Part I | |
Item 1. | Business |
A. | General Description |
B. | Market Areas |
C. | Competition |
D. | Employees |
E. | Internet Access |
F. | Accounting Standards |
G. | Supervision and Regulation |
H. | Governmental Monetary Policy and Economic Conditions |
Item 2. | Properties |
Item 3. | Legal Proceedings |
Item 4. | Submission of Matters to a Vote of Security Holders |
Part II | |
Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
Item 6. | Selected Financial Data |
Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Item 7A. | Quantitative and Qualitative Disclosures About Market Risk |
Item 8. | Financial Statements and Supplementary Data |
Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
Item 9A. | Controls and Procedures |
Part III | |
Item 10. | Directors and Executive Officers of the Registrant |
Item 11. | Executive Compensation |
Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
Item 13. | Certain Relationships and Related Transactions |
Item 14. | Principal Accountant Fees and Services |
Part IV | |
Item 15. | Exhibits, Financial Statement Schedules and Reports on Form 8-K |
- Establish community bank names and images
- Encourage community involvement and leadership
- Maintain active boards of directors chosen from the local community
- Retain local presidents and decision-making
- Develop and implement a wide array of financial products and services for all Bank Subsidiaries
- Improve Bank Subsidiary funding costs by reducing higher-cost certificates of deposit; increasing the percentage of lower-cost transaction accounts such as checking, savings and money market accounts; emphasizing relationship banking and capitalizing on cross-selling opportunities
- Emphasize greater use of non-traditional sources of income, including trust and investment services, insurance, consumer finance, vehicle leasing and fleet management, and investment banking
- Evaluate and acquire state-of-the-art technology when the expected return justifies the cost.
- Centralize back office support functions so Bank Subsidiaries operate as efficiently as possible
ADJUSTED EARNINGS SCHEDULE | ||||||||||||||||
(Dollars in thousands, except per share data) | ||||||||||||||||
Year ended December 31, 2003 | Year ended December 31, 2002 | Year ended December 31, 2001 | ||||||||||||||
Reported Earnings | Reported Earnings | Reported Earnings | Goodwill Amortization | "Adjusted" Earnings | ||||||||||||
Income from continuing operations before income taxes | $ | 25,856 | $ | 24,113 | $ | 16,659 | $ | 1,057 | $ | 17,716 | ||||||
Income taxes | 8,137 | 7,523 | 5,530 | - | 5,530 | |||||||||||
Income from continuing operations | $ | 17,719 | $ | 16,590 | $ | 11,129 | $ | 1,057 | $ | 12,186 | ||||||
Net income | $ | 17,719 | $ | 18,867 | $ | 11,414 | $ | 1,057 | $ | 12,471 | ||||||
Earnings per share before effect of change in accounting principle | $ | 1.18 | $ | 1.13 | $ | 0.77 | $ | 0.07 | $ | 0.85 | ||||||
Earnings per common share | $ | 1.18 | $ | 1.28 | $ | 0.79 | $ | 0.07 | $ | 0.85 | ||||||
Earnings per share-diluted before effect of change in accounting principle | $ | 1.16 | $ | 1.12 | $ | 0.77 | $ | 0.07 | $ | 0.84 | ||||||
Earnings per share-diluted | $ | 1.16 | $ | 1.28 | $ | 0.78 | $ | 0.07 | $ | 0.84 | ||||||
In June 2002, the FASB issued Statement No. 146 (FAS 146), "Accounting for Costs Associated with Exit or Disposal Activities," which addresses financial accounting and reporting of costs associated with exit or disposal activities. Under FAS 146, such costs will be recognized when the liability is incurred, rather than at the date of the commitment to an exit plan. FAS 146 is effective for exit or disposal activities that are initiated after December 31, 2002, with early adoption permitted. Heartland adopted FAS 146 on January 1, 2003 and the adoption of the Statement did not have a material effect on the financial statements.
Name and Main Facility Address | Main Facility Square Footage | Main Facility Owned or Leased | Number of Locations |
Banking Subsidiaries | |||
Dubuque Bank and Trust Company 1398 Central Avenue Dubuque, IA 52001 | 59,500 | Owned | 8 |
Galena State Bank 971 Gear Street Galena, IL 61036 | 18,000 | Owned | 3 |
Riverside Community Bank 6855 E. Riverside Blvd. Rockford, IL 60114 | 8,000 | Owned | 3 |
First Community Bank 320 Concert Street Keokuk, IA 52632 | 6,000 | Owned | 3 |
Wisconsin Community Bank 580 North Main Street Cottage Grove, WI 53527 | 6,000 | Owned | 7 |
New Mexico Bank & Trust 320 Gold NW Albuquerque, NM 87102 | 11,400 | Lease term through 2006 | 12 |
Arizona Bank & Trust 1331 W. Southern Avenue Mesa, AZ 85202 | 4,400 | Owned | 1 |
Name and Main Facility Address | Main Facility Owned or Leased | Number of Locations |
Non-Bank Subsidiaries | ||
Citizens Finance Co. 1275 Main Street Dubuque, IA 52001 | Leased from DB&T | 4 |
ULTEA, Inc. 2976 Triverton Pike Madison, WI 53711 | Leased | 3 |
HTLF Capital Corp. World Trade Center 1625 Broadway Denver, CO 80202 | Leased | 2 |
The principal office of Heartland is located in Dubuque Bank and Trust Company's main office.
Heartland Common Stock | |||||||
Calendar Quarter | High | Low | |||||
2002: | |||||||
First | $ | 9.33 | $ | 8.54 | |||
Second | 10.00 | 9.06 | |||||
Third | 10.19 | 9.60 | |||||
Fourth | 11.79 | 10.00 | |||||
2003: | |||||||
First | $ | 15.33 | $ | 11.50 | |||
Second | 21.53 | 15.27 | |||||
Third | 21.26 | 18.57 | |||||
Fourth | 20.63 | 18.53 |
Cash dividends have been declared by Heartland quarterly during the past two years ending December 31, 2003. The following table sets forth the cash dividends per share paid on Heartland's common stock for the past two years as adjusted for previous stock splits:
Calendar Quarter | 2003 | 2002 | |||||
First | $ | .07 | $ | .07 | |||
Second | .07 | .07 | |||||
Third | .07 | .07 | |||||
Fourth | .07 | .07 |
Heartland has paid dividends as set forth in the table above. Heartland's ability to pay dividends to shareholders is largely dependent upon the dividends it receives from the bank subsidiaries, and the banks are subject to regulatory limitations on the amount of cash dividends they may pay. See "Business – Supervision and Regulation – Heartland – Dividend Payments" and "Business – Supervision and Regulation - The Bank Subsidiaries – Dividend Payments" for a more detailed description of these limitations.
ITEM 6.
