Heartland Financial USA, Inc. Reports Annual Earnings and Fourth Quarter Results as of December 31, 2021

Highlights

• Record annual net income available to common stockholders of $211.9 million or $5.00 per diluted common share
• Quarterly net income available to common stockholders of $47.6 million or $1.12 per diluted common share
• Annual loan growth of $689.4 million or 8%, exclusive of Paycheck Protection Program ("PPP") loans
• Quarterly loan growth of $309.0 million or 13% annualized, exclusive of PPP loans
• Nonperforming assets to total assets declined to 0.37% and 30-89 day loan delinquencies fell to 0.07% of total loans
• Net loan charge-offs for the quarter of $637,000 or 0.03% of average loans, and net charge offs for the year of $3.8 million or 0.04% of average loans
• HTLF Board of Directors approved a consolidation plan for its eleven bank charters

DUBUQUE, Iowa, Jan. 31, 2022 (GLOBE NEWSWIRE) -- Heartland Financial USA, Inc. (NASDAQ: HTLF) today reported the following results for the quarter ended December 31, 2021 compared to the quarter ended December 31, 2020:

• Net income available to common stockholders of $47.6 million compared to $37.8 million, an increase of $9.8 million or 26%.
• Earnings per diluted common share of $1.12 compared to $0.98, an increase of $0.14 or 14%.
• Net interest income of $137.2 million compared to $132.6 million, an increase of $4.6 million or 3%.
• Return on average common equity of 9.15% and return on average assets of 1.03% compared to 8.50% and 0.97%, respectively.
• Return on average tangible common equity (non-GAAP) was 13.47% compared to 12.77%.
  

HTLF reported the following results for the year ended December 31, 2021 compared to the year ended December 31, 2020:

• Net income available to common stockholders of $211.9 million compared to $133.5 million, an increase of $78.4 million or 59%.
• Earnings per diluted common share of $5.00 compared to $3.57, an increase of $1.43 or 40%.
• Net interest income of $560.6 million compared to $491.7 million, an increase of $68.8 million or 14%.
• Return on average common equity was 10.49% and return on average assets was 1.19% compared to 8.06% and 0.93%, respectively.
• Return on average tangible common equity (non-GAAP) of 15.59% compared to 12.28%.
  

Commenting on HTLF's 2021 results, Bruce K. Lee, HTLF’s president and chief executive officer, said, "HTLF completed a successful year with record net income available to common stockholders of $211.9 million, or $5.00 per diluted common share. Our success was highlighted by strong loan growth and excellent credit quality."

Recent Developments

In the fourth quarter of 2021, HTLF began evaluating the consolidation of its eleven bank charters as part of its ongoing efforts to improve operational efficiency. As a result, the HTLF Board of Directors approved a plan to consolidate its eleven bank charters into a single Colorado based charter that will continue to operate under separate bank brands in each market. The plan remains subject to regulatory approval. The consolidation project is currently underway and is expected to be completed by the end of 2023.

Net Interest Income and Net Interest Margin

Net interest margin, expressed as a percentage of average earning assets, was 3.08% (3.12% on a fully tax-equivalent basis, non-GAAP) during the fourth quarter of 2021, compared to 3.51% (3.55% on a fully tax-equivalent basis, non-GAAP) during the fourth quarter of 2020.

Total interest income and average earning asset changes for the fourth quarter of 2021 compared to the fourth quarter of 2020 were:

• Total interest income was $144.0 million, which was an increase of $3.2 million or 2% from $140.8 million and primarily attributable to an increase in average earning assets partially offset by lower yields.
• Total interest income on a tax-equivalent basis was $146.0 million, which was an increase of $3.7 million or 3% from $142.4 million.
• Average earning assets increased $2.64 billion or 18% to $17.68 billion compared to $15.04 billion, which was primarily attributable to recent acquisitions and loan growth, including PPP loans.
• The average rate on earning assets decreased 49 basis points to 3.28% compared to 3.77%, which was primarily due to recent decreases in market interest rates and a shift in earning asset mix. Total average securities were 44% of total average earning assets compared to 37%.

