Heartland Financial USA, Inc. (NASDAQ:HTLF):
First Quarter 2006 Highlights
-- Net income improved by 9% over first quarter 2005
-- Net interest margin improved by 17 basis points over first quarter 2005
-- Average earning assets increased 8% over first quarter 2005 -0- Three Months Ended March 31, ------------------------- 2006 2005 Net income (in millions) $5.7 $5.3 Diluted earnings per share .35 .32 Return on average assets .83 % .81 % Return on average equity 12.28 12.06 Net interest margin 4.14 3.97
"We are delighted to report that our net interest margin continues to grow despite a yield curve that remains essentially flat. Not only are we experiencing solid loan growth, but our balance sheet remains well-positioned for an increasing rate environment."-- Lynn B. Fuller, chairman, president and chief executive officer, Heartland Financial USA
Heartland Financial USA, Inc. (NASDAQ:HTLF) today reported earnings for the first quarter of 2006. Net income for the quarter ended March 31, 2006, was $5.7 million, or $0.35 per diluted share, compared to net income of $5.3 million, or $0.32 per diluted share, during the first quarter of 2005. Return on average equity was 12.28 percent and return on average assets was 0.83 percent for the first quarter of 2006, compared to 12.06 percent and 0.81 percent, respectively, for the same quarter in 2005.
Lynn B. Fuller, Heartland's chairman, president and CEO stated, "We are delighted to report that our net interest margin continues to grow despite a yield curve that remains essentially flat. Not only are we experiencing solid loan growth, but our balance sheet remains well-positioned for an increasing rate environment. Given a steady rate scenario, we anticipate our net interest margin will also hold constant for the remainder of the year."
Net interest margin, expressed as a percentage of average earning assets, was 4.14 percent during the first quarter of 2006 compared to 3.97 percent for the first quarter of 2005 and 3.97 percent for the fourth quarter of 2005. Net interest income on a tax-equivalent basis totaled $25.7 million during the first quarter of 2006, an increase of $2.9 million or 13 percent from the $22.8 million recorded during the first quarter of 2005. Contributing to this increase was the $186.0 million or 8 percent growth in average earning assets along with a shift in balances to loans from securities. The percentage of average loans to total assets increased from 68 percent during the first quarter of 2005 to 71 percent during the first quarter of 2006. More than half of the credits in Heartland's commercial and agricultural loan portfolios are floating rate loans, thus increases in the national prime rate, as experienced during the first quarter of 2006, have an immediate positive impact on interest income. On a tax-equivalent basis, interest income in the first quarter of 2006 totaled $44.2 million compared to $35.7 million in the first quarter of 2005, an increase of $8.5 million or 24 percent. As rates continued to move upward during the first quarter of 2006, Heartland experienced some movement in deposit balances from lower yielding accounts into higher yielding money market and certificate of deposit accounts. Interest expense for the first quarter of 2006 was $18.6 million compared to $13.0 million in the first quarter of 2005, an increase of $5.6 million or 43 percent.
Net interest income simulations reflect an asset sensitive posture leading to stronger earnings performance in a rising interest rate environment. Should the current rising rate environment reverse, net interest income would likely decline. In order to reduce the potentially negative impact a downward movement in interest rates would have on net interest income, Heartland entered into a two-year floor transaction on a notional $100.0 million in July 2005, a five-year collar transaction on a notional $50.0 million in September 2005 and an additional three-year collar transaction on a notional $50.0 million in April 2006.
Noninterest income increased by $1.5 million or 15 percent during the first quarter of 2006 compared to the same quarter in 2005. Rental income on operating leases represented $490 thousand or 33% of the increase in noninterest income. The increase in this category is directly related to the increase in the vehicles under operating lease at ULTEA, Inc., Heartland's fleet management subsidiary, from 2,351 at March 31, 2005 to 2,462 at March 31, 2006. The other categories experiencing the largest increases were service charges and fees, loan servicing income and trust fees.
For the first quarter of 2006, noninterest expense increased $3.4 million or 15 percent in comparison with the same period in 2005. The largest component of noninterest expense, salaries and employee benefits, represented $1.9 million or 56 percent of the increase in noninterest expense from the first quarter of 2005 to the first quarter of 2006. In addition to the merit increases for all salaried employees that are made on January 1 of each year, the growth in salaries and employee benefits expense was a result of additional staffing at the holding company to provide support services to the growing number of bank subsidiaries, the addition of branches at New Mexico Bank & Trust, Riverside Community Bank and Arizona Bank & Trust, and the new bank subsidiary being formed in Denver, Colorado, which began operations in October 2005 as a loan production office under the Rocky Mountain umbrella. Total full-time equivalent employees increased to 938 at March 31, 2006, from 859 at March 31, 2005.
Fuller commented, "We continue to monitor the expense growth, particularly as it relates to our investment in new branches and our de novo, Summit Bank & Trust in Broomfield, Colorado. As I have noted in the past, however, the increase in noninterest expense should be seen as a measure of our commitment to build the infrastructure necessary to compete in our attractive western markets."
In December 2005, Heartland and Wisconsin Community Bank were parties to a trial in which it was alleged that the contract relating to the 2002 sale of Wisconsin Community Bank's Eau Claire branch was breached. The plaintiff alleged damages of $2.4 million, while Heartland and Wisconsin Community Bank alleged damages of $600,000 in a counterclaim. Written arguments from both parties were submitted to the judge by the January 27, 2006, deadline. As of this release date, Heartland had not been notified of a decision on the case. Heartland believes the claims against it and Wisconsin Community Bank are without merit and continues to defend their positions vigorously.
Heartland's effective tax rate was 31.42 percent for the first quarter of 2006 compared to 30.80 percent during the first quarter of 2005. The lower effective rate during the first quarter of 2005 was due to the low-income housing tax credits totaling $440,000. During the year 2006, these credits decreased to approximately $225,000. Tax-exempt interest income as a percentage of pre-tax income was 19.25 percent during the first quarter of 2006 compared to 18.94 percent during the same quarter of 2005. The tax-equivalent adjustment for this tax-exempt interest income was $868,000 during the first quarter of 2006 compared to $775,000 during the same quarter in 2005. This increase in tax-exempt interest income partially mitigated the impact that reduced tax credits had on income taxes recorded during the first quarter of 2006.
At March 31, 2006, total assets remained steady during the quarter at $2.8 billion. Total loans and leases were $2.0 billion at March 31, 2006, an increase of $37.8 million or 8 percent annualized since year-end 2005. This growth was an improvement over the $10.3 million or 2 percent annualized increase in loans experienced during the first quarter of 2005. The Heartland subsidiary banks experiencing notable loan growth since year-end 2005 were Dubuque Bank and Trust Company, New Mexico Bank & Trust and Rocky Mountain Bank. The commercial and commercial real estate loan category grew by $59.1 million or 18 percent annualized.
Total deposits at March 31, 2006, were $2.13 billion, an increase of $13.7 million for the quarter or nearly 3 percent annualized. As with loans, this was an improvement over the $6.7 million or 1 percent annualized growth experienced during the first quarter of 2005. Except for First Community Bank, New Mexico Bank & Trust and Rocky Mountain Bank, all of Heartland's subsidiary banks increased deposits during the first quarter of 2006. Demand deposits experienced a $17.8 million or 20 percent annualized decline, in large part, due to normal seasonal fluctuations that many banks experience during the first quarter of the year. Savings deposit balances increased by $24.6 million or 13 percent annualized and time deposit balances increased $6.8 million or 3 percent annualized. Of particular note is that all of the growth in time deposits occurred in deposits from local markets as total brokered deposits decreased from $145.5 million at year-end 2005 to $115.4 million at March 31, 2006, and exclusive of brokered deposits, time deposits increased $37.0 million or 17 percent annualized. As interest rates have increased, many deposit customers have shifted a portion of their lower yielding deposit balances into higher yielding money market and certificate of deposit accounts. The Heartland bank subsidiaries have priced these products competitively in order to retain existing deposit customers, as well as to attract new customers.