SELECTED FINANCIAL DATA | ||||||||||||||||
For the years ended December 31, 2003, 2002, 2001, 2000, and 1999 | ||||||||||||||||
(Dollars in thousands, except per share data) | ||||||||||||||||
2003 | 2002 | 2001 | 2000 | 1999 | ||||||||||||
STATEMENT OF INCOME DATA | ||||||||||||||||
Interest income | $ | 99,517 | $ | 100,012 | $ | 107,609 | $ | 102,535 | $ | 74,119 | ||||||
Interest expense | 38,327 | 42,332 | 58,620 | 58,678 | 40,830 | |||||||||||
Net interest income | 61,190 | 57,680 | 48,989 | 43,857 | 33,289 | |||||||||||
Provision for loan and lease losses | 4,183 | 3,553 | 4,258 | 2,976 | 2,550 | |||||||||||
Net interest income after provision for loan and lease losses | 57,007 | 54,127 | 44,731 | 40,881 | 30,739 | |||||||||||
Noninterest income | 36,541 | 30,645 | 28,620 | 25,721 | 24,426 | |||||||||||
Noninterest expense | 67,692 | 60,659 | 56,692 | 52,812 | 43,574 | |||||||||||
Income taxes | 8,137 | 7,523 | 5,530 | 4,211 | 3,239 | |||||||||||
Income from continuing operations | 17,719 | 16,590 | 11,129 | 9,579 | 8,352 | |||||||||||
Discontinued operations: | ||||||||||||||||
Income (loss) from operations of discontinuedbranch (including gain on sale of $2,602) | - | 3,751 | 469 | 12 | (210 | ) | ||||||||||
Income taxes | - | 1,474 | 184 | 5 | (83 | ) | ||||||||||
Income (loss) from discontinued operations | - | 2,277 | 285 | 7 | (127 | ) | ||||||||||
Net income | $ | 17,719 | $ | 18,867 | $ | 11,414 | $ | 9,586 | $ | 8,225 | ||||||
PER COMMON SHARE DATA1 | ||||||||||||||||
Net income - diluted | 1.16 | 1.28 | 0.78 | 0.65 | 0.56 | |||||||||||
Income from continuing operations - diluted2 | 1.16 | 1.12 | 0.76 | 0.65 | 0.57 | |||||||||||
Adjusted net income - diluted 3 | 1.16 | 1.28 | 0.85 | 0.73 | 0.59 | |||||||||||
Adjusted income from continuing operations -diluted 4 | 1.16 | 1.12 | 0.84 | 0.73 | 0.61 | |||||||||||
Cash dividends | 0.27 | 0.27 | 0.25 | 0.24 | 0.23 | |||||||||||
Dividend payout ratio | 23.09 | % | 20.81 | % | 31.19 | % | 36.15 | % | 39.47 | % | ||||||
Book value | $ | 9.29 | $ | 8.40 | $ | 7.37 | $ | 6.67 | $ | 6.02 | ||||||
Weighted average shares outstanding | 14,984,472 | 14,687,324 | 14,403,780 | 14,442,057 | 14,332,791 | |||||||||||
BALANCE SHEET DATA | ||||||||||||||||
Investments and federal funds sold | $ | 451,753 | $ | 424,514 | $ | 349,417 | $ | 274,365 | $ | 213,452 | ||||||
Total loans and leases, net of unearned | 1,348,227 | 1,175,236 | 1,105,205 | 1,042,096 | 835,146 | |||||||||||
Allowance for loan and lease losses | 18,490 | 16,091 | 14,660 | 13,592 | 10,844 | |||||||||||
Total assets | 2,018,366 | 1,785,979 | 1,644,064 | 1,466,387 | 1,184,147 | |||||||||||
Total deposits | 1,492,488 | 1,337,985 | 1,205,159 | 1,101,313 | 869,659 | |||||||||||
Long-term obligations | 173,958 | 161,379 | 143,789 | 102,856 | 105,737 | |||||||||||
Stockholders' equity | 140,923 | 124,041 | 107,090 | 96,146 | 86,573 | |||||||||||
EARNINGS PERFORMANCE DATA | ||||||||||||||||
Return on average total assets | 0.95 | % | 1.13 | % | 0.72 | % | 0.70 | % | 0.78 | % | ||||||
Return on average stockholders' equity | 13.46 | 16.44 | 11.32 | 10.69 | 9.61 | |||||||||||
Net interest margin ratio2, 5 | 3.79 | 4.04 | 3.67 | 3.74 | 3.64 | |||||||||||
Earnings to fixed charges: | ||||||||||||||||
Excluding interest on deposits | 3.37x | 3.28x | 2.27x | 1.87x | 2.18x | |||||||||||
Including interest on deposits | 1.67 | 1.57 | 1.28 | 1.23 | 1.28 | |||||||||||
ASSET QUALITY RATIOS | ||||||||||||||||
Nonperforming assets to total assets | 0.32 | % | 0.29 | % | 0.52 | % | 0.51 | % | 0.19 | % | ||||||
Non performing loans and leases to total loans and leases | 0.41 | 0.38 | 0.73 | 0.65 | 0.20 | |||||||||||
Net loan and lease charge-offs to average loans and leases | 0.14 | 0.16 | 0.30 | 0.17 | 0.06 | |||||||||||
Allowance for loan and lease losses to total loans and leases | 1.37 | % | 1.37 | % | 1.33 | % | 1.30 | % | 1.30 | % | ||||||
Allowance for loan and lease losses to nonperforming loans and leases | 333.11 | 358.77 | 180.47 | 201.60 | 657.49 | |||||||||||
CAPITAL RATIOS | ||||||||||||||||
Average equity to average assets | 7.03 | % | 6.86 | % | 6.47 | % | 6.54 | % | 8.12 | % | ||||||
Total capital to risk-adjusted assets | 12.42 | 11.86 | 10.89 | 9.90 | 11.68 | |||||||||||
Tier 1 leverage | 8.07 | 8.24 | 7.53 | 7.25 | 8.85 | |||||||||||
1 Restated to reflect the three-for-two stock split effected in the form of a dividend on December 29, 2003. | ||||||||||||||||
2 Excludes the discontinued operations of our Eau Claire branch and the related gain on sale in the fourth quarter of 2002 . | ||||||||||||||||
3 Excludes goodwill amortization discontinued with the adoption of FAS 142 on January 1, 2002, and the adoption of FAS 147 on September 30, 2002. | ||||||||||||||||
4 Excludes goodwill amortization discontinued with the adoption of FAS 142 on January 1, 2002, and the adoption of FAS 147 on September 30, 2002, and the discontinued operations of our Eau Claire branch and the related gain on sale in the fourth quarter of 2002. | ||||||||||||||||
5 Tax equivalent using a 34% tax rate. |
ITEM 7.
- The strength of the United States economy in general and the strength of the local economies in which Heartland conducts its operations which may be less favorable than expected and may result in, among other things, a deterioration in the credit quality and value of Heartland’s assets.