Total interest expense and average interest bearing liability changes for the fourth quarter of 2021 compared to the fourth quarter of 2020 were:

• Total interest expense was $6.8 million, a decrease of $1.4 million or 17% from $8.3 million, based on a decrease in the average interest rate paid, which was partially offset by an increase in average interest bearing liabilities.
• The average interest rate paid on Heartland's interest bearing liabilities decreased to 0.27% compared to 0.36%, which was primarily due to recent decreases in market interest rates.
• Average interest bearing deposits increased $1.41 billion or 17% to $9.66 billion from $8.25 billion which was primarily attributable to recent acquisitions and deposit growth.
• The average interest rate paid on Heartland's interest bearing deposits decreased 9 basis points to 0.13% compared to 0.22%.
• Average borrowings decreased $253.7 million to $548.9 million from $802.5 million. The average interest rate paid on Heartland's borrowings was 2.66% compared to 1.81%.
  

Net interest income increased for the fourth quarter of 2021 compared to the fourth quarter of 2020:

• Net interest income totaled $137.2 million compared to $132.6 million, which was an increase of $4.6 million or 3%.
• Net interest income on a tax-equivalent basis (non-GAAP) totaled $139.2 million compared to $134.1 million, which was an increase of $5.1 million or 4%.

Noninterest Income and Noninterest Expense

Total noninterest income was $32.7 million during the fourth quarter of 2021 compared to $32.6 million during the fourth quarter of 2020, an increase of $109,000 or less than 1%. Significant changes by noninterest income category for the fourth quarter of 2021 compared to the fourth quarter of 2020 were:

• Service charges and fees increased $2.6 million or 21% to $15.3 million from $12.7 million. The increase was primarily attributable to acquisitions completed in the fourth quarter of 2020.
• Trust fees increased $874,000 or 16% to $6.4 million from $5.5 million. The increase was primarily attributable to market value increases of assets under management.
• Net securities gains totaled $1.6 million compared to $2.8 million, which was a decrease of $1.3 million or 45%.
• Net gains of sales of loans held for sale decreased $3.0 million to $4.2 million compared to $7.1 million, primarily due to a decrease of loans sold to the secondary market.

Total noninterest expense for the fourth quarter of 2021 was $115.4 million compared to $99.3 million for the same quarter of 2020, which was an increase of $16.1 million or 16%. Significant changes within the noninterest expense category for the fourth quarter of 2021 compared to the fourth quarter of 2020 were:

• Salaries and employee benefits totaled $63.0 million compared to $51.6 million, which was an increase of $11.4 million or 22%. The increase was primarily attributable to higher salary and benefit expenses as a result of more full time equivalent employees, including those from the acquisitions completed in the fourth quarter of 2020 and the addition of specialized commercial and agribusiness lending teams in the third quarter of 2021. Total full time equivalent employees were 2,249 compared to 2,013, which was an increase of 236 or 12%.
• Professional fees totaled $17.6 million compared to $15.1 million, which was an increase of $2.5 million or 17%. The increase was primarily attributable to recent technology and automation projects and acquisitions completed in the fourth quarter of 2020.
• Advertising expense totaled $2.2 million compared to $1.1 million, which was an increase of $1.1 million or 100%. The increase was primarily attributable to the resumption of in-person customer events and the acquisitions completed in the fourth quarter of 2020.
• Net losses on sales/valuation of assets totaled $214,000 compared to $2.6 million. HTLF recorded losses of $481,000 associated with branch optimization activities in the fourth quarter of 2021, which were offset by gains of $267,000 related to sales of repossessed assets. The losses recorded in the fourth quarter of 2020 included $2.3 million of write-downs on fixed assets associated with branch optimization activities.
• Other noninterest expenses totaled $14.6 million compared to $11.0 million, which was an increase of $3.6 million or 33%. The increase was primarily attributable to increased travel expenses and customer entertainment activities as in-person meetings and events resumed in 2021 and the acquisitions completed in the fourth quarter of 2020.
  