"Competition for retail deposit growth appears to be growing in intensity as rates gradually move higher. While we realize we need to pay competitive rates, our primary focus continues to be on relationship building and targeted promotions," Fuller stated.
The allowance for loan and lease losses at March 31, 2006, was 1.44 percent of loans and 172 percent of nonperforming loans, compared to 1.42 percent of loans and 185 percent of nonperforming loans at December 31, 2005. Provision for loan losses increased $94,000 or 7 percent during the first quarter of 2006 compared to the same quarter of 2005, primarily as a result of the growth experienced in the loan portfolio. Nonperforming loans were $16.7 million or .84 percent of total loans and leases at March 31, 2006, compared to $15.0 million or 0.77 percent of total loans and leases at December 31, 2005, primarily due to two credits at Rocky Mountain Bank. Management does not feel this increase is an indication of any trend developing and, because of the net realizable value of collateral, guarantees and other factors, does not expect losses on Heartland's nonperforming loans to be significant and has specifically provided for any probable losses in the allowance for loan and lease losses.
According to Fuller, "Asset quality continues as one of Heartland's franchise strengths. Despite a slight uptick in nonperforming loans, we continue to emphasize credit quality and disciplined lending ahead of loan volume."
About Heartland Financial USA:
Heartland Financial USA, Inc. is a $2.8 billion diversified financial services company providing banking, mortgage, wealth management, insurance, fleet management and consumer finance services to individuals and businesses in 43 communities in nine states -- Iowa, Illinois, Wisconsin, New Mexico, Arizona, Montana, Colorado, Minnesota and Massachusetts. Heartland Financial USA, Inc. is listed on NASDAQ. Its trading symbol is HTLF.
Additional information about Heartland Financial USA, Inc. is available through our website at www.htlf.com.
This release may contain, and future oral and written statements of the Company and its management may contain, forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to the financial condition, results of operations, plans, objectives, future performance and business of the Company. Forward-looking statements, which may be based upon beliefs, expectations and assumptions of the Company's management and on information currently available to management, are generally identifiable by the use of words such as believe, expect, anticipate, plan, intend, estimate, may, will, would, could, should or similar expressions. Additionally, all statements in this release, including forward-looking statements, speak only as of the date they are made, and the Company undertakes no obligation to update any statement in light of new information or future events.
A number of factors, many of which are beyond the ability of the Company to control or predict, could cause actual results to differ materially from those in its forward-looking statements. These factors include, among others, the following: (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 or threats thereof, (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 loss of key executives or employees; (viii) changes in consumer spending; (ix) unexpected results of acquisitions; (x) unexpected outcomes of existing or new litigation involving the Company; and (xi) changes in accounting policies and practices. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Additional information concerning the Company and its business, including other factors that could materially affect the Company's financial results, is included in the Company's filings with the Securities and Exchange Commission. -0- HEARTLAND FINANCIAL USA, INC. CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited) DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA ---------------------------------------------------------------------- For the Quarters Ended 3/31/2006 3/31/2005 ---------------------------------------------------------------------- Interest Income Interest and fees on loans and leases $37,918 $29,988 Interest on securities and other: Taxable 3,883 3,531 Nontaxable 1,428 1,325 Interest on federal funds sold 174 47 Interest on interest bearing deposits in other financial institutions 5 68 ------------- ---------- Total Interest Income 43,408 34,959 ------------- ---------- Interest Expense Interest on deposits 13,087 9,182 Interest on short-term borrowings 2,451 1,264 Interest on other borrowings 3,044 2,506 ------------- ---------- Total Interest Expense 18,582 12,952 ------------- ---------- Net Interest Income 24,826 22,007 Provision for loan and lease losses 1,458 1,364 ------------- ---------- Net Interest Income After Provision for Loan and Lease Losses 23,368 20,643 ------------- ---------- Noninterest Income Service charges and fees 2,601 2,240 Loan servicing income 980 658 Trust fees 1,817 1,595 Brokerage commissions 243 223 Insurance commissions 136 137 Securities gains (losses), net 132 53 Gain (loss) on trading account securities 33 18 Rental income on operating leases 4,061 3,571 Gains on sale of loans 550 532 Valuation adjustment on mortgage servicing rights - 16 Income on bank owned life insurance 293 263 Other noninterest income 339 409 ------------- ---------- Total Noninterest Income 11,185 9,715 ------------- ---------- Noninterest Expense Salaries and employee benefits 13,084 11,182 Occupancy 1,793 1,626 Furniture and equipment 1,691 1,367 Depreciation on equipment under operating leases 3,255 2,928 Outside services 2,156 1,998 Advertising 1,124 809 Other intangible amortization 228 270 Other noninterest expenses 2,844 2,571 ------------- ---------- Total Noninterest Expense 26,175 22,751 ------------- ---------- Income Before Income Taxes 8,378 7,607 Income taxes 2,632 2,343 ------------- ---------- Net Income $5,746 $5,264 ============= ========== Earnings per common share-basic $.35 $.32 Earnings per common share-diluted $.35 $.32 Weighted average shares outstanding-basic 16,430,504 16,479,244 Weighted average share outstanding-diluted 16,638,458 16,704,808 HEARTLAND FINANCIAL USA, INC. CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited) DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA ---------------------------------------------------------------------- For the Quarters Ended 3/31/2006 12/31/2005 9/30/2005 6/30/2005 3/31/2005 ---------------------------------------------------------------------- Interest Income Interest and fees on loans and leases $37,918 $36,283 $34,975 $32,596 $29,988 Interest on securities and other: Taxable 3,883 3,469 3,329 3,567 3,531 Nontaxable 1,428 1,469 1,385 1,333 1,325 Interest on federal funds sold 174 327 44 57 47 Interest on interest bearing deposits in other financial institutions 5 68 62 79 68 ------------------------------------------------------- Total Interest Income 43,408 41,616 39,795 37,632 34,959 ------------------------------------------------------- Interest Expense Interest on deposits 13,087 12,473 11,446 10,282 9,182 Interest on short-term borrowings 2,451 2,146 1,866 1,709 1,264 Interest on other borrowings 3,044 2,915 2,806 2,540 2,506 ------------------------------------------------------- Total Interest Expense 18,582 17,534 16,118 14,531 12,952 ------------------------------------------------------- Net Interest Income 24,826 24,082 23,677 23,101 22,007 Provision for loan and lease losses 1,458 2,169 1,395 1,636 1,364 ------------------------------------------------------- Net Interest Income After Provision for Loan and Lease Losses 23,368 21,913 22,282 21,465 20,643 ------------------------------------------------------- Noninterest Income Service charges and fees 2,601 2,339 2,437 2,307 2,240 Loan servicing income 980 886 823 726 658 Trust fees 1,817 1,742 1,588 1,605 1,595 Brokerage commissions 243 193 185 255 223 Insurance commissions 136 150 129 129 137 Securities gains (losses), net 132 105 60 (20) 53 Gain (loss) on trading account securities 33 - (3) (26) 18 Rental income on operating leases 4,061 4,045 4,002 3,845 3,571 Gains on sale of loans 550 600 796 644 532 Valuation adjustment on