- The economic impact of past and any future terrorist threats and attacks, acts of war or threats thereof, and the response of the United States to any such threats and attacks.
- The effects of, and changes in, federal, state and local laws, regulations and policies affecting banking, securities, insurance and monetary and financial matters.
- The effects of changes in interest rates (including the effects of changes in the rate of prepayments of Heartland’s assets) and the policies of the Board of Governors of the Federal Reserve System.
- The ability of Heartland to compete with other financial institutions as effectively as Heartland currently intends due to increases in competitive pressures in the financial services sector.
- The inability of Heartland to obtain new customers and to retain existing customers.
- The timely development and acceptance of products and services, including products and services offered through alternative delivery channels such as the Internet.
- Technological changes implemented by Heartland and by other parties, including third party vendors, which may be more difficult or more expensive than anticipated or which may have unforeseen consequences to Heartland and its customers.
- The ability of Heartland to develop and maintain secure and reliable electronic systems.
- The ability of Heartland to retain key executives and employees and the difficulty that Heartland may experience in replacing key executives and employees in an effective manner.
- Consumer spending and saving habits which may change in a manner that affects Heartland’s business adversely.
- Business combinations and the integration of acquired businesses may be more difficult or expensive than expected.
- The costs, effects and outcomes of existing or future litigation.
- Changes in accounting policies and practices, as may be adopted by state and federal regulatory agencies and the Financial Accounting Standards Board.
- The ability of Heartland to manage the risks associated with the foregoing as well as anticipated.
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 Heartland and its business, including other factors that could materially affect Heartland’s financial results, is included in Heartland’s filings with the Securities and Exchange Commission.
- Heartland has continued to experience growth in more complex commercial loans as compared to relatively lower-risk residential real estate loans.
- The nation has continued in a period of economic slowdown.
- During the last several years, Heartland has entered new markets in which it had little or no previous lending experience.
THEORETICAL RANGE OF ALLOWANCE FOR LOAN AND LEASE LOSSES (Dollars in thousands) | |||||||
Allowance for loan and lease losses at December 31, 2003 | $ | 18,490 | |||||
Assuming deterioration in credit quality: | |||||||
Addition to provision | 1,538 | ||||||
Resultant allowance for loan and lease losses | $ | 20,028 | |||||
Assuming improvement in credit quality: | |||||||
Reduction in provision | (863 | ) | |||||
Resultant allowance for loan and lease losses | $ | 17,627 | |||||
The assumptions underlying this sensitivity analysis represent an attempt to quantify theoretical changes that could occur in the total allowance for loan and lease losses given various economic assumptions that could impact inherent loss in the loan and lease portfolio as currently configured. It further assumes that the general composition of the allowance for loans and lease losses determined through Heartland’s existing process and methodology remains relatively unchanged. It does not attempt to encompass extreme and/or prolonged economic downturns, systemic contractions to specific industries, or systemic shocks to the financial services sector. A downward/upward migration of the balances from the current loan grade to the next lower/higher loan grade was assumed based upon Heartland’s experiences during previous periods of economic movement.
ANALYSIS OF AVERAGE BALANCES, TAX EQUIVALENT YIELDS AND RATES1 | ||||||||||||||||||||||||||||
For the years ended December 31, 2003, 2002, and 2001 | ||||||||||||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||||||
2003 | 2002 | 2001 | ||||||||||||||||||||||||||
Average Balance | Interest | Rate | Average Balance | Interest | Rate | Average Balance | Interest | Rate | ||||||||||||||||||||
EARNING ASSETS | ||||||||||||||||||||||||||||
Securities: | ||||||||||||||||||||||||||||
Taxable | $ | 316,117 | $ | 9,100 | 2.88 | % | $ | 305,315 | $ | 13,132 | 4.30 | % | $ | 253,290 | $ | 14,143 | 5.58 | % | ||||||||||
Nontaxable1 | 80,858 | 5,988 | 7.41 | 52,756 | 4,177 | 7.92 | 30,909 | 2,712 | 8.77 | |||||||||||||||||||
Total securities | 396,975 | 15,088 | 3.80 | 358,071 | 17,309 | 4.83 | 284,199 | 16,855 | 5.93 | |||||||||||||||||||
Interest bearing deposits | 7,462 | 174 | 2.33 | 10,535 | 248 | 2.35 | 7,320 | 243 | 3.32 | |||||||||||||||||||
Federal funds sold | 34,159 | 355 | 1.04 | 20,835 | 322 | 1.55 | 49,126 | 1,981 | 4.03 | |||||||||||||||||||
Loans and leases: | ||||||||||||||||||||||||||||
Commercial and commercial real estate1 | 793,187 | 48,631 | 6.13 | 665,431 | 45,480 | 6.83 | 564,261 | 44,773 | 7.93 | |||||||||||||||||||
Residential mortgage | 157,005 | 9,907 | 6.31 | 142,469 | 10,518 | 7.38 | 191,081 | 15,364 | 8.04 | |||||||||||||||||||
Agricultural and agricultural real estate1 | 164,808 | 10,819 | 6.56 | 150,485 | 10,941 | 7.27 | 139,421 | 11,767 | 8.44 | |||||||||||||||||||
Consumer | 124,136 | 11,343 | 9.14 | 120,561 | 12,036 | 9.98 | 126,027 | 13,278 | 10.54 | |||||||||||||||||||
Direct financing leases, net | 10,540 | 780 | 7.40 | 13,626 | 1,037 | 7.61 | 16,574 | 1,242 | 7.49 | |||||||||||||||||||
Fees on loans | - | 4,603 | - | - | 3,694 | - | - | 3,197 | - | |||||||||||||||||||
Less: allowance for loan and lease losses | (17,390 | ) | - | - | (15,309 | ) | - | - | (14,528 | ) | - | - | ||||||||||||||||
Net loans and leases | 1,232,286 | 86,083 | 6.99 | 1,077,263 | 83,706 | 7.77 | 1,022,836 | 89,621 | 8.76 | |||||||||||||||||||
Total earning assets | 1,670,882 | 101,700 | 6.09 | 1,466,704 | 101,585 | 6.93 | 1,363,481 | 108,700 | 7.97 | |||||||||||||||||||