Heartland's effective tax rate was 17.16% for the fourth quarter of 2021 compared to 18.52% for the fourth quarter of 2020. The following items impacted Heartland's fourth quarter 2021 and 2020 tax calculations:

• Solar energy tax credits of $2.5 million and $461,000.
• Federal low-income housing tax credits of $135,000 and $195,000.
• New markets tax credits of $75,000 compared to $75,000.
• Historic rehabilitation tax credits of $272,000 and $1.1 million.
• Tax-exempt interest income as a percentage of pre-tax income of 9.86% compared to 11.82%.
• Tax benefits of $491,000 and $617,000 related to the release of valuation allowances on deferred tax assets.

For the years ended December 31, 2021 and 2020, Heartland's effective tax rate was 20.10% and 20.72%, respectively.

Total Assets, Total Loans and Total Deposits

Total assets were $19.27 billion at December 31, 2021, an increase of $1.37 billion or 8% from $17.91 billion at year-end 2020. Securities represented 40% and 35% of total assets at December 31, 2021, and December 31, 2020, respectively.

Total loans held to maturity were $9.95 billion at December 31, 2021, $9.85 billion at September 30, 2021 and $10.02 billion at December 31, 2020. Excluding total PPP loans, loans increased $309.0 million or 13% annualized during the fourth quarter of 2021 and $689.4 million or 8% since year-end 2020.

Significant changes by loan category at December 31, 2021 compared to September 30, 2021 included:

• Commercial and business lending, which includes commercial and industrial PPP, and owner occupied commercial real estate loans, increased $2.5 million or less than 1% to $5.09 billion at December 31, 2021, compared to $5.08 billion at September 30, 2021.
  • PPP loans originated in 2020 ("PPP I") loans decreased $47.2 million or 64%. PPP loans originated in 2021 ("PPP II") decreased $162.2 million or 48%.
  • Excluding total PPP loans, commercial and business lending increased $211.8 million or 5% to $4.89 billion from $4.67 billion.
• Agricultural and agricultural real estate loans totaled $753.8 million compared to $684.7 million, an increase of $69.1 million or 10%.

Significant changes by loan category at December 31, 2021 compared to December 31, 2020 included:

• Commercial and business lending, which includes commercial and industrial PPP, and owner occupied commercial real estate loans, decreased $183.7 million or 3% to $5.09 billion at December 31, 2021, compared to $5.27 billion at December 31, 2020.
  • PPP I loans decreased $930.7 million or 97%. PPP II loans totaled $172.8 million.
  • Excluding total PPP loans, commercial and business lending increased $574.2 million or 13% to $4.89 billion from $4.31 billion.
• Commercial real estate lending, which includes non-owner occupied commercial real estate and construction loans, increased $82.0 million or 3% to $2.87 billion from $2.78 billion.
• Agricultural and agricultural real estate loans totaled $753.8 million, an increase of $39.2 million or 5% from $714.5 million.
  

Total deposits were $16.42 billion as of December 31, 2021, $16.02 billion as of September 30, 2021 and $14.98 billion at December 31, 2020. Significant deposit changes by category at December 31, 2021 compared to September 30, 2021 included:

• Demand deposits decreased $42.4 million or 1% to $6.50 billion compared to $6.54 billion.
• Savings deposits increased $481.7 million or 6% to $8.90 billion from $8.42 billion.
• Time deposits decreased $44.3 million or 4% to $1.02 billion from $1.07 billion.
  

Significant deposit changes by category at December 31, 2021 compared to December 31, 2020 included:

• Demand deposits increased $806.5 million or 14% to $6.50 billion compared to $5.69 billion.
• Savings deposits increased $878.2 million or 11% to $8.90 billion from $8.02 billion.
• Time deposits decreased $247.4 million or 19% to $1.02 billion from $1.27 billion.
  

Year over year growth in non-time deposits was positively impacted by payments related to federal government stimulus programs and other COVID-19 relief programs.

Provision and Allowance

Provision and Allowance for Credit Losses for Loans
Provision benefit for credit losses for loans for the fourth quarter of 2021 was $6.8 million, which was a decrease of $22.9 million from $16.1 million of expense recorded in the fourth quarter of 2020. The provision expense recorded in the fourth quarter of 2020 included $9.6 million of provision expense for loans acquired in the quarter. The provision benefit for the fourth quarter of 2021 was impacted by several factors, including:

• Decrease in nonperforming loans of $13.3 million to $69.9 million or 0.70% of total loans compared to $83.2 million or 0.84% of total loans at September 30, 2021, and $88.1 million or 0.88% of total loans at December 31, 2020.
• Improved macroeconomic outlook compared to the fourth quarter of 2020 and consistent economic outlook compared to the third quarter of 2021.

