenses for staff retention, deconversion, professional fees and write-downs of fixed assets related to the acquisition of Citywide Banks of Colorado, Inc.

"We are also gratified to note significant progress toward lowering Heartland’s efficiency ratio, which has improved over the past two quarters and was 64.5 percent for the third quarter," Fuller stated.

Heartland's effective tax rate was 28.74% for the third quarter of 2017 compared to 29.02% for the third quarter of 2016. Federal low-income housing tax credits included in the determination of Heartland's income taxes totaled $307,000 during the third quarter of 2017 compared to $304,000 for the third quarter of 2016. Heartland's effective tax rate was also affected by the level of tax-exempt interest income which, as a percentage of pre-tax income, was 24.01% during the third quarter of 2017 compared to 21.01% during the third quarter of 2016.

Loans and Deposits Increase Since December 31, 2016

Total assets were $9.76 billion at September 30, 2017, an increase of $1.51 billion or 18% from $8.25 billion at year-end 2016. Excluding $213.9 million of assets acquired at fair value in the Founders Bancorp transaction and $1.49 billion of assets acquired at fair value in the Citywide Banks of Colorado, Inc., transaction, total assets decreased $199.1 million or 2% since December 31, 2016. Securities represented 24% and 26% of total assets at September 30, 2017, and December 31, 2016, respectively.

Total loans held to maturity were $6.37 billion at September 30, 2017, compared to $5.35 billion at year-end 2016, an increase of $1.02 billion or 19%. This change includes $96.4 million of total loans held to maturity acquired at fair value in the Founders Bancorp transaction and $985.4 million of total loans held to maturity acquired at fair value in the Citywide Banks of Colorado, Inc., transaction. Exclusive of these transactions, total loans held to maturity decreased $60.2 million or 1% since December 31, 2016. Excluding loans acquired in the Citywide Banks of Colorado, Inc., transaction, total loans held to maturity increased $62.9 million during the third quarter of 2017.

Total deposits were $8.23 billion as of September 30, 2017, compared to $6.85 billion at year-end 2016, an increase of $1.38 billion or 20%. This increase included $181.5 million of deposits, at fair value, acquired in the Founders Bancorp transaction and $1.21 billion of deposits, at fair value, acquired in the Citywide Banks of Colorado, Inc., transaction. Exclusive of these transactions, total deposits decreased $7.1 million or less than 1% since December 31, 2016. Demand deposits increased $807.9 million or 37% to $3.01 billion at September 30, 2017 compared to $2.20 billion at December 31, 2016. Excluding $626.7 million of demand deposits attributable to the Founders Bancorp and Citywide Banks of Colorado, Inc., transactions, demand deposits increased $181.2 million or 8% since year-end 2016. Savings deposits increased $439.3 million or 12% to $4.23 billion at September 30, 2017 from $3.79 billion at December 31, 2016. Excluding savings deposits of $619.0 million acquired in the Founders Bancorp and Citywide Banks of Colorado, Inc., transactions, savings deposits decreased $179.7 million or 5% since year-end 2016. Excluding $1.21 billion of deposits acquired in the Citywide Banks of Colorado, Inc., transaction, total deposits increased $91.6 million during the third quarter.

Fuller said, "We are very pleased with organic deposit growth of 5.2 percent annualized for the third quarter and continued improvement in deposit mix. The result of our continued emphasis on non-time deposits is an enviable mix of nearly 37 percent demand deposits and 51 percent savings and money market deposits."

Nonperforming Assets Increase Since December 31, 2016

Nonperforming assets were $79.8 million or 0.82% of total assets at September 30, 2017, compared to $74.8 million or 0.91% of total assets at December 31, 2016. Nonperforming loans were $65.8 million or 1.03% of total loans at September 30, 2017, compared to $64.4 million or 1.20% of total loans at December 31, 2016.

The allowance for loan losses at September 30, 2017, was 0.86% of loans and 83.41% of nonperforming loans, compared to 1.02% of loans and 84.37% of nonperforming loans at December 31, 2016. At September 30, 2017, there were $1.70 billion of acquired loans, which are net of $42.8 million of valuation reserves that are not subject to the allowance. At December 31, 2016, there were $930.7 million of acquired loans, net of $25.3 million of valuation reserves that are not subject to the allowance. Excluding those loans covered by the valuation reserves, the ratio of the allowance for loan losses to outstanding loans was 1.17% at September 30, 2017, and 1.22% at December 31, 2016.

The provision for loan losses was $5.7 million for the third quarter of 2017 compared to $5.3 million for the third quarter of 2016. Provision for loan losses recorded for the third quarter of 2017 included a $2.2 million allowance for impairment recorded on an agribusiness relationship at Dubuque Bank and Trust associated with updated collateral values. Total charge-offs for the third quarter of 2017 were $5.8 million compared to $3.3 million for the third quarter of 2016, and the increase is primarily attributable to $3.0 million of charge-offs related to two commercial and industrial loan relationships at Dubuque Bank and Trust and Arizona Bank & Trust.