NONEARNING ASSETS | ||||||||||||||||||||||||||||
Assets of discontinued operation | - | 31,525 | 31,951 | |||||||||||||||||||||||||
Total nonearning assets | 202,433 | - | - | 173,385 | - | - | 162,900 | - | - | |||||||||||||||||||
TOTAL ASSETS | $ | 1,873,315 | $ | 101,700 | 5.43 | % | $ | 1,671,614 | $ | 101,585 | 6.08 | % | $ | 1,558,332 | $ | 108,700 | 6.98 | % | ||||||||||
INTEREST BEARING LIABILITIES | ||||||||||||||||||||||||||||
Interest bearing deposits | ||||||||||||||||||||||||||||
Savings | $ | 532,023 | $ | 4,798 | 0.90 | % | $ | 477,484 | $ | 6,530 | 1.37 | % | $ | 425,258 | $ | 11,858 | 2.79 | % | ||||||||||
Time, $100,000 and over | 140,834 | 3,720 | 2.64 | 124,063 | 4,505 | 3.63 | 143,315 | 8,220 | 5.74 | |||||||||||||||||||
Other time deposits | 527,627 | 19,245 | 3.65 | 459,638 | 20,360 | 4.43 | 441,325 | 25,705 | 5.82 | |||||||||||||||||||
Short-term borrowings | 152,429 | 2,350 | 1.54 | 134,949 | 2,643 | 1.96 | 141,532 | 5,598 | 3.96 | |||||||||||||||||||
Other borrowings | 148,551 | 8,214 | 5.53 | 135,365 | 8,294 | 6.13 | 106,267 | 7,239 | 6.81 | |||||||||||||||||||
Total interest bearing liabilities | 1,501,464 | 38,327 | 2.55 | 1,331,499 | 42,332 | 3.18 | 1,257,697 | 58,620 | 4.66 | |||||||||||||||||||
NONINTEREST BEARING LIABILITIES | ||||||||||||||||||||||||||||
Noninterest bearing deposits | 204,812 | - | 162,638 | - | 138,694 | - | ||||||||||||||||||||||
Liabilities of discontinued operation | - | 31,525 | 31,951 | |||||||||||||||||||||||||
Accrued interest and other liabilities | 35,416 | - | 31,212 | - | 29,154 | - | ||||||||||||||||||||||
Total noninterest bearing liabilities | 240,228 | 225,375 | 199,799 | |||||||||||||||||||||||||
STOCKHOLDERS' EQUITY | 131,623 | - | 114,740 | - | 100,836 | - | ||||||||||||||||||||||
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 1,873,315 | $ | 38,327 | 2.05 | % | $ | 1,671,614 | $ | 42,332 | 2.53 | % | $ | 1,558,332 | $ | 58,620 | 3.76 | % | ||||||||||
Net interest income1 | $ | 63,373 | $ | 59,253 | $ | 50,080 | ||||||||||||||||||||||
Net interest income to total earning assets1 | 3.79 | % | 4.04 | % | 3.67 | % | ||||||||||||||||||||||
Interest bearing liabilities to earning assets | 89.86 | % | 90.78 | % | 92.24 | % | ||||||||||||||||||||||
1Tax equivalent basis is calculated using an effective tax rate of 34%. |
ANALYSIS OF CHANGES IN NET INTEREST INCOME | ||||||||||||||||||||||||||||
(Dollars in thouands) | ||||||||||||||||||||||||||||
For the Years Ended December 31, | ||||||||||||||||||||||||||||
2003 Compared to 2002 | 2002 Compared to 2001 | 2001 Compared to 2000 | ||||||||||||||||||||||||||
Change Due to | Change Due to | Change Due to | ||||||||||||||||||||||||||
Volume | Rate | Net | Volume | Rate | Net | Volume | Rate | Net | ||||||||||||||||||||
EARNING ASSETS/INTEREST | ||||||||||||||||||||||||||||
INCOME | ||||||||||||||||||||||||||||
Investment securities | ||||||||||||||||||||||||||||
Taxable | $ | 465 | $ | (4,497 | ) | $ | (4,032 | ) | $ | 2,905 | $ | (3,916 | ) | $ | (1,011 | ) | $ | 3,971 | $ | (1,652 | ) | $ | 2,319 | |||||
Tax-exempt | 2,225 | (414 | ) | 1,811 | 1,917 | (452 | ) | 1,465 | (10 | ) | (26 | ) | (36 | ) | ||||||||||||||
Interest bearing deposits | (72 | ) | (2 | ) | (74 | ) | 107 | (102 | ) | 5 | 88 | (178 | ) | (90 | ) | |||||||||||||
Federal funds sold | 206 | (173 | ) | 33 | (1,141 | ) | (518 | ) | (1,659 | ) | 1,741 | (671 | ) | 1,070 | ||||||||||||||
Loans and leases | 12,046 | (9,669 | ) | 2,377 | 4,769 | (10,684 | ) | (5,915 | ) | 5,944 | (4,159 | ) | 1,785 | |||||||||||||||
TOTAL EARNING ASSETS | 14,870 | (14,755 | ) | 115 | 8,557 | (15,672 | ) | (7,115 | ) | 11,734 | (6,686 | ) | 5,048 | |||||||||||||||
LIABILITIES/INTEREST EXPENSE | ||||||||||||||||||||||||||||
Interest bearing deposits | ||||||||||||||||||||||||||||
Savings | 746 | (2,478 | ) | (1,732 | ) | 1,456 | (6,784 | ) | (5,328 | ) | 1,555 | (3,563 | ) | (2,008 | ) | |||||||||||||
Time, $100,000 and over | 609 | (1,394 | ) | (785 | ) | (1,104 | ) | (2,611 | ) | (3,715 | ) | 2,662 | (443 | ) | 2,219 | |||||||||||||
Other time deposits | 3,012 | (4,127 | ) | (1,115 | ) | 1,067 | (6,412 | ) | (5,345 | ) | 2,408 | 23 | 2,431 | |||||||||||||||
Short-term borrowings | 342 | (635 | ) | (293 | ) | (260 | ) | (2,695 | ) | (2,955 | ) | 1,215 | (2,603 | ) | (1,388 | ) | ||||||||||||
Other borrowings | 808 | (888 | ) | (80 | ) | 1,982 | (927 | ) | 1,055 | (559 | ) | (753 | ) | (1,312 | ) | |||||||||||||
TOTAL INTEREST BEARING LIABILITIES | 5,517 | (9,522 | ) | (4,005 | ) | 3,141 | (19,429 | ) | (16,288 | ) | 7,281 | (7,339 | ) | (58 | ) | |||||||||||||
NET INTEREST INCOME | $ | 9,353 | $ | (5,233 | ) | $ | 4,120 | $ | 5,416 | $ | 3,757 | $ | 9,173 | $ | 4,453 | $ | 653 | $ | 5,106 | |||||||||
PROVISION FOR LOAN AND LEASE LOSSES
The allowance for loan and lease losses is established through a provision charged to expense to provide, in Heartland’s opinion, an adequate allowance for loan and lease losses. The provision for loan losses during 2003 was $4.2 million compared to $3.6 million one year ago. The lower provision in 2002 resulted primarily from a $685 thousand recovery on a prior-year charge-off. Exclusive of this third quarter recovery in 2002, the provision for loan losses decreased $55 thousand or 1% during 2003. Theprovision for loan losses during 2002 was $4.2 million when excluding the large recovery in the third quarter, a decrease of $20 thousand or .5% over the provision during 2001. The adequacy of the allowance for loan and lease losses is determined by management using factors that include the overall composition of the loan portfolio, general economic conditions, types of loans, past loss experience, loan delinquencies, and potential substandard and doubtful credits.A weak economy will inevitably result in increased problem loans, but Heartland expects the problems to be manageable and of a lesser scope for Heartland than for the industry as a whole.For additional details on the specific factors considered, refer to the critical accounting policies and allowance for loan and lease losses sections of this report.