mortgage servicing rights - 33 24 (34) 16 Income on bank owned life insurance 293 317 220 243 263 Other noninterest income 339 277 882 366 409 ------------------------------------------------------- Total Noninterest Income 11,185 10,687 11,143 10,040 9,715 ------------------------------------------------------- Noninterest Expense Salaries and employee benefits 13,084 11,898 11,720 11,529 11,182 Occupancy 1,793 1,399 1,458 1,534 1,626 Furniture and equipment 1,691 1,658 1,620 1,542 1,367 Depreciation on equipment under operating leases 3,255 3,275 3,253 3,141 2,928 Outside services 2,156 2,345 2,080 1,957 1,998 Advertising 1,124 952 805 767 809 Other intangibles amortization 228 253 254 237 270 Other noninterest expenses 2,844 2,832 3,000 2,752 2,571 ------------------------------------------------------- Total Noninterest Expense 26,175 24,612 24,190 23,459 22,751 ------------------------------------------------------- Income Before Income Taxes 8,378 7,988 9,235 8,046 7,607 Income taxes 2,632 2,224 2,943 2,640 2,343 ------------------------------------------------------- Net Income $5,746 $5,764 $6,292 $5,406 $5,264 ======================================================= Earnings per common share- basic $.35 $.35 $.38 $.33 $.32 Earnings per common share- diluted $.35 $.35 $.38 $.32 $.32 Weighted average shares outstanding- basic 16,430,504 16,367,210 16,398,747 16,420,073 16,479,244 Weighted average shares outstanding- diluted 16,638,458 16,659,995 16,693,661 16,722,383 16,704,808 HEARTLAND FINANCIAL USA, INC. CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited) DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA ---------------------------------------------------------------------- As Of 03/31/2006 12/31/2005 9/30/2005 6/30/2005 3/31/2005 ---------------------------------------------------------------------- Assets Cash and cash equivalents $48,355 $81,021 $70,953 $85,011 $83,533 Time deposits in other financial institutions - - - - 1,190 Securities 520,062 527,767 498,054 507,985 524,448 Loans held for sale 38,885 40,745 47,987 50,329 41,710 Loans and leases: Held to maturity 1,990,852 1,953,066 1,915,430 1,854,926 1,783,256 Allowance for loan and lease losses (28,674) (27,791) (27,362) (26,676) (26,011) ------------------------------------------------------- Loans and leases, net 1,962,178 1,925,275 1,888,068 1,828,250 1,757,245 Assets under operating lease 39,634 40,644 40,222 41,045 37,379 Premises, furniture and equipment, net 102,462 92,769 91,087 88,440 85,234 Goodwill 35,398 35,398 35,398 35,398 35,398 Other intangible assets, net 8,958 9,159 9,354 9,568 9,855 Cash surrender value on life insurance 33,124 32,804 32,460 32,439 32,165 Other assets 32,883 32,750 32,853 33,563 23,580 ------------------------------------------------------- Total Assets $2,821,939 $2,818,332 $2,746,436 $2,712,028 $2,631,737 ======================================================= Liabilities and Stockholders' Equity Liabilities Deposits: Demand $334,940 $352,707 $349,763 $329,577 $314,430 Savings 778,960 754,360 741,104 764,918 750,982 Time 1,017,955 1,011,111 992,592 957,918 925,163 ------------------------------------------------------- Total deposits 2,131,855 2,118,178 2,083,459 2,052,413 1,990,575 Short-term borrowings 232,506 255,623 214,808 231,532 221,081 Other borrowings 232,025 220,871 229,653 211,654 215,423 Accrued expenses and other liabilities 34,148 35,848 33,338 34,183 28,659 ------------------------------------------------------- Total Liabilities 2,630,534 2,630,520 2,561,258 2,529,782 2,455,738 Stockholders' Equity 191,405 187,812 185,178 182,246 175,999 ------------------------------------------------------- Total Liabilities and Stockholders' Equity $2,821,939 $2,818,332 $2,746,436 $2,712,028 $2,631,737 ======================================================= Common Share Data Book value per common share $11.57 $11.46 $11.31 $11.11 $10.68 FAS 115 effect on book value per common share $(0.13) $(0.06) $0.06 $0.15 $(0.08) Common shares outstanding, net of treasury 16,547,079 16,390,416 16,368,161 16,399,470 16,481,082 HEARTLAND FINANCIAL USA, INC. CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited) DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA ---------------------------------------------------------------------- For the Quarters Ended 03/31/2006 12/31/2005 9/30/2005 6/30/2005 3/31/2005 ---------------------------------------------------------------------- Average Balances Assets $2,798,216 $2,782,541 $2,747,631 $2,680,435 $2,623,349 Loans and leases, net of unearned 2,001,778 1,971,707 1,939,220 1,865,302 1,805,551 Deposits 2,103,785 2,101,318 2,075,004 2,022,879 1,977,957 Earning assets 2,514,629 2,498,735 2,437,936 2,381,733 2,328,670 Interest bearing liabilities 2,243,951 2,214,483 2,190,156 2,146,900 2,094,528 Stockholders' equity 189,803 185,229 182,906 178,894 177,075 Earnings Performance Ratios Annualized return on average assets 0.83% 0.82% 0.91% 0.81% 0.81% Annualized return on average equity 12.28 12.35 13.65 12.12 12.06 Annualized net interest margin(1) 4.14 3.97 3.99 4.03 3.97 Efficiency ratio(2) 71.23 69.22 67.96 69.02 70.12 Efficiency ratio, banks only(2) 63.47 62.24 62.62 62.15 64.55 (1) Tax equivalent basis is calculated using an effective tax rate of 35% (2) Noninterest expense divided by the sum of net interest income and noninterest income less security gains HEARTLAND FINANCIAL USA, INC. CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited) DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA ---------------------------------------------------------------------- As of As of As of As of and For and For and For and For the Quarter the Year the Quarter the Year Ended Ended Ended Ended 3/31/2006 12/31/2005 3/31/2005 12/31/2004 ---------------------------------------------------------------------- Loan and Lease Data Commercial and commercial real estate $1,363,204 $1,304,080 $1,155,975 $1,162,103 Residential mortgage 211,349 219,671 216,247 212,842 Agricultural and agricultural real estate 217,701 230,357 223,528 217,860 Consumer 180,929 181,019 174,488 167,109 Direct financing leases, net 21,170 21,586 16,139 16,284 Unearned discount and deferred loan fees (3,501) (3,647) (3,121) (3,244) -------------------------------------------- Total loans and leases $1,990,852 $1,953,066 $1,783,256 $1,772,954 ============================================ Asset Quality Nonaccrual loans $16,115 $14,877 $12,825 $9,837 Loans past due ninety days or more as to interest or principal payments 599 115 538 88 Other real estate owned 2,612 1,586 423 425 Other repossessed assets 387 471 196 313 -------------------------------------------- Total nonperforming assets $19,713 $17,049 $13,982 $10,663 ============================================ Allowance for Loan and Lease Losses Balance, beginning of period $27,791 $24,973 $24,973 $18,490 Provision for loan and lease losses 1,458 6,564 1,364 4,846 Loans charged off (778) (4,579) (962) (3,617) Recoveries 203 1,152 636 1,005 Reclass for unfunded commitments to other liabilities - (319) - - Addition related to acquired bank - - - 4,249 -------------------------------------------- Balance, end of period $28,674 $27,791 $26,011 $24,973 ============================================ Asset Quality Ratios Ratio of nonperforming loans to total loans and leases 0.84% 0.77% 0.75% 0.56% Ratio of nonperforming assets to total assets 0.70 0.60 0.53 0.41 Ratio of net loan chargeoffs to average loans and leases 0.03 0.18 0.02 0.16 Allowance for loan losses as a percent of loans and leases 1.44 1.42 1.46 1.41 Allowance for loan losses as a percent of nonperforming loans and leases loans and leases 171.56 185.37 194.65 251.62 HEARTLAND FINANCIAL USA, INC. CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited) DOLLARS IN THOUSANDS ---------------------------------------------------------------------- For the Quarters Ended 3/31/2006 3/31/2005 Average Average Balance Interest Rate Balance Interest Rate ---------------------------------------------------------------------- Earning Assets Securities: Taxable $395,503 $3,883 3.98% $416,740 $3,531 3.44% Nontaxable(1) 129,570 2,197 6.88 116,890 2,038 7.07 ----------- -------- ----- ----------- -------- ----- Total