Summarizing the quarter and year-to-date, Fuller concluded, “In short, Heartland is demonstrating consistent improvement in its financial performance, while capitalizing on opportunities for profitable growth.”

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 29, 2018, by logging on to www.htlf.com.

About Heartland Financial USA, Inc.
Heartland Financial USA, Inc. is a diversified financial services company with assets of $9.8 billion. The company provides banking, mortgage, private client, investment, insurance and consumer finance services to individuals and businesses. Heartland currently has 117 banking locations serving 88 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 concerning the company's general business; (iv) changes in interest rates and prepayment rates of the company's assets; (v) increased competition in the financial services sector and the inability to attract new customers; (vi) changes in technology and the ability to develop and maintain secure and reliable electronic systems; (vii) the potential impact of acquisitions 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,
 2017 2016 2017 2016
Interest Income       
Interest and fees on loans$82,906  $70,046  $217,898  $208,280 
Interest on securities:       
Taxable10,394  7,917  27,246  24,604 
Nontaxable5,086  3,717  15,297  10,793 
Interest on federal funds sold34  1  37  12 
Interest bearing deposits with the Federal Reserve Bank and other
banks and other short-term investments
558  6  1,112  13 
Total Interest Income98,978  81,687  261,590  243,702 
Interest Expense       
Interest on deposits5,073  4,001  12,966  12,195 
Interest on short-term borrowings271  235  498  1,083 
Interest on other borrowings3,790  3,770  10,674  10,918 
Total Interest Expense9,134  8,006  24,138  24,196 
Net Interest Income89,844  73,681  237,452  219,506 
Provision for loan losses5,705  5,328  10,235  9,513 
Net Interest Income After Provision for Loan Losses84,139  68,353  227,217  209,993 
Noninterest Income       
Service charges and fees10,138  8,278  29,291  23,462 
Loan servicing income1,161  873  4,236  3,433 
Trust fees3,872  3,689  11,482  11,127 
Brokerage and insurance commissions950  1,006  2,962  2,914 
Securities gains, net1,679  1,584  5,553  9,732 
Net gains on sale of loans held for sale4,997  11,459  17,961  33,794 
Valuation adjustment on commercial servicing rights5  5  29  (41)
Income on bank owned life insurance766  620  2,039  1,733 
Other noninterest income1,409  1,028  2,941  2,992 
Total Noninterest Income24,977  28,542  76,494  89,146 
Noninterest Expense       
Salaries and employee benefits45,225  40,733  128,118  124,432 
Occupancy6,223  5,099  16,352  15,322 
Furniture and equipment2,826  2,746  7,913  7,301 
Professional fees8,450  5,985  24,342  20,481 
FDIC insurance assessments894  1,180  2,610  3,468 
Advertising1,358  1,339  5,141  4,174 
Core deposit intangibles and customer relationship intangibles
amortization
1,863  1,291  4,252  4,483 
Other real estate and loan collection expenses581  640  1,774  1,871 
(Gain)/loss on sales/valuations of assets, net1,342  794  1,642  1,064 
Other noninterest expenses9,997  8,620  27,653  27,160 
Total Noninterest Expense78,759  68,427  219,797  209,756 
Income Before Income Taxes30,357  28,468  83,914  89,383 
Income taxes8,725  8,260  22,314  28,196 
Net Income21,632  20,208  61,600  61,187 
Preferred dividends(13) (53) (45) (273)
Interest expense on convertible preferred debt3  17  12  48 
Net Income Available to Common Stockholders$21,622  $20,172  $61,567  $60,962 
Earnings per common share-diluted$0.72  $0.81  $2.21  $2.48 
Weighted average shares outstanding-diluted29,910,437  24,922,946  27,833,924  24,580,897 


HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
 For the Quarter Ended
 9/30/2017 6/30/2017 3/31/2017 12/31/2016 9/30/2016
Interest Income         
Interest and fees on loans$82,906  $68,094  $66,898  $69,848  $70,046 
Interest on securities:         
Taxable10,394  8,599  8,253  8,480  7,831 
Nontaxable5,086  5,020  5,191  4,292  3,717 
Interest on federal funds sold34  3      1 
Interest bearing deposits with the Federal Reserve Bank and other
banks and other short-term investments
558  345  209  157  92 
Total Interest Income98,978  82,061  80,551  82,777  81,687 
Interest Expense         
Interest on deposits5,073  4,163  3,730  3,744  4,001 
Interest on short-term borrowings271  90  137  119  235 
Interest on other borrowings3,790  3,228  3,656  3,754  3,770 
Total Interest Expense9,134  7,481  7,523  7,617  8,006 
Net Interest Income89,844  74,580  73,028  75,160  73,681 
Provision for loan losses5,705  889  3,641  2,181  5,328 
Net Interest Income After Provision for Loan Losses84,139  73,691  69,387  72,979  68,353 
Noninterest Income         
Service charges and fees10,138  9,696  9,457  8,128  8,278 
Loan servicing income1,161  1,351  1,724  1,068  873 
Trust fees3,872  3,979  3,631  3,718  3,689 
Brokerage and insurance commissions950  976  1,036  955  1,006 
Securities gains, net1,679  1,392  2,482  1,608  1,584 
Net gains on sale of loans held for sale4,997  6,817  6,147  5,840  11,459 
Valuation adjustment on commercial servicing rights5  19  5  8  5 
Income on bank owned life insurance766  656  617  542  620 
Other noninterest income1,409  738  794  2,588  1,028 
Total Noninterest Income24,977  25,624  25,893  24,455  28,542 
Noninterest Expense         
Salaries and employee benefits45,225  41,126  41,767  39,115  40,733 
Occupancy6,223  5,056  5,073  5,076  5,099 
Furniture and equipment2,826  2,586  2,501  2,944  2,746 
Professional fees8,450  7,583  8,309  7,195  5,985 
FDIC insurance assessments894  909  807  717  1,180 
Advertising1,358  1,359  2,424  2,274  1,339 
Core deposit intangibles and customer relationship intangibles
amortization
1,863  1,218  1,171  1,147  1,291 
Other real estate and loan collection expenses581  365  828  572  640 
(Gain)/loss on sales/valuations of assets, net1,342  (112) 412  414  794 
Other noninterest expenses9,997  9,208  8,448  10,458  8,620 
Total Noninterest Expense78,759  69,298  71,740  69,912  68,427 
Income Before Income Taxes30,357  30,017  23,540  27,522  28,468 
Income taxes8,725  8,059  5,530  8,360  8,260 
Net Income21,632  21,958  18,010  19,162  20,208 
Preferred dividends(13) (13) (19) (19) (53)
Interest expense on convertible preferred debt3  4  5  3  17 
Net Income Available to Common Stockholders$21,622  $21,949  $17,996  $19,146  $20,172 
Earnings per common share-diluted$0.72  $0.81  $0.68  $0.74  $0.81 
Weighted average shares outstanding-diluted29,910,437  26,972,580  26,627,830  25,800,472  24,922,946 


HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
 As Of
 9/30/2017 6/30/2017 3/31/2017 12/31/2016 9/30/2016
Assets         
Cash and due from banks$180,751  $141,100  $129,386  $151,290  $196,234 
Interest bearing deposits with the Federal Reserve Bank and other
banks and other short-term investments
70,985  40,676  43,765  7,434  5,855 
Cash and cash equivalents251,736  181,776  173,151  158,724  202,089 
Time deposits in other financial institutions19,793  30,241  41,539  2,105  2,105 
Securities:         
Available for sale, at fair value2,093,385  1,789,441  1,893,528  1,845,864  1,655,696 
Held to maturity, at cost256,355  259,586  260,616  263,662  265,302 
Other investments, at cost23,176  21,094  21,557  21,560  22,082 
Loans held for sale35,795  48,848  49,009  61,261  78,317 
Loans:         
Held to maturity6,373,415  5,325,082  5,361,604  5,351,719  5,438,715 
 Allowance for loan losses(54,885) (54,051) (54,999) (54,324) (54,653)
Loans, net6,318,530  5,271,031  5,306,605  5,297,395  5,384,062 
Premises, furniture and equipment, net178,961  163,003  165,425  164,028  165,841 
Goodwill236,615  141,461  141,461  127,699  127,699 
Core deposit intangibles and customer relationship intangibles, net37,028  22,850  24,068  22,775  23,922 
Servicing rights, net26,599  34,736  35,441  35,778  35,906 
Cash surrender value on life insurance142,073  120,281  117,613  112,615  112,060 
Other real estate, net13,226  9,269  11,188  9,744  10,740 
Other assets122,355  111,104  120,644  123,869  116,394 
Total Assets$9,755,627  $8,204,721  $8,361,845  $8,247,079  $8,202,215 
Liabilities and Equity         
Liabilities         
Deposits:         
 Demand$3,009,940  $2,355,410  $2,319,256  $2,202,036  $2,238,736 
 Savings4,227,340  3,704,579  3,940,146  3,788,089  3,753,300 
 Time994,604  870,180  830,459  857,286  920,657 
Total deposits8,231,884  6,930,169  7,089,861  6,847,411  6,912,693 
Short-term borrowings171,871  139,130  155,025  306,459  214,105 
Other borrowings301,473  281,096  282,051  288,534  294,493 
Accrued expenses and other liabilities68,715  48,356  53,596  63,759  76,536 
Total Liabilities8,773,943  7,398,751  7,580,533  7,506,163  7,497,827 
Stockholders' Equity         
Preferred equity938  938  938  1,357  1,357 
Common stock29,946  26,701  26,674  26,120  24,683 
Capital surplus503,262  352,500  351,423  328,376  279,316 
Retained earnings468,556  450,228  431,219  416,109  402,179 
Accumulated other comprehensive loss(21,018) (24,397) (28,942) (31,046) (3,079)
Treasury stock at cost        (68)
Total Equity981,684  805,970  781,312  740,916  704,388 
Total Liabilities and Equity$9,755,627  $8,204,721  $8,361,845  $8,247,079  $8,202,215 