NONINTEREST INCOME | ||||||||||||||||
(Dollars in thousands) | ||||||||||||||||
For the years ended December 31, | % Change | |||||||||||||||
2003 | 2002 | 2001 | 2003/ 2002 | 2002/ 2001 | ||||||||||||
Service charges and fees | $ | 6,207 | $ | 5,977 | $ | 4,667 | 4 | % | 28 | % | ||||||
Trust fees | 3,814 | 3,407 | 3,148 | 12 | % | 8 | % | |||||||||
Brokerage commissions | 863 | 658 | 615 | 31 | % | 7 | % | |||||||||
Insurance commissions | 703 | 765 | 807 | -8 | % | -5 | % | |||||||||
Securities gains, net | 1,823 | 790 | 1,489 | 131 | % | -47 | % | |||||||||
Gain (loss) on trading account securities | 453 | (598 | ) | (417 | ) | 176 | % | -43 | % | |||||||
Impairment loss on equity securities | (317 | ) | (267 | ) | (773 | ) | -19 | % | 65 | % | ||||||
Rental income on operating leases | 13,807 | 14,602 | 15,446 | -5 | % | -5 | % | |||||||||
Gains on sale of loans | 6,339 | 4,656 | 2,738 | 36 | % | 70 | % | |||||||||
Valuation adjustment on mortgage servicing rights | 338 | (469 | ) | - | 172 | % | - | |||||||||
Other noninterest income | 2,511 | 1,124 | 900 | 123 | % | 25 | % | |||||||||
Total noninterest income | $ | 36,541 | $ | 30,645 | $ | 28,620 | 19 | % | 7 | % | ||||||
- Heartland purchased additional bank-owned life insurance in the amount of $8.0 million during the third quarter of 2001 and $10.0 million during the second quarter of 2003. The increase on the cash surrender value of Heartland’s bank-owned life insurance policies was $1.2 million in 2003 compared to $847 thousand in 2002 and $246 thousand in 2001.
- During the first quarter of 2003, a $178 thousand gain was realized on the sale of one parcel of repossessed real estate.
- In April of 2002, Dubuque Bank and Trust acquired a 99.9% ownership in a limited liability company that owns a certified historic structure for which historic rehabilitation tax credits applied to the 2002 tax year. Amortization of the investment in this limited liability company recorded during 2002 was $533 thousand.
NONINTEREST EXPENSE | ||||||||||||||||
(Dollars in thousands) | ||||||||||||||||
For the years ended December 31, | % Change | |||||||||||||||
2003 | 2002 | 2001 | 2003/ 2002 | 2002/ 2001 | ||||||||||||
Salaries and employee benefits | $ | 33,113 | $ | 28,571 | $ | 25,182 | 16 | % | 13 | % | ||||||
Occupancy | 3,880 | 3,178 | 3,014 | 22 | % | 5 | % | |||||||||
Furniture and equipment | 4,115 | 3,273 | 3,144 | 26 | % | 4 | % | |||||||||
Depreciation expense on equipment under operating leases | 11,353 | 11,555 | 11,805 | -2 | % | -2 | % | |||||||||
Outside services | 4,695 | 4,318 | 3,433 | 9 | % | 26 | % | |||||||||
FDIC deposit insurance assessment | 218 | 209 | 208 | 4 | % | 0 | % | |||||||||
Advertising | 2,354 | 1,917 | 1,588 | 23 | % | 21 | % | |||||||||
Goodwill amortization | - | - | 1,057 | - | -100 | % | ||||||||||
Core deposit premium amortization | 404 | 495 | 615 | -18 | % | -20 | % | |||||||||
Other noninterest expenses | 7,560 | 7,143 | 6,646 | 6 | % | 7 | % | |||||||||
Total noninterest expense | $ | 67,692 | $ | 60,659 | $ | 56,692 | 12 | % | 7 | % | ||||||
Efficiency ratio1 | 69.01 | % | 68.07 | % | 73.42 | % | ||||||||||
1Noninterest expense divided by the sum of net interest income and noninterest income less security gains. |
- A consultant was engaged to assist in the implementation of an overdraft privilege feature on Heartland’s checking account products during 2001. The fee associated with these services was accrued and payable monthly during the last quarter of 2001 and throughout all of 2002 based upon the additional fees generated.
- Beginning in 2002, Heartland elected to engage Darling Consulting Group to provide balance sheet management advisory services. Included in these services are quarterly asset/liability management position assessments and strategy formulation.
- As on-line banking has grown in popularity, Heartland has incurred additional costs to provide this service to its customers.
- During 2002, legal fees were paid related to actions brought by Heartland to recover losses realized in an investment fund partnership, in which Heartland was a limited partner, and to resolve a dispute on the enforceability of a guarantee on a nonperforming commercial loan.