Heartland's allowance for credit losses for loans totaled $110.1 million at December 31, 2021, compared to $117.5 million at September 30, 2021, and $131.6 million at December 31, 2020, respectively. The following items have impacted Heartland's allowance for credit losses for loans for the year ended December 31, 2021:

• Provision benefit for the year ended December 31, 2021, totaled $17.7 million.
• Net charge offs of $3.8 million were recorded for the year or 0.04% of average loans.

Provision and Allowance for Credit Losses for Unfunded Commitments
Heartland's allowance for unfunded commitments totaled $15.5 million and $15.3 million at December 31, 2021 and December 31, 2020, respectively. The following impacted Heartland's allowance for credit losses for unfunded commitments during 2020:

• Provision expense of $1.5 million was recorded for the fourth quarter of 2021, and provision expense for the year ended December 31, 2021 totaled $182,000.
• Unfunded commitments increased $583.3 million or 18% to $3.83 billion at December 31, 2021 compared to $3.25 billion at December 31, 2020.

Total Provision and Allowance for Lending Related Credit Losses
The net provision benefit for lending related credit losses was $5.3 million for the fourth quarter of 2021 compared to provision expense of $17.1 million for the fourth quarter of 2020. The total allowance for lending related credit losses was $125.6 million at December 31, 2021, which was 1.26% of total loans as of December 31, 2021, compared to $146.9 million or 1.47% of total loans as of December 31, 2020. Excluding PPP loans, which are fully guaranteed, the total allowance for lending related credit losses was 1.29% and 1.62% of loans at December 31, 2021 and December 31, 2020, respectively.

Nonperforming Assets

Nonperforming assets decreased $23.1 million or 24% to $71.9 million, which was 0.37% of total assets at December 31, 2021, compared to $95.0 million or 0.53% of total assets at December 31, 2020. Nonperforming loans were $69.9 million or 0.70% of total loans at December 31, 2021, compared to $88.1 million or 0.88% of total loans at December 31, 2020. At December 31, 2021, loans delinquent 30-89 days were 0.07% of total loans compared to 0.23% of total loans at December 31, 2020.

Non-GAAP Financial Measures

This earnings release contains references to financial measures which are not defined by generally accepted accounting principles ("GAAP"). Management believes the non-GAAP measures are helpful for investors to analyze and evaluate the company's financial condition and operating results. However, these non-GAAP measures have inherent limitations and should not be considered a substitute for operating results determined in accordance with GAAP. Additionally, because non-GAAP measures are not standardized, it may not be possible to compare the non-GAAP measures in this earnings release with other companies' non-GAAP measures. Reconciliations of each non-GAAP measure to the most directly comparable GAAP measure may be found in the financial tables in this earnings release.

Below are the non-GAAP measures included in this earnings release, management's reason for including each measure and the method of calculating each measure:

• Annualized net interest margin, fully tax-equivalent, 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.
• 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 reconciliation contained in this earnings release.
• Net interest income, fully tax equivalent, is net income adjusted 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.
• Tangible book value per common share is total common equity less goodwill and core deposit and customer relationship intangibles, net, divided by common shares outstanding, net of treasury. This measure is included as it is considered to be a critical metric to analyze and evaluate use of equity, financial condition and capital strength.
• Tangible common equity ratio is total common equity less goodwill and core deposit and customer relationship intangibles, net, divided by total assets less goodwill and core deposit and customer relationship intangibles, net. This measure is included as it is considered to be a critical metric to analyze and evaluate financial condition and capital strength.
• Annualized return on average tangible common equity is net income excluding intangible amortization calculated as (1) net income excluding tax-effected core deposit and customer relationship intangibles amortization, divided by (2) average common equity less goodwill and core deposit and customer relationship intangibles, net. This measure is included as it is considered to be a critical metric to analyze and evaluate use of equity, financial condition and capital strength.