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,
 2017 2016 2017 2016
Average Balances       
Assets$9,639,844  $8,172,683  $8,740,703  $8,136,492 
Loans, net of unearned6,286,264  5,538,088  5,679,620  5,493,187 
Deposits8,100,028  6,839,334  7,353,399  6,775,103 
Earning assets8,726,228  7,382,860  7,942,810  7,368,856 
Interest bearing liabilities5,697,713  5,224,172  5,346,826  5,286,708 
Common stockholders' equity954,511  689,637  833,150  663,050 
Total stockholders' equity955,449  692,404  834,203  687,312 
Tangible common stockholders' equity(1)691,464  537,375  638,149  513,031 
        
Key Performance Ratios       
Annualized return on average assets0.89% 0.98% 0.94% 1.00%
Annualized return on average common equity (GAAP)8.99% 11.64% 9.88% 12.28%
Annualized return on average tangible common equity (non-GAAP)(2)12.41% 14.93% 12.90% 15.87%
Annualized ratio of net charge-offs to average loans0.31% 0.17% 0.23% 0.09%
Annualized net interest margin (GAAP)4.08% 3.97% 4.00% 3.98%
Annualized net interest margin, fully tax-equivalent (non-GAAP)(3)4.26% 4.14% 4.19% 4.15%
Efficiency ratio, fully tax-equivalent(4)64.54% 63.88% 66.58% 66.23%
        
Reconciliation of Return on Average Tangible Common Equity (non-GAAP)(5)       
Net income available to common shareholders (GAAP)$21,622  $20,172  $61,567  $60,962 
        
Average common stockholders' equity (GAAP)$954,511  $689,637  $833,150  $663,050 
Less average goodwill226,097  127,699  167,009  125,061 
Less average core deposit intangibles and customer relationship
intangibles,  net
36,950  24,563  27,992  24,958 
Average tangible common equity (non-GAAP)$691,464  $537,375  $638,149  $513,031 
Annualized return on average common equity (GAAP)8.99% 11.64% 9.88% 12.28%
Annualized return on average tangible common equity (non-GAAP)12.41% 14.93% 12.90% 15.87%
        
Reconciliation of Annualized Net Interest Margin, Fully Tax-Equivalent (non-GAAP)(6)       
Net Interest Income (GAAP)$89,844  $73,681  $237,452  $219,506 
Plus tax-equivalent adjustment(7)3,925  3,221  11,581  9,408 
Net interest income, tax-equivalent (non-GAAP)

$93,769  $76,902  $249,033  $228,914 
        
Average earning assets$8,726,228  $7,382,860  $7,942,810  $7,368,856 
        
Annualized net interest margin (GAAP)4.08% 3.97% 4.00% 3.98%
Annualized net interest margin, fully tax-equivalent (non-GAAP)

4.26% 4.14% 4.19% 4.15%
        
(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 35%.


HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
 For the Quarter Ended
 9/30/2017 6/30/2017 3/31/2017 12/31/2016 9/30/2016
Average Balances         
Assets$9,639,844  $8,333,301  $8,233,510  $8,280,042  $8,172,683 
Loans, net of unearned6,286,264  5,376,826  5,365,654  5,473,001  5,538,088 
Deposits8,100,028  7,050,126  6,896,821  6,928,978  6,839,334 
Earning assets8,726,228  7,586,256  7,502,496  7,551,997  7,382,860 
Interest bearing liabilities5,697,713  5,146,243  5,190,955  5,206,393  5,224,172 
Common stockholders' equity954,511  791,039  751,671  726,455  689,637 
Total stockholders' equity955,449  791,977  752,958  727,812  692,404 
Tangible common stockholders' equity(1)691,464  625,929  596,006  575,412  537,375 
          
Key Performance Ratios         
Annualized return on average assets0.89% 1.06% 0.89% 0.92% 0.98%
Annualized return on average common equity (GAAP)8.99% 11.13% 9.71% 10.48% 11.64%
Annualized return on average tangible common equity (non-GAAP)(2)12.41% 14.07% 12.25% 13.24% 14.93%
Annualized ratio of net charge-offs to average loans0.31% 0.14% 0.22% 0.18% 0.17%
Annualized net interest margin (GAAP)4.08% 3.94% 3.95% 3.96% 3.97%
Annualized net interest margin, fully tax-equivalent (non-GAAP)(3)4.26% 4.14% 4.16% 4.14% 4.14%
Efficiency ratio, fully tax-equivalent(4)64.54% 65.61% 69.95% 66.29% 63.88%
          
Reconciliation of Return on Average Tangible Common Equity (non-GAAP)(5)         
Net income available to common shareholders (GAAP)$21,622  $21,949  $17,996  $19,146  $20,172 
          
Average common stockholders' equity (GAAP)$954,511  $791,039  $751,671  $726,455  $689,637 
   Less average goodwill226,097  141,461  132,440  127,699  127,699 
Less average core deposit intangibles and customer relationship intangibles, net36,950  23,649  23,225  23,344  24,563 
Average tangible common equity (non-GAAP)$691,464  $625,929  $596,006  $575,412  $537,375 
Annualized return on average common equity (GAAP)8.99% 11.13% 9.71% 10.48% 11.64%
Annualized return on average tangible common equity (non-GAAP)12.41% 14.07% 12.25% 13.24% 14.93%
          