LOAN PORTFOLIO | |||||||||||||||||||||||||||||||
December 31, 2003, 2002, 2001, 2000, and 1999 | |||||||||||||||||||||||||||||||
(Dollars in thousands) | |||||||||||||||||||||||||||||||
2003 | 2002 | 2001 | 2000 | 1999 | |||||||||||||||||||||||||||
Amount | % | Amount | % | Amount | % | Amount | % | Amount | % | ||||||||||||||||||||||
Commercial and commercial real estate | $ | 881,821 | 65.27 | % | $ | 743,520 | 63.10 | % | $ | 651,479 | 58.73 | % | $ | 550,366 | 52.62 | % | $ | 448,991 | 53.53 | % | |||||||||||
Residential mortgage | 152,580 | 11.29 | 145,931 | 12.39 | 168,912 | 15.23 | 15,638 | 20.62 | 180,347 | 21.50 | |||||||||||||||||||||
Agricultural and agricultural real estate | 166,182 | 12.30 | 155,596 | 13.21 | 145,460 | 13.11 | 133,614 | 12.78 | 92,936 | 11.08 | |||||||||||||||||||||
Consumer | 136,806 | 10.13 | 120,853 | 10.26 | 127,874 | 11.53 | 128,685 | 12.30 | 103,608 | 12.35 | |||||||||||||||||||||
Lease financing, net | 13,621 | 1.01 | 12,308 | 1.04 | 15,570 | 1.40 | 17,590 | 1.68 | 12,886 | 1.54 | |||||||||||||||||||||
Gross loans and leases | 1,351,010 | 100.00 | % | 1,178,208 | 100.00 | % | 1,109,295 | 100.00 | % | 1,045,893 | 100.00 | % | 838,768 | 100.00 | % | ||||||||||||||||
Unearned discount | (1,836 | ) | (2,161 | ) | (3,457 | ) | (3,397 | ) | (3,169 | ) | |||||||||||||||||||||
Deferred loan fees | (947 | ) | (811 | ) | (633 | ) | (400 | ) | (453 | ) | |||||||||||||||||||||
Total loans and leases | 1,348,227 | 1,175,236 | 1,105,205 | 1,042,096 | 835,146 | ||||||||||||||||||||||||||
Allowance for loan and lease losses | (18,490 | ) | (16,091 | ) | (14,660 | ) | (13,592 | ) | (10,844 | ) | |||||||||||||||||||||
Loans and leases, net | $ | 1,329,737 | $ | 1,159,145 | $ | 1,090,545 | $ | 1,028,504 | $ | 824,302 | |||||||||||||||||||||
MATURITY AND RATE SENSITIVITY OF LOANS AND LEASES1 | |||||||||||||||||||
(Dollars in thousands) | |||||||||||||||||||
Over 1 Year Through 5 Years | Over 5 Years | ||||||||||||||||||
One Year or Less | Fixed Rate | Floating Rate | Fixed Rate | Floating Rate | Total | ||||||||||||||
Commercial and commercial real estate | $ | 316,387 | $ | 275,233 | $ | 162,347 | $ | 46,409 | $ | 81,445 | $ | 881,821 | |||||||
Residential mortgage | 67,158 | 18,503 | 21,443 | 19,198 | 26,278 | 152,580 | |||||||||||||
Agricultural and agricultural real estate | 87,180 | 38,984 | 22,845 | 6,356 | 10,817 | 166,182 | |||||||||||||
Consumer | 30,491 | 49,029 | 13,391 | 9,261 | 34,634 | 136,806 | |||||||||||||
Lease financing,net | 4,602 | 8,936 | 0 | 83 | 0 | 13,621 | |||||||||||||
Total | $ | 505,818 | $ | 390,685 | $ | 220,026 | $ | 81,307 | $ | 153,174 | $ | 1,351,010 | |||||||
1 Maturities based upon contractual dates |
NONPERFORMING ASSETS | ||||||||||||||||
December 31, 2003, 2002, 2001, 2000, and 1999 | ||||||||||||||||
(Dollars in thousands) | ||||||||||||||||
2003 | 2002 | 2001 | 2000 | 1999 | ||||||||||||
Nonaccrual loans and leases | $ | 5,092 | $ | 3,944 | $ | 7,269 | $ | 5,860 | $ | 1,414 | ||||||
Loans and leases contractually past due 90 days or more | 458 | 541 | 500 | 523 | 236 | |||||||||||
Restructured loans and leases | - | - | 354 | 357 | - | |||||||||||
Total nonperforming loans and leases | 5,550 | 4,485 | 8,123 | 6,740 | 1,650 | |||||||||||
Other real estate | 599 | 452 | 130 | 489 | 514 | |||||||||||
Other repossessed assets | 285 | 279 | 343 | 219 | 138 | |||||||||||
Total nonperforming assets | $ | 6,434 | $ | 5,216 | $ | 8,596 | $ | 7,448 | $ | 2,302 | ||||||
Nonperforming loans and leases tototal loans and leases | 0.41 | % | 0.38 | % | 0.73 | % | 0.65 | % | 0.20 | % | ||||||
Nonperforming assets to total loansand leases plus repossessed property | 0.48 | % | 0.44 | % | 0.78 | % | 0.71 | % | 0.28 | % | ||||||
Nonperforming assets to total assets | 0.32 | % | 0.29 | % | 0.52 | % | 0.51 | % | 0.19 | % |
Under Heartland’s internal loan review program, a loan review officer is responsible for reviewing existing loans and leases, identifying potential problem loans and leases and monitoring the adequacy of the allowance for loan and lease losses at the Heartland banks.
ANALYSIS OF ALLOWANCE FOR LOAN AND LEASE LOSSES | ||||||||||||||||
For the years ended December 31, 2003, 2002, 2001, 2000 and 1999 | ||||||||||||||||
(Dollars in thousands) | ||||||||||||||||
2003 | 2002 | 2001 | 2000 | 1999 | ||||||||||||
Allowance at beginning of year | $ | 16,091 | $ | 14,660 | $ | 13,592 | $ | 10,844 | $ | 7,945 | ||||||
Charge-offs: | ||||||||||||||||
Commercial and commercial real estate | 499 | 795 | 1,477 | 407 | 81 | |||||||||||
Residential mortgage | 108 | 38 | 32 | 54 | - | |||||||||||
Agricultural and agricultural real estate | 6 | 279 | 463 | 580 | 8 | |||||||||||
Consumer | 1,779 | 2,085 | 1,785 | 1,239 | 546 | |||||||||||
Lease financing | - | 6 | - | - | - | |||||||||||
Total charge-offs | 2,392 | 3,203 | 3,757 | 2,280 | 635 | |||||||||||
Recoveries: | ||||||||||||||||
Commercial and commercial real estate | 112 | 836 | 79 | 97 | 74 | |||||||||||
Residential mortgage | 2 | 8 | - | 4 | 12 | |||||||||||
Agricultural and agricultural real estate | 29 | 177 | 108 | 176 | 6 | |||||||||||
Consumer | 465 | 389 | 355 | 308 | 151 | |||||||||||
Lease financing | - | - | - | - | - | |||||||||||
Total recoveries | 608 | 1,410 | 542 | 585 | 243 | |||||||||||
Net charge-offs1 | 1,784 | 1,793 | 3,215 | 1,695 | 392 | |||||||||||
Provision for loan and lease losses from continuing operations | 4,183 | 3,553 | 4,258 | 2,976 | 2,550 | |||||||||||
Provision for loan and lease losses from discontinued operations | - | (329 | ) | 25 | 325 | 76 | ||||||||||
Additions related to acquisitions | - | - | - | 1,142 | 665 | |||||||||||
Allowance at end of period | 18,490 | 16,091 | 14,660 | 13,592 | 10,844 | |||||||||||
Net charge-offs to average loans and leases | 0.14 | % | 0.16 | % | 0.30 | % | 0.17 | % | 0.06 | % | ||||||
1Includes net charge-offs at Citizens Finance, Heartland's consumer finance company, of $808 for 2003, $1,182 for 2002; $1,043 for 2001; $614 for 2000 and $256 for 1999. |
The table below shows Heartland’s allocation of the allowance for loan and lease losses by types of loans and leases and the amount of unallocated reserves.