securities 525,073 6,080 4.70 533,630 5,569 4.23 Interest bearing deposits 426 5 4.76 6,973 68 3.95 Federal funds sold 15,501 174 4.55 7,859 47 2.43 Loans and leases: Commercial and commercial real estate(1) 1,357,353 24,332 7.27 1,177,548 17,992 6.20 Residential mortgage 223,340 3,481 6.32 221,207 3,433 6.29 Agricultural and agricultural real estate(1) 219,026 4,238 7.85 220,484 3,641 6.70 Consumer 180,965 4,265 9.56 169,922 3,544 8.46 Direct financing leases, net 21,094 339 6.52 16,390 227 5.62 Fees on loans - 1,362 - - 1,213 - Less: allowance for loan and lease losses (28,149) - - (25,343) - - ----------- -------- ----- ----------- -------- ----- Net loans and leases 1,973,629 38,017 7.81 1,780,208 30,050 6.85 ----------- -------- ----- ----------- -------- ----- Total earning assets 2,514,629 44,276 7.14 2,328,670 35,734 6.22 Nonearning Assets 283,507 - - 294,679 - - ----------- -------- ----- ----------- -------- ----- Total Assets $2,798,216 $44,276 6.42% $2,623,349 $35,734 5.52% =========== ======== ===== =========== ======== ===== Interest Bearing Liabilities Interest bearing deposits Savings $763,914 $3,840 2.04% $750,706 $2,040 1.10% Time, $100,000 and over 221,249 2,061 3.78 166,486 1,187 2.89 Other time deposits 785,248 7,186 3.71 745,458 5,955 3.24 Short-term borrowings 243,446 2,451 4.08 229,261 1,264 2.24 Other borrowings 230,094 3,044 5.37 202,617 2,506 5.02 ----------- -------- ----- ----------- -------- ----- Total interest bearing liabilities 2,243,951 18,582 3.36 2,094,528 12,952 2.51 ----------- -------- ----- ----------- -------- ----- Noninterest Bearing Liabilities Noninterest bearing deposits 333,374 - - 315,307 - - Accrued interest and other liabilities 31,088 - - 36,439 - - ----------- -------- ----- ----------- -------- ----- Total noninterest bearing liabilities 364,462 - - 351,746 - - Stockholders' Equity 189,803 - - 177,075 - - ----------- -------- ----- ----------- -------- ----- Total Liabilities and Stockholders' Equity $2,798,216 $18,582 2.69% $2,623,349 $12,952 2.00% =========== ======== ===== =========== ======== ===== Net interest income(1) $25,694 $22,782 ======== ======== Net interest income to total earning assets(1) 4.14% 3.97% ===== ===== Interest bearing liabilities to earning assets 89.24% 89.95% =========== =========== (1) Tax equivalent basis is calculated using an effective tax rate of 35%. HEARTLAND FINANCIAL USA, INC. SELECTED FINANCIAL DATA - SUBSIDIARY BANKS (Unaudited) DOLLARS IN THOUSANDS As of and As of and As of and For the As of and For the For the Year For the Year Quarter Ended Quarter Ended Ended December Ended December March 31, 31, March 31, 31, 2006 2005 2005 2004 ----------------------------------------- Total Assets Dubuque Bank and Trust Company $816,469 $833,885 $772,048 $750,517 New Mexico Bank & Trust 531,240 557,062 482,680 490,582 Wisconsin Community Bank 386,014 390,842 379,271 385,116 Rocky Mountain Bank 387,890 388,149 374,148 374,242 Galena State Bank and Trust Company 242,884 241,719 219,405 220,018 Riverside Community Bank 193,453 195,099 188,794 193,314 Arizona Bank & Trust 138,060 136,832 94,046 85,850 First Community Bank 119,891 121,337 120,112 116,654 Total Deposits Dubuque Bank and Trust Company $612,723 $608,687 $576,145 $579,895 New Mexico Bank & Trust 387,243 388,935 349,870 325,527 Wisconsin Community Bank 318,274 311,436 318,534 327,221 Rocky Mountain Bank 305,266 306,967 290,219 290,390 Galena State Bank and Trust Company 180,988 179,437 163,654 168,109 Riverside Community Bank 156,452 153,791 146,050 143,797 Arizona Bank & Trust 120,533 118,959 67,029 73,199 First Community Bank 92,562 95,506 96,251 95,529 Return on Average Assets Dubuque Bank and Trust Company 1.37% 1.28% 1.33% 1.38% New Mexico Bank & Trust 1.05 1.10 1.15 1.13 Wisconsin Community Bank 0.78 0.63 0.49 0.59 Rocky Mountain Bank 0.88 0.72 0.50 1.05 Galena State Bank and Trust Company 1.23 1.22 1.26 1.33 Riverside Community Bank 0.42 0.83 0.73 0.97 Arizona Bank & Trust 0.21 0.19 (0.06) (1.35) First Community Bank 1.03 1.00 1.08 1.00 Net Interest Margin Dubuque Bank and Trust Company 3.57% 3.48% 3.51% 3.58% New Mexico Bank & Trust 5.09 4.75 4.74 4.98 Wisconsin Community Bank 3.98 3.75 3.66 3.50 Rocky Mountain Bank 5.37 4.93 4.46 4.63 Galena State Bank and Trust Company 3.35 3.43 3.61 3.43 Riverside Community Bank 3.78 3.76 3.84 3.74 Arizona Bank & Trust 4.79 5.03 5.26 4.94 First Community Bank 3.91 3.80 3.67 3.72 Net Income Dubuque Bank and Trust Company $2,734 $10,156 $2,536 $10,427 New Mexico Bank & Trust 1,385 5,565 1,372 4,712 Wisconsin Community Bank 735 2,444 457 2,208 Rocky Mountain Bank 829 2,757 457 2,332 Galena State Bank and Trust Company 724 2,808 684 2,926 Riverside Community Bank 199 1,608 342 1,731 Arizona Bank & Trust 71 199 (14) (822) First Community Bank 303 1,198 313 1,145 HEARTLAND FINANCIAL USA, INC. SELECTED FINANCIAL DATA - SUBSIDIARY BANKS (Unaudited) DOLLARS IN THOUSANDS ---------------------------------------------------------------------- Allowance Allowance Total For Loan Nonperforming As Portfolio and Loans Percent Loans Lease Of Total Losses Loans ------------------------------------------- As of March 31, 2006: Dubuque Bank and Trust Company $594,028 $7,366 $997 1.24% New Mexico Bank & Trust 338,486 4,761 2,145 1.41 Wisconsin Community Bank 263,261 4,233 1,334 1.61 Rocky Mountain Bank 286,347 4,246 9,295 1.48 Galena State Bank and Trust Company 180,246 2,205 1,185 1.22 Riverside Community Bank 131,571 1,740 421 1.32 Arizona Bank & Trust 98,321 1,345 - 1.37 First Community Bank 83,006 1,247 893 1.50 ------------------------------------------- As of December 31, 2005: Dubuque Bank and Trust Company $575,293 $7,376 $2,745 1.28% New Mexico Bank & Trust 330,609 4,497 2,359 1.36 Wisconsin Community Bank 270,837 4,285 1,321 1.58 Rocky Mountain Bank 279,230 4,048 5,634 1.45 Galena State Bank and Trust Company 176,813 2,181 965 1.23 Riverside Community Bank 132,781 1,674 462 1.26 Arizona Bank & Trust 94,285 1,181 7 1.25 First Community Bank 83,506 1,191 992 1.43 ------------------------------------------- As of March 31, 2005: Dubuque Bank and Trust Company $535,563 $6,793 $3,426 1.27% New Mexico Bank & Trust 296,900 4,341 2,501 1.46 Wisconsin Community Bank 253,951 4,142 876 1.63 Rocky Mountain Bank 261,863 4,077 3,751 1.56 Galena State Bank and Trust Company 151,297 1,805 189 1.19 Riverside Community Bank 128,923 1,752 1,657 1.36 Arizona Bank & Trust 69,986 877 - 1.25 First Community Bank 75,764 1,002 693 1.32 ------------------------------------------- As of December 31, 2004: Dubuque Bank and Trust Company $525,456 $6,584 $2,405 1.25% New Mexico Bank & Trust 297,695 4,232 725 1.42 Rocky Mountain Bank 262,240 3,947 596 1.51 Wisconsin Community Bank 265,916 4,098 2,966 1.54 Galena State Bank and Trust Company 145,013 1,749 697 1.21 Riverside Community Bank 129,390 1,553 1,662 1.20 Arizona Bank & Trust 61,630 771 - 1.25 First Community Bank 76,047 999 572 1.31
First Quarter 2006 Highlights
-- Net income improved by 9% over first quarter 2005
-- Net interest margin improved by 17 basis points over first quarter 2005
-- Average earning assets increased 8% over first quarter 2005 -0- Three Months Ended March 31, ------------------------- 2006 2005 Net income (in millions) $5.7 $5.3 Diluted earnings per share .35 .32 Return on average assets .83 % .81 % Return on average equity 12.28 12.06 Net interest margin 4.14 3.97
"We are delighted to report that our net interest margin continues to grow despite a yield curve that remains essentially flat. Not only are we experiencing solid loan growth, but our balance sheet remains well-positioned for an increasing rate environment."-- Lynn B. Fuller, chairman, president and chief executive officer, Heartland Financial USA
Heartland Financial USA, Inc. (NASDAQ:HTLF) today reported earnings for the first quarter of 2006. Net income for the quarter ended March 31, 2006, was $5.7 million, or $0.35 per diluted share, compared to net income of $5.3 million, or $0.32 per diluted share, during the first quarter of 2005. Return on average equity was 12.28 percent and return on average assets was 0.83 percent for the first quarter of 2006, compared to 12.06 percent and 0.81 percent, respectively, for the same quarter in 2005.