Reconciliation of Annualized Net Interest Margin, Fully Tax-Equivalent (non-GAAP)(6)         
Net Interest Income (GAAP)$89,844  $74,580  $73,028  $75,160  $73,681 
   Plus tax-equivalent adjustment(7)3,925  3,796  3,860  3,511  3,221 
Net interest income, fully tax-equivalent (non-GAAP)$93,769  $78,376  $76,888  $78,671  $76,902 
          
Average earning assets$8,726,228  $7,586,256  $7,502,496  $7,551,997  $7,382,860 
          
Annualized net interest margin (GAAP)4.08% 3.94% 3.95% 3.96% 3.97%
Annualized net interest margin, fully tax-equivalent (non-GAAP)4.26% 4.14% 4.16% 4.14% 4.14%
 
(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 35%.


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)2017 2016 2017 2016
Net interest income$89,844  $73,681  $237,452  $219,506 
Tax-equivalent adjustment(2)3,925  3,221  11,581  9,408 
Fully tax-equivalent net interest income93,769  76,902  249,033  228,914 
Noninterest income24,977  28,542  76,494  89,146 
Securities gains, net(1,679) (1,584) (5,553) (9,732)
Adjusted income$117,067  $103,860  $319,974  $308,328 
        
Total noninterest expenses$78,759  $68,427  $219,797  $209,756 
Less:       
Core deposit intangibles and customer relationship intangibles amortization1,863  1,291  4,252  4,483 
Partnership investment in tax credit projects    876   
(Gain)/loss on sales/valuations of assets, net1,342  794  1,642  1,064 
Adjusted noninterest expenses$75,554  $66,342  $213,027  $204,209 
        
Efficiency ratio, fully tax-equivalent (non-GAAP)64.54% 63.88% 66.58% 66.23%


HEARTLAND FINANCIAL USA, INC. 
CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited) 
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA 
 For the Quarter Ended
Reconciliation of Non-GAAP Measure-Efficiency Ratio(1)9/30/2017 6/30/2017 3/31/2017 12/31/2016 9/30/2016
Net interest income$89,844  $74,580  $73,028  $75,160  $73,681 
Tax-equivalent adjustment(2)3,925  3,796  3,860  3,511  3,221 
Fully tax-equivalent net interest income93,769  78,376  76,888  78,671  76,902 
Noninterest income24,977  25,624  25,893  24,455  28,542 
Securities gains, net(1,679) (1,392) (2,482) (1,608) (1,584)
Adjusted income$117,067  $102,608  $100,299  $101,518  $103,860 
          
Total noninterest expenses$78,759  $69,298  $71,740  $69,912  $68,427 
Less:         
Core deposit intangibles and customer relationship intangibles amortization1,863  1,218  1,171  1,147  1,291 
Partnership investment in tax credit projects  876    1,051   
(Gain)/loss on sales/valuation of assets, net1,342  (112) 412  414  794 
Adjusted noninterest expenses$75,554  $67,316  $70,157  $67,300  $66,342 
          
Efficiency ratio, fully tax-equivalent (non-GAAP)64.54% 65.61% 69.95% 66.29% 63.88%
          
(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 35%.


HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND FULL TIME EQUIVALENT EMPLOYEE DATA
 As of and for the Quarter Ended
 9/30/2017 6/30/2017 3/31/2017 12/31/2016 9/30/2016
Common Share Data         
Book value per common share$32.75  $30.15  $29.26  $28.31  $28.48 
Tangible book value per common share (non-GAAP)(1)$23.61  $24.00  $23.05  $22.55  $22.34 
ASC 320 effect on book value per common share$(0.67) $(0.87) $(1.06) $(1.15) $0.03 
Common shares outstanding, net of treasury stock29,946,069  26,701,226  26,674,121  26,119,929  24,681,380 
Tangible common equity ratio (non-GAAP)(2)7.46% 7.97% 7.50% 7.28% 6.85%
          
Reconciliation of Tangible Book Value Per Common Share (non-GAAP)(3)         
Common stockholders' equity (GAAP)$980,746  $805,032  $780,374  $739,559  $703,031 
Less goodwill236,615  141,461  141,461  127,699  127,699 
Less core deposit intangibles and customer relationship intangibles, net37,028  22,850  24,068  22,775  23,922 
Tangible common stockholders' equity (non-GAAP)$707,103  $640,721  $614,845  $589,085  $551,410 
          
Common shares outstanding, net of treasury stock29,946,069  26,701,226  26,674,121  26,119,929  24,681,380 
Common stockholders' equity (book value) per share (GAAP)$32.75  $30.15  $29.26  $28.31  $28.48 
Tangible book value per common share (non-GAAP)$23.61  $24.00  $23.05  $22.55  $22.34 
          