ALLOCATION OF ALLOWANCE FOR LOAN AND LEASE LOSSES | |||||||||||||||||||||||||||||||
December 31, 2003, 2002, 2001, 2000, and 1999 | |||||||||||||||||||||||||||||||
(Dollars in thousands) | |||||||||||||||||||||||||||||||
2003 | 2002 | 2001 | 2000 | 1999 | |||||||||||||||||||||||||||
Amount | Loan/Lease Category to Gross Loans & Leases | Amount | Loan/Lease Category to Gross Loans & Leases | Amount | Loan/Lease Category to Gross Loans & Leases | Amount | Loan/Lease Category to Gross Loans & Leases | Amount | Loan/Lease Category to Gross Loans & Leases | ||||||||||||||||||||||
Commercial and commercial real estate | $ | 9,776 | 65.27 | % | $ | 8,408 | 63.10 | % | $ | 7,534 | 58.73 | % | $ | 7,324 | 52.62 | % | $ | 6,108 | 53.53 | % | |||||||||||
Residential mortgage | 1,224 | 11.29 | 1,328 | 12.39 | 1,192 | 15.23 | 1,004 | 20.62 | 756 | 21.50 | |||||||||||||||||||||
Agricultural and agricultural real estate | 2,926 | 12.30 | 2,239 | 13.21 | 2,214 | 13.11 | 2,377 | 12.78 | 1,016 | 11.08 | |||||||||||||||||||||
Consumer | 1,427 | 10.13 | 2,083 | 10.26 | 2,009 | 11.53 | 1,743 | 12.30 | 1,917 | 12.35 | |||||||||||||||||||||
Lease financing | 121 | 1.01 | 140 | 1.04 | 162 | 1.40 | 106 | 1.68 | 91 | 1.54 | |||||||||||||||||||||
Unallocated | 2,092 | 1,893 | 1,549 | 1,038 | 956 | ||||||||||||||||||||||||||
Total allowance for loan and lease losses | $ | 18,490 | $ | 16,091 | $ | 14,660 | $ | 13,592 | $ | 10,844 | |||||||||||||||||||||
SECURITIES PORTFOLIO COMPOSITION | |||||||||||||||||||
December 31, 2003, 2002 and 2001 | |||||||||||||||||||
(Dollars in thousands) | |||||||||||||||||||
2003 | 2002 | 2001 | |||||||||||||||||
Amount | % of Portfolio | Amount | % of Portfolio | Amount | % of Portfolio | ||||||||||||||
U.S. government corporations, agencies and treasuries | $ | 182,934 | 40.59 | % | $ | 101,339 | 25.99 | % | $ | 79,234 | 24.48 | % | |||||||
Mortgage-backed securities | 151,233 | 33.56 | 187,318 | 48.04 | 183,661 | 56.74 | |||||||||||||
States and political subdivisions | 93,210 | 20.68 | 71,391 | 18.31 | 30,948 | 9.56 | |||||||||||||
Other securities | 23,303 | 5.17 | 29,852 | 7.66 | 29,846 | 9.22 | |||||||||||||
Total | $ | 450,680 | 100.00 | % | $ | 389,900 | 100.00 | % | $ | 323,689 | 100.00 | % | |||||||
SECURITIES PORTFOLIO MATURITIES | ||||||||||||||||||||||||||||||
December 31, 2003 (Dollars in thousands) | ||||||||||||||||||||||||||||||
Within One Year | After One But Within Five Years | After Five But Within Ten Years | After Ten Years | Total | ||||||||||||||||||||||||||
Amount | Yield | Amount | Yield | Amount | Yield | Amount | Yield | Amount | Yield | |||||||||||||||||||||
U.S. government corporations, agencies and treasuries | $ | 13,230 | 4.08 | % | $ | 169,704 | 2.96 | % | $ | - | 0.00 | % | $ | - | 0.00 | % | $ | 182,934 | 3.04 | % | ||||||||||
Mortgage-backed securities | 81,235 | 4.03 | 34,873 | 4.19 | 6,851 | 5.24 | 28,274 | 4.26 | 151,233 | 4.17 | ||||||||||||||||||||
States and political subdivisions1 | 1,691 | 6.05 | 7,800 | 6.05 | 28,882 | 6.53 | 54,837 | 7.10 | 93,210 | 6.81 | ||||||||||||||||||||
Total | $ | 96,156 | 4.07 | % | $ | 212,377 | 3.27 | % | $ | 35,733 | 6.28 | % | $ | 83,111 | 6.13 | % | $ | 427,377 | 4.26 | % | ||||||||||
1Rates on obligations of states and political subdivisions have been adjusted to tax equivalent yields using a 34% tax rate. |
DEPOSITS AND BORROWED FUNDS
AVERAGE DEPOSITS | ||||||||||||||||||||||||||||
For the years ended December 31, 2003, 2002 and 2001 | ||||||||||||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||||||
2003 | 2002 | 2001 | ||||||||||||||||||||||||||
Average Balance | Percentof Deposits | Rate | Average Balance | Percentof Deposits | Rate | Average Balance | Percent of Deposits | Rate | ||||||||||||||||||||
Demand deposits | $ | 204,812 | 14.57 | % | 0.00 | % | $ | 164,280 | 13.12 | % | 0.00 | % | $ | 139,870 | 12.14 | % | 0.00 | % | ||||||||||
Savings | 532,023 | 37.86 | 0.90 | 488,756 | 39.03 | 1.37 | 427,953 | 37.12 | 2.80 | |||||||||||||||||||
Time deposits less than $100,000 | 527,627 | 37.55 | 3.65 | 474,817 | 37.92 | 4.41 | 441,505 | 38.30 | 5.82 | |||||||||||||||||||
Time deposits of $100,000 or more | 140,834 | 10.02 | 2.64 | 124,321 | 9.93 | 3.62 | 143,429 | 12.44 | 5.74 | |||||||||||||||||||
Total deposits | $ | 1,405,296 | 100.00 | % | $ | 1,252,174 | 100.00 | % | $ | 1,152,757 | 100.00 | % | ||||||||||||||||
The following table sets forth the amount and maturities of time deposits of $100,000 or more at December 31, 2003.
TIME DEPOSITS $100,000 AND OVER (Dollars in thousands) | ||||
December 31, 2003 | ||||
3 months or less | $ | 44,020 | ||
Over 3 months through 6 months | 18,549 | |||
Over 6 months through 12 months | 24,725 | |||
Over 12 months | 51,821 | |||
$ | 139,115 | |||
Short-term borrowings generally include federal funds purchased, treasury tax and loan note options, securities sold under agreement to repurchase and short-term Federal Home Loan Bank ("FHLB") advances. These funding alternatives are utilized in varying degrees depending on their pricing and availability. At year-end 2003, short-term borrowings had increased $15.5 million or 10% from year-end 2002. The $161.4 million of short-term borrowings outstanding at year-end 2002 was consistent with the $160.7 million outstanding at year-end 2001.