Lynn B. Fuller, Heartland's chairman, president and CEO stated, "We are delighted to report that our net interest margin continues to grow despite a yield curve that remains essentially flat. Not only are we experiencing solid loan growth, but our balance sheet remains well-positioned for an increasing rate environment. Given a steady rate scenario, we anticipate our net interest margin will also hold constant for the remainder of the year."
Net interest margin, expressed as a percentage of average earning assets, was 4.14 percent during the first quarter of 2006 compared to 3.97 percent for the first quarter of 2005 and 3.97 percent for the fourth quarter of 2005. Net interest income on a tax-equivalent basis totaled $25.7 million during the first quarter of 2006, an increase of $2.9 million or 13 percent from the $22.8 million recorded during the first quarter of 2005. Contributing to this increase was the $186.0 million or 8 percent growth in average earning assets along with a shift in balances to loans from securities. The percentage of average loans to total assets increased from 68 percent during the first quarter of 2005 to 71 percent during the first quarter of 2006. More than half of the credits in Heartland's commercial and agricultural loan portfolios are floating rate loans, thus increases in the national prime rate, as experienced during the first quarter of 2006, have an immediate positive impact on interest income. On a tax-equivalent basis, interest income in the first quarter of 2006 totaled $44.2 million compared to $35.7 million in the first quarter of 2005, an increase of $8.5 million or 24 percent. As rates continued to move upward during the first quarter of 2006, Heartland experienced some movement in deposit balances from lower yielding accounts into higher yielding money market and certificate of deposit accounts. Interest expense for the first quarter of 2006 was $18.6 million compared to $13.0 million in the first quarter of 2005, an increase of $5.6 million or 43 percent.
Net interest income simulations reflect an asset sensitive posture leading to stronger earnings performance in a rising interest rate environment. Should the current rising rate environment reverse, net interest income would likely decline. In order to reduce the potentially negative impact a downward movement in interest rates would have on net interest income, Heartland entered into a two-year floor transaction on a notional $100.0 million in July 2005, a five-year collar transaction on a notional $50.0 million in September 2005 and an additional three-year collar transaction on a notional $50.0 million in April 2006.
Noninterest income increased by $1.5 million or 15 percent during the first quarter of 2006 compared to the same quarter in 2005. Rental income on operating leases represented $490 thousand or 33% of the increase in noninterest income. The increase in this category is directly related to the increase in the vehicles under operating lease at ULTEA, Inc., Heartland's fleet management subsidiary, from 2,351 at March 31, 2005 to 2,462 at March 31, 2006. The other categories experiencing the largest increases were service charges and fees, loan servicing income and trust fees.
For the first quarter of 2006, noninterest expense increased $3.4 million or 15 percent in comparison with the same period in 2005. The largest component of noninterest expense, salaries and employee benefits, represented $1.9 million or 56 percent of the increase in noninterest expense from the first quarter of 2005 to the first quarter of 2006. In addition to the merit increases for all salaried employees that are made on January 1 of each year, the growth in salaries and employee benefits expense was a result of additional staffing at the holding company to provide support services to the growing number of bank subsidiaries, the addition of branches at New Mexico Bank & Trust, Riverside Community Bank and Arizona Bank & Trust, and the new bank subsidiary being formed in Denver, Colorado, which began operations in October 2005 as a loan production office under the Rocky Mountain umbrella. Total full-time equivalent employees increased to 938 at March 31, 2006, from 859 at March 31, 2005.
Fuller commented, "We continue to monitor the expense growth, particularly as it relates to our investment in new branches and our de novo, Summit Bank & Trust in Broomfield, Colorado. As I have noted in the past, however, the increase in noninterest expense should be seen as a measure of our commitment to build the infrastructure necessary to compete in our attractive western markets."
In December 2005, Heartland and Wisconsin Community Bank were parties to a trial in which it was alleged that the contract relating to the 2002 sale of Wisconsin Community Bank's Eau Claire branch was breached. The plaintiff alleged damages of $2.4 million, while Heartland and Wisconsin Community Bank alleged damages of $600,000 in a counterclaim. Written arguments from both parties were submitted to the judge by the January 27, 2006, deadline. As of this release date, Heartland had not been notified of a decision on the case. Heartland believes the claims against it and Wisconsin Community Bank are without merit and continues to defend their positions vigorously.
Heartland's effective tax rate was 31.42 percent for the first quarter of 2006 compared to 30.80 percent during the first quarter of 2005. The lower effective rate during the first quarter of 2005 was due to the low-income housing tax credits totaling $440,000. During the year 2006, these credits decreased to approximately $225,000. Tax-exempt interest income as a percentage of pre-tax income was 19.25 percent during the first quarter of 2006 compared to 18.94 percent during the same quarter of 2005. The tax-equivalent adjustment for this tax-exempt interest income was $868,000 during the first quarter of 2006 compared to $775,000 during the same quarter in 2005. This increase in tax-exempt interest income partially mitigated the impact that reduced tax credits had on income taxes recorded during the first quarter of 2006.
At March 31, 2006, total assets remained steady during the quarter at $2.8 billion. Total loans and leases were $2.0 billion at March 31, 2006, an increase of $37.8 million or 8 percent annualized since year-end 2005. This growth was an improvement over the $10.3 million or 2 percent annualized increase in loans experienced during the first quarter of 2005. The Heartland subsidiary banks experiencing notable loan growth since year-end 2005 were Dubuque Bank and Trust Company, New Mexico Bank & Trust and Rocky Mountain Bank. The commercial and commercial real estate loan category grew by $59.1 million or 18 percent annualized.
Total deposits at March 31, 2006, were $2.13 billion, an increase of $13.7 million for the quarter or nearly 3 percent annualized. As with loans, this was an improvement over the $6.7 million or 1 percent annualized growth experienced during the first quarter of 2005. Except for First Community Bank, New Mexico Bank & Trust and Rocky Mountain Bank, all of Heartland's subsidiary banks increased deposits during the first quarter of 2006. Demand deposits experienced a $17.8 million or 20 percent annualized decline, in large part, due to normal seasonal fluctuations that many banks experience during the first quarter of the year. Savings deposit balances increased by $24.6 million or 13 percent annualized and time deposit balances increased $6.8 million or 3 percent annualized. Of particular note is that all of the growth in time deposits occurred in deposits from local markets as total brokered deposits decreased from $145.5 million at year-end 2005 to $115.4 million at March 31, 2006, and exclusive of brokered deposits, time deposits increased $37.0 million or 17 percent annualized. As interest rates have increased, many deposit customers have shifted a portion of their lower yielding deposit balances into higher yielding money market and certificate of deposit accounts. The Heartland bank subsidiaries have priced these products competitively in order to retain existing deposit customers, as well as to attract new customers.