Reconciliation of Tangible Common Equity Ratio (non-GAAP)(4)         
Total assets (GAAP)$9,755,627  $8,204,721  $8,361,845  $8,247,079  $8,202,215 
  Less goodwill236,615  141,461  141,461  127,699  127,699 
  Less core deposit intangibles and customer relationship
  intangibles, net
37,028  22,850  24,068  22,775  23,922 
Total tangible assets (non-GAAP)$9,481,984  $8,040,410  $8,196,316  $8,096,605  $8,050,594 
Tangible common equity ratio (non-GAAP)7.46% 7.97% 7.50% 7.28% 6.85%
          
Loan Data         
Loans held to maturity:         
Commercial and commercial real estate$4,777,856  $3,803,011  $3,849,748  $3,825,847  $3,900,612 
Residential mortgage635,611  596,385  604,902  617,924  625,965 
Agricultural and agricultural real estate511,764  495,243  481,125  489,318  489,387 
Consumer450,088  431,052  427,962  420,613  425,582 
Unearned discount and deferred loan fees(1,904) (609) (2,133) (1,983) (2,831)
Total loans held to maturity$6,373,415  $5,325,082  $5,361,604  $5,351,719  $5,438,715 
          
Other Selected Trend Information         
Effective tax rate28.74% 26.85% 23.49% 30.38% 29.02%
Full time equivalent employees2,024  1,862  1,896  1,864  1,846 
Total residential mortgage loan applications$271,476  $308,113  $248,614  $304,018  $445,107 
Residential mortgage loans originated$198,911  $216,637  $161,851  $278,065  $324,337 
Residential mortgage loans sold$188,501  $180,296  $172,521  $269,333  $315,917 
Residential mortgage loan servicing portfolio$3,557,866  $4,340,243  $4,338,311  $4,308,580  $4,259,459 
          
(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
 9/30/2017 6/30/2017 3/31/2017 12/31/2016 9/30/2016
Allowance for Loan Losses         
Balance, beginning of period$54,051  $54,999  $54,324  $54,653  $51,756 
Provision for loan losses5,705  889  3,641  2,181  5,328 
Charge-offs(5,759) (2,766) (3,718) (3,555) (3,283)
Recoveries888  929  752  1,045  852 
Balance, end of period$54,885  $54,051  $54,999  $54,324  $54,653 
          
Asset Quality         
Nonaccrual loans$63,456  $65,393  $62,868  $64,299  $57,799 
Loans past due ninety days or more as to interest or principal
payments
2,348  698  872  86  105 
Other real estate owned13,226  9,269  11,188  9,744  10,740 
Other repossessed assets773  675  739  663  821 
Total nonperforming assets$79,803  $76,035  $75,667  $74,792  $69,465 
          
Performing troubled debt restructured loans$10,040  $11,157  $11,010  $10,380  $10,281 
          
Nonperforming Assets Activity         
Balance, beginning of period$76,035  $75,667  $74,792  $69,465  $68,620 
Net loan charge offs(4,871) (1,837) (2,966) (2,510) (2,431)
New nonperforming loans9,117  13,700  14,819  23,035  10,884 
Acquired nonperforming assets7,991         
Reduction of nonperforming loans(1)(5,183) (7,443) (10,037) (13,707) (6,983)
OREO/Repossessed assets sales proceeds(3,328) (3,734) (715) (1,037) (343)
OREO/Repossessed assets writedowns, net(56) (259) (279) (274) (521)
Net activity at Citizens Finance Co.98  (59) 53  (180) 239 
Balance, end of period$79,803  $76,035  $75,667  $74,792  $69,465 
 
Asset Quality Ratios         
Ratio of nonperforming loans to total loans1.03% 1.24% 1.19% 1.20% 1.06%
Ratio of nonperforming assets to total assets0.82% 0.93% 0.90% 0.91% 0.85%
Annualized ratio of net loan charge-offs to average loans0.31% 0.14% 0.22% 0.18% 0.17%
Allowance for loan losses as a percent of loans0.86% 1.02% 1.03% 1.02% 1.00%
Allowance for loan losses as a percent of nonperforming loans83.41% 81.78% 86.29% 84.37% 94.39%
Loans delinquent 30-89 days as a percent of total loans0.33% 0.38% 0.44% 0.37% 0.40%
          