Conference Call Details

HTLF will host a conference call for shareholders, analysts and other interested parties at 5:00 p.m. EDT today. To join, please register in advance of the conference using the link provided below. Upon registering, participant dial-in numbers, Direct Event passcode and unique registrant ID will be provided. Direct Event online registration can be found at: http://www.directeventreg.com/registration/event/8779156. In the 10 minutes prior to the call start time, participants need to use the conference access information provided in the email received at the point of registering. A replay will be available until January 30, 2023, by logging on to www.htlf.com.

About HTLF

Heartland Financial USA, Inc., operating under the brand name HTLF, is a financial services company with assets of $19.27 billion. HTLF has banks serving communities in Arizona, California, Colorado, Illinois, Iowa, Kansas, Minnesota, Missouri, Montana, New Mexico, Texas and Wisconsin. HTLF is committed to its core commercial business, supported by a strong retail operation, and provides a diversified line of financial services including treasury management, residential mortgage, wealth management, investment and insurance. Additional information is available at www.htlf.com.

Safe Harbor Statement

This release (including any information incorporated herein by reference), and future oral and written statements of the company and its management, may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, with respect to the business, financial condition, results of operations, plans, objectives and future performance of HTLF.

Any statements about the company's expectations, beliefs, plans, objectives, assumptions or future events or performance are not historical facts and may be forward-looking. Forward-looking statements may include information about possible or assumed future results of the company's operations or performance. These forward-looking statements are generally identified by the use of the words such as "believe", "expect", "intent", "anticipate", "plan", "intend", "estimate", "project", "may", "will", "would", "could", "should", "may", "view", "opportunity", "potential", or similar or negative expressions of these words or phrases that are used in this release, and future oral and written statements of the company and its management. Although the company may make these statements based on management’s experience, beliefs, expectations, assumptions and best estimate of future events, the ability of the company to predict results or the actual effect or outcomes of plans or strategies is inherently uncertain, and there may be events or factors that management has not anticipated. Therefore, the accuracy and achievement of such forward-looking statements and estimates are subject to a number of risks, 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 the company currently believes could have a material effect on its operations and future prospects, are detailed below and in the risk factors in HTLF's reports filed with the Securities and Exchange Commission ("SEC"), including the "Risk Factors" section under Item 1A of Part I of the company’s Annual Report on Form 10-K for the year ended December 31, 2020, include, among others:

• COVID-19 Pandemic Risks, including risks related to the ongoing COVID-19 pandemic and measures enacted by the U.S. federal and state governments and adopted by private businesses in response to the COVID-19 pandemic;
• Economic and Market Conditions Risks, including risks related to changes in the U.S. economy in general and in the local economies in which HTLF conducts its operations and future civil unrest, natural disasters, pandemics, persistent inflation, supply chain issues, labor shortages, terrorist threats or acts of war;
• Credit Risks, including risks of increasing credit losses due to deterioration in the financial condition of HTLF's borrowers, changes in asset and collateral values and climate and other borrower industry risks which may impact the provision for credit losses and net charge-offs;
• Liquidity and Interest Rate Risks, including the impact of capital market conditions, rising interest rates and changes in monetary policy on our borrowings and net interest income;
• Operational Risks, including processing, information systems, cybersecurity, vendor, business interruption, and fraud risks;
• Strategic and External Risks, including competitive forces impacting our business and strategic acquisition risks;
• Legal, Compliance and Reputational Risks, including regulatory and litigation risks; and
• Risks of Owning Stock in HTLF, including stock price volatility and dilution as a result of future equity offerings and acquisitions.

There can be no assurance that other factors not currently anticipated by HTLF will not materially and adversely affect the company’s business, financial condition and results of operations. In addition, many of these risks and uncertainties are currently amplified by and may continue to be amplified by the COVID-19 pandemic and the impact of varying governmental responses that affect the company’s customers and the economies where they operate. Additionally, all statements in this release, including forward-looking statements speak only as of the date they are made. The company does not undertake and specifically disclaims any obligation to publicly release the results of any revisions which may be made to or correct or update any forward-looking statement to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events or to otherwise update any statement in light of new information or future events. Further information concerning HTLF and its business, including additional factors that could materially affect the company’s financial results, is included in the company’s filings with the SEC.

-FINANCIAL TABLES FOLLOW-