"Competition for retail deposit growth appears to be growing in intensity as rates gradually move higher. While we realize we need to pay competitive rates, our primary focus continues to be on relationship building and targeted promotions," Fuller stated.
The allowance for loan and lease losses at March 31, 2006, was 1.44 percent of loans and 172 percent of nonperforming loans, compared to 1.42 percent of loans and 185 percent of nonperforming loans at December 31, 2005. Provision for loan losses increased $94,000 or 7 percent during the first quarter of 2006 compared to the same quarter of 2005, primarily as a result of the growth experienced in the loan portfolio. Nonperforming loans were $16.7 million or .84 percent of total loans and leases at March 31, 2006, compared to $15.0 million or 0.77 percent of total loans and leases at December 31, 2005, primarily due to two credits at Rocky Mountain Bank. Management does not feel this increase is an indication of any trend developing and, because of the net realizable value of collateral, guarantees and other factors, does not expect losses on Heartland's nonperforming loans to be significant and has specifically provided for any probable losses in the allowance for loan and lease losses.
According to Fuller, "Asset quality continues as one of Heartland's franchise strengths. Despite a slight uptick in nonperforming loans, we continue to emphasize credit quality and disciplined lending ahead of loan volume."
About Heartland Financial USA:
Heartland Financial USA, Inc. is a $2.8 billion diversified financial services company providing banking, mortgage, wealth management, insurance, fleet management and consumer finance services to individuals and businesses in 43 communities in nine states -- Iowa, Illinois, Wisconsin, New Mexico, Arizona, Montana, Colorado, Minnesota and Massachusetts. Heartland Financial USA, Inc. is listed on NASDAQ. Its trading symbol is HTLF.
Additional information about Heartland Financial USA, Inc. is available through our website at www.htlf.com.
This release may contain, and future oral and written statements of the Company and its management may contain, forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to the financial condition, results of operations, plans, objectives, future performance and business of the Company. Forward-looking statements, which may be based upon beliefs, expectations and assumptions of the Company's management and on information currently available to management, are generally identifiable by the use of words such as believe, expect, anticipate, plan, intend, estimate, may, will, would, could, should or similar expressions. Additionally, all statements in this release, including forward-looking statements, speak only as of the date they are made, and the Company undertakes no obligation to update any statement in light of new information or future events.
A number of factors, many of which are beyond the ability of the Company to control or predict, could cause actual results to differ materially from those in its forward-looking statements. These factors include, among others, the following: (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 or threats thereof, (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 loss of key executives or employees; (viii) changes in consumer spending; (ix) unexpected results of acquisitions; (x) unexpected outcomes of existing or new litigation involving the Company; and (xi) changes in accounting policies and practices. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Additional information concerning the Company and its business, including other factors that could materially affect the Company's financial results, is included in the Company's filings with the Securities and Exchange Commission. -0- HEARTLAND FINANCIAL USA, INC. CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited) DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA ---------------------------------------------------------------------- For the Quarters Ended 3/31/2006 3/31/2005 ---------------------------------------------------------------------- Interest Income Interest and fees on loans and leases $37,918 $29,988 Interest on securities and other: Taxable 3,883 3,531 Nontaxable 1,428 1,325 Interest on federal funds sold 174 47 Interest on interest bearing deposits in other financial institutions 5 68 ------------- ---------- Total Interest Income 43,408 34,959 ------------- ---------- Interest Expense Interest on deposits 13,087 9,182 Interest on short-term borrowings 2,451 1,264 Interest on other borrowings 3,044 2,506 ------------- ---------- Total Interest Expense 18,582 12,952 ------------- ---------- Net Interest Income 24,826 22,007 Provision for loan and lease losses 1,458 1,364 ------------- ---------- Net Interest Income After Provision for Loan and Lease Losses 23,368 20,643 ------------- ---------- Noninterest Income Service charges and fees 2,601 2,240 Loan servicing income 980 658 Trust fees 1,817 1,595 Brokerage commissions 243 223 Insurance commissions 136 137 Securities gains (losses), net 132 53 Gain (loss) on trading account securities 33 18 Rental income on operating leases 4,061 3,571 Gains on sale of loans 550 532 Valuation adjustment on mortgage servicing rights - 16 Income on bank owned life insurance 293 263 Other noninterest income 339 409 ------------- ---------- Total Noninterest Income 11,185 9,715 ------------- ---------- Noninterest Expense Salaries and employee benefits 13,084 11,182 Occupancy 1,793 1,626 Furniture and equipment 1,691 1,367 Depreciation on equipment under operating leases 3,255 2,928 Outside services 2,156 1,998 Advertising 1,124 809 Other intangible amortization 228 270 Other noninterest expenses 2,844 2,571 ------------- ---------- Total Noninterest Expense 26,175 22,751 ------------- ---------- Income Before Income Taxes 8,378 7,607 Income taxes 2,632 2,343 ------------- ---------- Net Income $5,746 $5,264 ============= ========== Earnings per common share-basic $.35 $.32 Earnings per common share-diluted $.35 $.32 Weighted average shares outstanding-basic 16,430,504 16,479,244 Weighted average share outstanding-diluted 16,638,458 16,704,808 HEARTLAND FINANCIAL USA, INC. CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited) DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA ---------------------------------------------------------------------- For the Quarters Ended 3/31/2006 12/31/2005 9/30/2005 6/30/2005 3/31/2005 ---------------------------------------------------------------------- Interest Income Interest and fees on loans and leases $37,918 $36,283 $34,975 $32,596 $29,988 Interest on securities and other: Taxable 3,883 3,469 3,329 3,567 3,531 Nontaxable 1,428 1,469 1,385 1,333 1,325 Interest on federal funds sold 174 327 44 57 47 Interest on interest bearing deposits in other financial institutions 5 68 62 79 68 ------------------------------------------------------- Total Interest Income 43,408 41,616 39,795 37,632 34,959 ------------------------------------------------------- Interest Expense Interest on deposits 13,087 12,473 11,446 10,282 9,182 Interest on short-term borrowings 2,451 2,146 1,866 1,709 1,264 Interest on other borrowings 3,044 2,915 2,806 2,540 2,506 ------------------------------------------------------- Total Interest Expense 18,582 17,534 16,118 14,531 12,952 ------------------------------------------------------- Net Interest Income 24,826 24,082 23,677 23,101 22,007 Provision for loan and lease losses 1,458 2,169 1,395 1,636 1,364 ------------------------------------------------------- Net Interest Income After Provision for Loan and Lease Losses 23,368 21,913 22,282 21,465 20,643 ------------------------------------------------------- Noninterest Income Service charges and fees 2,601 2,339 