(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, 2017 September 30, 2016
 Average
Balance
 Interest Rate Average
Balance
 Interest Rate
Earning Assets           
Securities:           
Taxable$1,667,076  $10,394  2.47% $1,415,446  $7,917  2.23%
Nontaxable(1)643,925  7,825  4.82  473,152  5,719  4.81 
Total securities2,311,001  18,219  3.13  1,888,598  13,636  2.87 
Interest bearing deposits with the Federal Reserve Bank and other
banks and other short-term investments
164,809  558  1.34  7,026  6  0.34 
Federal funds sold18,874  34  0.71  1,409  1  0.28 
Loans:(2)           
Commercial and commercial real estate(1)4,647,414  59,121  5.05  3,908,623  48,334  4.92 
Residential mortgage683,186  7,300  4.24  717,374  7,248  4.02 
Agricultural and agricultural real estate(1)504,970  6,175  4.85  486,008  5,719  4.68 
Consumer450,694  9,032  7.95  426,083  8,256  7.71 
Fees on loans  2,464      1,708   
Less: allowance for loan losses(54,720)     (52,261)    
Net loans6,231,544  84,092  5.35  5,485,827  71,265  5.17 
Total earning assets8,726,228  102,903  4.68% 7,382,860  84,908  4.58%
Nonearning Assets913,616      789,823     
Total Assets$9,639,844      $8,172,683     
Interest Bearing Liabilities           
Savings$4,205,946  $3,162  0.30% $3,697,426  $2,066  0.22%
Time, $100,000 and over408,560  787  0.76  399,498  813  0.81 
Other time deposits573,178  1,124  0.78  570,445  1,122  0.78 
Short-term borrowings209,795  271  0.51  258,783  235  0.36 
Other borrowings300,234  3,790  5.01  298,020  3,770  5.03 
Total interest bearing liabilities5,697,713  9,134  0.64% 5,224,172  8,006  0.61%
Noninterest Bearing Liabilities           
Noninterest bearing deposits2,912,344      2,171,965     
Accrued interest and other liabilities74,338      84,142     
Total noninterest bearing liabilities2,986,682      2,256,107     
Stockholders' Equity955,449      692,404     
Total Liabilities and Stockholders' Equity$9,639,844      $8,172,683     
Net interest income, fully tax-equivalent (non-GAAP)(1)  $93,769      $76,902   
Net interest spread(1)    4.04%     3.97%
Net interest income, fully tax-equivalent (non-GAAP) to total earning assets(3)    4.26%     4.14%
Interest bearing liabilities to earning assets65.29%     70.76%    
            
Reconciliation of annualized net interest margin, fully tax-equivalent (non-GAAP)(3)           
Net interest income, fully tax-equivalent (non-GAAP)  $93,769      $76,902   
Adjustments for tax-equivalent interest(1)  (3,925)     (3,221)  
Net interest income (GAAP)  $89,844      $73,681   
            
Average earning assets$8,726,228      $7,382,860     
Annualized net interest margin (GAAP)  4.08%     3.97%  
Annualized net interest margin, fully tax-equivalent (non-GAAP)  4.26%     4.14%  
            
(1) Computed on a tax-equivalent basis using an effective tax rate of 35%
(2) Nonaccrual loans are included in the average loans outstanding.
(3) Annualized net interest margin, fully tax-equivalent is a non-GAAP measure, which adjusts net interest income for the tax-favored status of certain loans and securities. Management believes this measure enhances the comparability of net interest income arising from taxable and tax exempt sources. This measure should not be considered a substitute for operating results determined in accordance with GAAP.


HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited)
DOLLARS IN THOUSANDS
 For the Nine Months Ended
 September 30, 2017 September 30, 2016
 Average
Balance
 Interest Rate Average
Balance
 Interest Rate
Earning Assets           
Securities:           
Taxable$1,545,091  $27,246  2.36% $1,464,080  $24,604  2.24%
Nontaxable(1)638,119  23,534  4.93  440,275  16,605  5.04 
Total securities2,183,210  50,780  3.11  1,904,355  41,209  2.89 
Interest bearing deposits with the Federal Reserve Bank and other
banks and other short-term investments
127,870  1,112  1.16  9,785  13  0.18 
Federal funds sold6,885  37  0.72  12,509  12  0.13 
Loans:(2)           
Commercial and commercial real estate(1)4,097,967  151,946  4.96  3,840,060  141,977  4.94 
Residential mortgage654,488  20,492  4.19  751,694  23,133  4.11 
Agricultural and agricultural real estate(1)492,170  17,536  4.76  478,564  16,952  4.73 
Consumer434,995  25,374  7.80  422,869  24,452  7.72 
Fees on loans  5,894      5,362   
Less: allowance for loan losses(54,775)     (50,980)    
Net loans5,624,845  221,242  5.26  5,442,207  211,876  5.20 
Total earning assets7,942,810  273,171  4.60% 7,368,856  253,110  4.59%
Nonearning Assets797,893      767,636     
Total Assets$8,740,703      $8,136,492     
Interest Bearing Liabilities           
Savings$3,976,403  $7,772  0.26% $3,651,370  $5,988  0.22%
Time, $100,000 and over369,595  2,239  0.81  439,609  2,417  0.73 
Other time deposits512,551  2,955  0.77  599,745  3,790  0.84 
Short-term borrowings199,503  498  0.33  314,367  1,083  0.46 
Other borrowings288,774  10,674  4.94  281,617  10,918  5.18 
Total interest bearing liabilities5,346,826  24,138  0.60% 5,286,708  24,196  0.61%
Noninterest Bearing Liabilities           
Noninterest bearing deposits2,494,850      2,084,379     
Accrued interest and other liabilities64,824      78,093     
Total noninterest bearing liabilities2,559,674      2,162,472     
Stockholders' Equity834,203      687,312     
Total Liabilities and Stockholders' Equity$8,740,703      $8,136,492     
Net interest income, fully tax-equivalent (non-GAAP)(1)  $249,033      $228,914   
Net interest spread(1)    4.00%     3.98%
Net interest income, fully tax-equivalent (non-GAAP) to total earning assets(3)    4.19%     4.15%
Interest bearing liabilities to earning assets67.32%     71.74%    
            