2,437 2,307 2,240 Loan servicing income 980 886 823 726 658 Trust fees 1,817 1,742 1,588 1,605 1,595 Brokerage commissions 243 193 185 255 223 Insurance commissions 136 150 129 129 137 Securities gains (losses), net 132 105 60 (20) 53 Gain (loss) on trading account securities 33 - (3) (26) 18 Rental income on operating leases 4,061 4,045 4,002 3,845 3,571 Gains on sale of loans 550 600 796 644 532 Valuation adjustment on mortgage servicing rights - 33 24 (34) 16 Income on bank owned life insurance 293 317 220 243 263 Other noninterest income 339 277 882 366 409 ------------------------------------------------------- Total Noninterest Income 11,185 10,687 11,143 10,040 9,715 ------------------------------------------------------- Noninterest Expense Salaries and employee benefits 13,084 11,898 11,720 11,529 11,182 Occupancy 1,793 1,399 1,458 1,534 1,626 Furniture and equipment 1,691 1,658 1,620 1,542 1,367 Depreciation on equipment under operating leases 3,255 3,275 3,253 3,141 2,928 Outside services 2,156 2,345 2,080 1,957 1,998 Advertising 1,124 952 805 767 809 Other intangibles amortization 228 253 254 237 270 Other noninterest expenses 2,844 2,832 3,000 2,752 2,571 ------------------------------------------------------- Total Noninterest Expense 26,175 24,612 24,190 23,459 22,751 ------------------------------------------------------- Income Before Income Taxes 8,378 7,988 9,235 8,046 7,607 Income taxes 2,632 2,224 2,943 2,640 2,343 ------------------------------------------------------- Net Income $5,746 $5,764 $6,292 $5,406 $5,264 ======================================================= Earnings per common share- basic $.35 $.35 $.38 $.33 $.32 Earnings per common share- diluted $.35 $.35 $.38 $.32 $.32 Weighted average shares outstanding- basic 16,430,504 16,367,210 16,398,747 16,420,073 16,479,244 Weighted average shares outstanding- diluted 16,638,458 16,659,995 16,693,661 16,722,383 16,704,808 HEARTLAND FINANCIAL USA, INC. CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited) DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA ---------------------------------------------------------------------- As Of 03/31/2006 12/31/2005 9/30/2005 6/30/2005 3/31/2005 ---------------------------------------------------------------------- Assets Cash and cash equivalents $48,355 $81,021 $70,953 $85,011 $83,533 Time deposits in other financial institutions - - - - 1,190 Securities 520,062 527,767 498,054 507,985 524,448 Loans held for sale 38,885 40,745 47,987 50,329 41,710 Loans and leases: Held to maturity 1,990,852 1,953,066 1,915,430 1,854,926 1,783,256 Allowance for loan and lease losses (28,674) (27,791) (27,362) (26,676) (26,011) ------------------------------------------------------- Loans and leases, net 1,962,178 1,925,275 1,888,068 1,828,250 1,757,245 Assets under operating lease 39,634 40,644 40,222 41,045 37,379 Premises, furniture and equipment, net 102,462 92,769 91,087 88,440 85,234 Goodwill 35,398 35,398 35,398 35,398 35,398 Other intangible assets, net 8,958 9,159 9,354 9,568 9,855 Cash surrender value on life insurance 33,124 32,804 32,460 32,439 32,165 Other assets 32,883 32,750 32,853 33,563 23,580 ------------------------------------------------------- Total Assets $2,821,939 $2,818,332 $2,746,436 $2,712,028 $2,631,737 ======================================================= Liabilities and Stockholders' Equity Liabilities Deposits: Demand $334,940 $352,707 $349,763 $329,577 $314,430 Savings 778,960 754,360 741,104 764,918 750,982 Time 1,017,955 1,011,111 992,592 957,918 925,163 ------------------------------------------------------- Total deposits 2,131,855 2,118,178 2,083,459 2,052,413 1,990,575 Short-term borrowings 232,506 255,623 214,808 231,532 221,081 Other borrowings 232,025 220,871 229,653 211,654 215,423 Accrued expenses and other liabilities 34,148 35,848 33,338 34,183 28,659 ------------------------------------------------------- Total Liabilities 2,630,534 2,630,520 2,561,258 2,529,782 2,455,738 Stockholders' Equity 191,405 187,812 185,178 182,246 175,999 ------------------------------------------------------- Total Liabilities and Stockholders' Equity $2,821,939 $2,818,332 $2,746,436 $2,712,028 $2,631,737 ======================================================= Common Share Data Book value per common share $11.57 $11.46 $11.31 $11.11 $10.68 FAS 115 effect on book value per common share $(0.13) $(0.06) $0.06 $0.15 $(0.08) Common shares outstanding, net of treasury 16,547,079 16,390,416 16,368,161 16,399,470 16,481,082 HEARTLAND FINANCIAL USA, INC. CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited) DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA ---------------------------------------------------------------------- For the Quarters Ended 03/31/2006 12/31/2005 9/30/2005 6/30/2005 3/31/2005 ---------------------------------------------------------------------- Average Balances Assets $2,798,216 $2,782,541 $2,747,631 $2,680,435 $2,623,349 Loans and leases, net of unearned 2,001,778 1,971,707 1,939,220 1,865,302 1,805,551 Deposits 2,103,785 2,101,318 2,075,004 2,022,879 1,977,957 Earning assets 2,514,629 2,498,735 2,437,936 2,381,733 2,328,670 Interest bearing liabilities 2,243,951 2,214,483 2,190,156 2,146,900 2,094,528 Stockholders' equity 189,803 185,229 182,906 178,894 177,075 Earnings Performance Ratios Annualized return on average assets 0.83% 0.82% 0.91% 0.81% 0.81% Annualized return on average equity 12.28 12.35 13.65 12.12 12.06 Annualized net interest margin(1) 4.14 3.97 3.99 4.03 3.97 Efficiency ratio(2) 71.23 69.22 67.96 69.02 70.12 Efficiency ratio, banks only(2) 63.47 62.24 62.62 62.15 64.55 (1) Tax equivalent basis is calculated using an effective tax rate of 35% (2) Noninterest expense divided by the sum of net interest income and noninterest income less security gains HEARTLAND FINANCIAL USA, INC. CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited) DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA ---------------------------------------------------------------------- As of As of As of As of and For and For and For and For the Quarter the Year the Quarter the Year Ended Ended Ended Ended 3/31/2006 12/31/2005 3/31/2005 12/31/2004 ---------------------------------------------------------------------- Loan and Lease Data Commercial and commercial real estate $1,363,204 $1,304,080 $1,155,975 $1,162,103 Residential mortgage 211,349 219,671 216,247 212,842 Agricultural and agricultural real estate 217,701 230,357 223,528 217,860 Consumer 180,929 181,019 174,488 167,109 Direct financing leases, net 21,170 21,586 16,139 16,284 Unearned discount and deferred loan fees (3,501) (3,647) (3,121) (3,244) -------------------------------------------- Total loans and leases $1,990,852 $1,953,066 $1,783,256 $1,772,954 ============================================ Asset Quality Nonaccrual loans $16,115 $14,877 $12,825 $9,837 Loans past due ninety days or more as to interest or principal payments 599 115 538 88 Other real estate owned 2,612 1,586 423 425 Other repossessed assets 387 471 196 313 -------------------------------------------- Total nonperforming assets $19,713 $17,049 $13,982 $10,663 ============================================ Allowance for Loan and Lease Losses Balance, beginning of period $27,791 $24,973 $24,973 $18,490 Provision for loan and lease losses 1,458 6,564 1,364 4,846 Loans charged off (778) (4,579) (962) (3,617) Recoveries 203 1,152 636 1,005 Reclass for unfunded commitments to other liabilities - (319) - - Addition related to acquired bank - - - 4,249 -------------------------------------------- Balance, end of period $28,674 $27,791 $26,011 $24,973 ============================================ Asset Quality Ratios Ratio of nonperforming loans to total loans and leases 0.84% 0.77% 0.75% 0.56% Ratio of nonperforming assets to total assets 0.70 0.60 0.53 0.41 Ratio of net loan chargeoffs to average loans and leases 0.03 0.18 0.02 0.16 Allowance for loan losses as a percent of loans and leases 1.44 1.42 1.46 1.41 Allowance for loan losses as a percent of nonperforming loans and leases loans and leases 171.56 185.37 194.65 251.62 HEARTLAND FINANCIAL USA, INC. CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited) DOLLARS IN THOUSANDS ---------------------------------------------------------------------- For the Quarters Ended 3/31/2006 3/31/2005 Average Average Balance Interest Rate Balance Interest Rate ---------------------------------------------------------------------- Earning Assets Securities: Taxable $395,503 $3,883 3.98% $416,740 $3,531 3.44% Nontaxable(1) 129,570 2,197 6.88 116,890 2,038 7.07 ----------- -------- ----- ----------- -------- ----- Total securities 525,073 6,080 4.70 533,630 5,569 4.23 Interest bearing deposits 426 5 4.76 6,973 68 3.95 Federal funds sold 15,501 174 4.55 7,859 47 2.43 Loans and leases: Commercial and commercial real estate(1) 1,357,353 24,332 7.27 1,177,548 17,992 6.20 Residential mortgage 223,340 3,481 6.32 221,207 3,433 6.29 Agricultural and agricultural real estate(1) 219,026 4,238 7.85 220,484 3,641 6.70 Consumer 180,965 4,265 9.56 169,922 3,544 8.46 Direct financing leases, net 21,094 339 6.52 16,390 227 5.62 Fees on loans - 1,362 - - 1,213 - Less: allowance for loan and lease losses (28,149) - - (25,343) - - ----------- -------- ----- ----------- -------- ----- Net loans and leases 1,973,629 38,017 7.81 1,780,208 30,050 6.85 ----------- -------- ----- ----------- -------- ----- Total earning assets 2,514,629 44,276 7.14 2,328,670 35,734 6.22 Nonearning Assets 283,507 - - 294,679 - - ----------- -------- ----- ----------- -------- ----- Total Assets $2,798,216 $44,276 6.42% $2,623,349 $35,734 5.52% =========== ======== ===== =========== ======== ===== Interest Bearing Liabilities Interest bearing deposits Savings $763,914 $3,840 2.04% $750,706 $2,040 1.10% Time, $100,000 and over 221,249 2,061 3.78 166,486 1,187 2.89 Other time deposits 785,248 7,186 3.71 745,458 5,955 3.24 Short-term borrowings 243,446 2,451 4.08 229,261 1,264 2.24 Other borrowings 230,094 3,044 5.37 202,617 2,506 5.02 ----------- -------- ----- ----------- -------- ----- Total interest bearing liabilities 2,243,951 18,582 3.36 2,094,528 12,952 2.51 ----------- -------- ----- ----------- -------- ----- Noninterest Bearing Liabilities Noninterest bearing deposits 333,374 - - 315,307 - - Accrued interest and other liabilities 31,088 - - 36,439 - - ----------- -------- ----- ----------- -------- ----- Total noninterest bearing liabilities 364,462 - - 351,746 - - Stockholders' Equity 189,803 - - 177,075 - - ----------- -------- ----- ----------- -------- ----- Total Liabilities and Stockholders' Equity $2,798,216 $18,582 2.69% $2,623,349 $12,952 2.00% =========== ======== ===== =========== ======== ===== Net interest income(1) $25,694 $22,782 ======== ======== Net interest income to total earning assets(1) 4.14% 3.97% ===== ===== Interest bearing liabilities to earning assets 89.24% 89.95% =========== =========== (1) Tax equivalent basis is calculated using an effective tax rate of 35%. HEARTLAND FINANCIAL USA, INC. SELECTED FINANCIAL DATA - SUBSIDIARY BANKS (Unaudited) DOLLARS IN THOUSANDS As of and As of and As of and For the As of and For the For the Year For the Year Quarter Ended Quarter Ended Ended December Ended December March 31, 31, March 31, 31, 2006 2005 2005 2004 ----------------------------------------- Total Assets Dubuque Bank and Trust Company $816,469 $833,885 $772,048 $750,517 New Mexico Bank & Trust 531,240 557,062 482,680 490,582 Wisconsin Community Bank 386,014 390,842 379,271 385,116 Rocky Mountain Bank 387,890 388,149 374,148 374,242 Galena State Bank and Trust Company 242,884 241,719 219,405 220,018 Riverside Community Bank 193,453 195,099 188,794 193,314 Arizona Bank & Trust 138,060 136,832 94,046 85,850 First Community Bank 119,891 121,337 120,112 116,654 Total Deposits Dubuque Bank and Trust Company $612,723 $608,687 $576,145 $579,895 New Mexico Bank & Trust 387,243 388,935 349,870 325,527 Wisconsin Community Bank 318,274 311,436 318,534 327,221 Rocky Mountain Bank 305,266 306,967 290,219 290,390 Galena State Bank and Trust Company 180,988 179,437 163,654 168,109 Riverside Community Bank 156,452 153,791 146,050 143,797 Arizona Bank & Trust 120,533 118,959 67,029 73,199 First Community Bank 92,562 95,506 96,251 95,529 Return on Average Assets Dubuque Bank and Trust Company 1.37% 1.28% 1.33% 1.38% New Mexico Bank & Trust 1.05 1.10 1.15 1.13 Wisconsin Community Bank 0.78 0.63 0.49 0.59 Rocky Mountain Bank 0.88 0.72 0.50 1.05 Galena State Bank and Trust Company 1.23 1.22 1.26 1.33 Riverside Community Bank 0.42 0.83 0.73 0.97 Arizona Bank & Trust 0.21 0.19 (0.06) (1.35) First Community Bank 1.03 1.00 1.08 1.00 Net Interest Margin Dubuque Bank and Trust Company 3.57% 3.48% 3.51% 3.58% New Mexico Bank & Trust 5.09 4.75 4.74 4.98 Wisconsin Community Bank 3.98 3.75 3.66 3.50 Rocky Mountain Bank 5.37 4.93 4.46 4.63 Galena State Bank and Trust Company 3.35 3.43 3.61 3.43 Riverside Community Bank 3.78 3.76 3.84 3.74 Arizona Bank & Trust 4.79 5.03 5.26 4.94 First Community Bank 3.91 3.80 3.67 3.72 Net Income Dubuque Bank and Trust Company $2,734 $10,156 $2,536 $10,427 New Mexico Bank & Trust 1,385 5,565 1,372 4,712 Wisconsin Community Bank 735 2,444 457 2,208 Rocky Mountain Bank 829 2,757 457 2,332 Galena State Bank and Trust Company 724 2,808 684 2,926 Riverside Community Bank 199 1,608 342 1,731 Arizona Bank & Trust 71 199 (14) (822) First Community Bank 303 1,198 313 1,145 HEARTLAND FINANCIAL USA, INC. SELECTED FINANCIAL DATA - SUBSIDIARY BANKS (Unaudited) DOLLARS IN THOUSANDS ---------------------------------------------------------------------- Allowance Allowance Total For Loan Nonperforming As Portfolio and Loans Percent Loans Lease Of Total Losses Loans ------------------------------------------- As of March 31, 2006: Dubuque Bank and Trust Company $594,028 $7,366 $997 1.24% New Mexico Bank & Trust 338,486 4,761 2,145 1.41 Wisconsin Community Bank 263,261 4,233 1,334 1.61 Rocky Mountain Bank 286,347 4,246 9,295 1.48 Galena State Bank and Trust Company 180,246 2,205 1,185 1.22 Riverside Community Bank 131,571 1,740 421 1.32 Arizona Bank & Trust 98,321 1,345 - 1.37 First Community Bank 83,006 1,247 893 1.50 ------------------------------------------- As of December 31, 2005: Dubuque Bank and Trust Company $575,293 $7,376 $2,745 1.28% New Mexico Bank & Trust 330,609 4,497 2,359 1.36 Wisconsin Community Bank 270,837 4,285 1,321 1.58 Rocky Mountain Bank 279,230 4,048 5,634 1.45 Galena State Bank and Trust Company 176,813 2,181 965 1.23 Riverside Community Bank 132,781 1,674 462 1.26 Arizona Bank & Trust 94,285 1,181 7 1.25 First Community Bank 83,506 1,191 992 1.43 ------------------------------------------- As of March 31, 2005: Dubuque Bank and Trust Company $535,563 $6,793 $3,426 1.27% New Mexico Bank & Trust 296,900 4,341 2,501 1.46 Wisconsin Community Bank 253,951 4,142 876 1.63 Rocky Mountain Bank 261,863 4,077 3,751 1.56 Galena State Bank and Trust Company 151,297 1,805 189 1.19 Riverside Community Bank 128,923 1,752 1,657 1.36 Arizona Bank & Trust 69,986 877 - 1.25 First Community Bank 75,764 1,002 693 1.32 ------------------------------------------- As of December 31, 2004: Dubuque Bank and Trust Company $525,456 $6,584 $2,405 1.25% New Mexico Bank & Trust 297,695 4,232 725 1.42 Rocky Mountain Bank 262,240 3,947 596 1.51 Wisconsin Community Bank 265,916 4,098 2,966 1.54 Galena State Bank and Trust Company 145,013 1,749 697 1.21 Riverside Community Bank 129,390 1,553 1,662 1.20 Arizona Bank & Trust 61,630 771 - 1.25 First Community Bank 76,047 999 572 1.31
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