Reconciliation of annualized net interest margin, fully tax-equivalent (non-GAAP)(3)           
Net interest income, fully tax-equivalent (non-GAAP)  $249,033      $228,914   
Adjustments for tax-equivalent interest(1)  (11,581)     (9,408)  
Net interest income (GAAP)  $237,452      $219,506   
            
Average earning assets$7,942,810      $7,368,856     
Annualized net interest margin (GAAP)  4.00%     3.98%  
Annualized net interest margin, fully tax-equivalent (non-GAAP)  4.19%     4.15%  
            
(1) Computed on a tax-equivalent basis using an effective tax rate of 35%.
(2) Nonaccrual loans are included in the average loans outstanding.
(3) Annualized net interest margin, fully tax-equivalent is a non-GAAP measure, which adjusts net interest income for the tax-favored status of certain loans and securities. Management believes this measure enhances the comparability of net interest income arising from taxable and tax exempt sources. This measure should not be considered a substitute for operating results determined in accordance with GAAP.


HEARTLAND FINANCIAL USA, INC.
SELECTED FINANCIAL DATA - SUBSIDIARY BANKS (Unaudited)
DOLLARS IN THOUSANDS
 As of and For the Quarter Ended
 9/30/20176/30/20173/31/201712/31/20169/30/2016
Total Assets     
Citywide Banks(1)$2,391,727 $817,859 $839,505 $901,782 $892,723 
Dubuque Bank and Trust Company1,479,647 1,441,655 1,436,038 1,497,775 1,448,796 
New Mexico Bank & Trust1,425,185 1,407,991 1,382,480 1,374,647 1,318,203 
Wisconsin Bank & Trust1,030,192 1,035,628 1,033,633 1,065,715 1,068,288 
Premier Valley Bank886,495 850,956 854,838 640,684 635,620 
Illinois Bank & Trust761,285 740,153 746,669 742,173 748,801 
Morrill & Janes Bank and Trust Company719,246 748,286 871,819 863,544 862,767 
Arizona Bank & Trust566,951 566,339 578,597 582,266 574,561 
Rocky Mountain Bank486,790 476,829 479,121 477,063 481,346 
Minnesota Bank & Trust217,246 216,957 213,789 229,114 238,745 
Total Portfolio Loans     
Citywide Banks(1)$1,540,016 $558,573 $572,254 $609,760 $638,006 
Dubuque Bank and Trust Company868,370 884,640 903,617 905,242 906,347 
New Mexico Bank & Trust989,367 934,734 906,477 924,249 917,679 
Wisconsin Bank & Trust684,530 662,502 644,380 650,254 711,714 
Premier Valley Bank458,443 447,148 440,406 348,879 354,610 
Illinois Bank & Trust462,150 447,887 469,105 473,008 469,236 
Morrill & Janes Bank and Trust Company468,197 515,896 546,123 548,544 538,666 
Arizona Bank & Trust401,516 377,358 384,028 384,706 385,926 
Rocky Mountain Bank338,305 335,173 330,921 347,839 357,346 
Minnesota Bank & Trust142,650 144,112 142,736 144,098 139,581 
Total Deposits     
Citywide Banks(1)$1,924,605 $682,872 $712,377 $733,449 $767,128 
Dubuque Bank and Trust Company1,139,512 1,178,368 1,212,899 1,231,016 1,182,947 
New Mexico Bank & Trust1,221,134 1,190,758 1,184,675 1,091,436 1,101,550 
Wisconsin Bank & Trust852,489 874,845 868,033 899,676 889,957 
Premier Valley Bank714,605 681,298 708,226 510,142 520,814 
Illinois Bank & Trust691,680 669,532 641,750 636,419 671,104 
Morrill & Janes Bank and Trust Company605,390 627,857 721,075 738,036 676,176 
Arizona Bank & Trust500,270 493,419 501,111 477,213 493,331 
Rocky Mountain Bank426,405 416,436 420,067 414,344 420,581 
Minnesota Bank & Trust189,749 193,365 189,324 194,368 214,651 
Net Income     
Citywide Banks(1)$4,541 $746 $1,366 $1,572 $925 
Dubuque Bank and Trust Company703 3,477 2,056 806 5,112 
New Mexico Bank & Trust4,972 5,855 4,419 4,061 3,824 
Wisconsin Bank & Trust3,368 3,448 1,968 2,970 3,368 
Premier Valley Bank2,907 2,573 1,306 2,969 1,804 
Illinois Bank & Trust2,286 1,984 1,991 1,917 2,179 
Morrill & Janes Bank and Trust Company1,760 2,210 2,227 2,519 1,707 
Arizona Bank & Trust1,451 1,073 1,486 1,305 2,034 
Rocky Mountain Bank1,631 1,732 1,521 1,229 1,456 
Minnesota Bank & Trust791 563 591 888 675 
      
(1) Formerly known as Centennial Bank and Trust.

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