SHORT-TERM BORROWINGS (Dollars in thousands) | ||||||||||
As of or for the years ended December 31, | ||||||||||
2003 | 2002 | 2001 | ||||||||
Balance at end of period | $ | 176,835 | $ | 161,379 | $ | 160,703 | ||||
Maximum month-end amount outstanding | 176,835 | 161,379 | 162,744 | |||||||
Average month-end amount outstanding | 151,037 | 140,282 | 151,139 | |||||||
Weighted average interest rate at year-end | 1.36 | % | 1.59 | % | 1.39 | % | ||||
Weighted average interest rate for the year | 1.54 | % | 1.96 | % | 3.96 | % |
Other borrowings include all debt arrangements Heartland and its subsidiaries have entered into with original maturities that extend beyond one year. These borrowings were $174.0 million on December 31, 2003, compared to $126.3 million on December 31, 2002. The change in these account balances primarily resulted from activity in the bank subsidiaries’ borrowings from the FHLB. All of the Heartland banks own stock in the FHLB of Des Moines, Chicago or Dallas, enabling them to borrow funds from their respective FHLB for short- or long-term purposes under a variety of programs. Total FHLB borrowings at December 31, 2003, had increased to $101.5 million from $72.5 million at December 31, 2002. Substantially all of these borrowings are fixed-rate advances for original terms between three and five years. To fund a portion of the fixed-rate commercial and residential loan growth experienced, Heartland entered into three-, five- and seven-year FHLB advances.
Amount Issued | Issuance Date | Interest Rate | Maturity Date | Callable Date |
$25,000,000 | 10/18/99 | 9.60% | 09/29/29 | 09/30/04 |
8,000,000 | 12/18/01 | Variable | 12/18/31 | 12/18/06 |
5,000,000 | 06/27/02 | Variable | 06/30/32 | 06/30/07 |
20,000,000 | 10/10/03 | 8.25% | 10/10/33 | 10/10/08 |
$58,000,000 | ||||
The following table summarizes significant contractual obligations and other commitments as of December 31, 2003:
(Dollars in thousands) | Payments Due By Period | |||||||||||||||
Total | Less than One Year | One to Three Years | Three to Five Years | More than Five Years | ||||||||||||
Contractual obligations: | ||||||||||||||||
Long-term debt obligations | $ | 173,958 | $ | 22,263 | $ | 64,163 | $ | 22,334 | $ | 65,198 | ||||||
Operating lease obligations | 3,124 | 782 | 1,233 | 685 | 424 | |||||||||||
Purchase obligations | 10,491 | 7,595 | 1,769 | 1,127 | - | |||||||||||
Other long-term liabilities | 4,297 | 1,160 | 2,321 | - | 816 | |||||||||||
Total contractual obligations | $ | 191,870 | $ | 31,800 | $ | 69,486 | $ | 24,146 | $ | 66,438 | ||||||
Other commitments: | ||||||||||||||||
Lines of credit | $ | 403,749 | $ | 253,526 | $ | 35,830 | $ | 13,178 | $ | 101,215 | ||||||
Standby letters of credit | 15,790 | 10,251 | 231 | 3,583 | 1,725 | |||||||||||
Other commitments: | 34,500 | 34,500 | - | - | - | |||||||||||
Total other commitments | $ | 454,039 | $ | 298,277 | $ | 36,061 | $ | 16,761 | $ | 102,940 | ||||||
CAPITAL RESOURCES
RISK-BASED CAPITAL RATIOS1 | |||||||||||||||||||
(Dollars in thousands) | |||||||||||||||||||
2003 | 2002 | 2001 | |||||||||||||||||
Amount | Ratio | Amount | Ratio | Amount | Ratio | ||||||||||||||
Capital Ratios: | |||||||||||||||||||
Tier 1 capital | $ | 158,346 | 10.29 | % | $ | 141,918 | 10.65 | % | $ | 121,112 | 9.71 | % | |||||||
Tier 1 capital minimum requirement | 61,536 | 4.00 | % | 53,298 | 4.00 | % | 49,891 | 4.00 | % | ||||||||||
Excess | $ | 96,810 | 6.29 | % | $ | 88,620 | 6.65 | % | $ | 71,221 | 5.71 | % | |||||||
Total capital | $ | 191,060 | 12.42 | % | $ | 158,010 | 11.86 | % | $ | 135,770 | 10.89 | % | |||||||
Total capital minimum requirement | 123,072 | 8.00 | % | 106,596 | 8.00 | % | 99,782 | 8.00 | % | ||||||||||
Excess | $ | 67,988 | 4.42 | % | $ | 51,414 | 3.86 | % | $ | 35,988 | 2.89 | % | |||||||
Total risk-adjusted assets | $ | 1,538,406 | $ | 1,332,451 | $ | 1,247,274 | |||||||||||||
1Based on the risk-based capital guidelines of the Federal Reserve, a bank holding company is required to maintain aTier 1 to risk-adjusted assets ratio of 4.00% and total capital to risk-adjusted assets ratio of 8.00%. |
LEVERAGE RATIOS1 | |||||||||||||||||||
(Dollars in thousands) | |||||||||||||||||||
December 31, | |||||||||||||||||||
2003 | 2002 | 2001 | |||||||||||||||||
Amount | Ratio | Amount | Ratio | Amount | Ratio | ||||||||||||||
Capital Ratios: | |||||||||||||||||||
Tier 1 capital | $ | 158,346 | 8.07 | % | $ | 141,918 | 8.24 | % | $ | 121,112 | 7.53 | % | |||||||
Tier 1 capital minimum requirement2 | 78,464 | 4.00 | % | 68,883 | 4.00 | % | 64,336 | 4.00 | % | ||||||||||
Excess | $ | 79,882 | 4.07 | % | $ | 73,035 | 4.24 | % | $ | 56,776 | 3.53 | % | |||||||
Average adjusted assets | $ | 1,961,588 | $ | 1,722,077 | $ | 1,608,402 | |||||||||||||
1The leverage ratio is defined as the ratio of Tier 1 capital to average total assets. | |||||||||||||||||||
2Management of Heartland has established a minimum target leverage ratio of 4.00%. Based on Federal Reserve guidelines,a bank holding company generally is required to maintain a leverage ratio of 3.00% plus an additional cushion of at least100 basis points. |
EFFECTS OF INFLATION
HEARTLAND FINANCIAL USA, INC. | ||||||||||||||||||||||||||||
Quantitative and Qualitative Disclosures about Market Risk | ||||||||||||||||||||||||||||
Table Of Market Risk Sensitive Instruments | ||||||||||||||||||||||||||||
December 31, 2003 (Dollars in thousands) | ||||||||||||||||||||||||||||
Average | Estimated | |||||||||||||||||||||||||||
Interest | Fair | |||||||||||||||||||||||||||
MATURING IN: | 2004 | 2005 | 2006 | 2007 | 2008 | Thereafter | TOTAL | Rate | Value | |||||||||||||||||||
ASSETS | ||||||||||||||||||||||||||||
Fed funds sold and other short-term inv | $ | 3,445 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 3,445 | 4.33 | % | $ | 3,445 | ||||||||||
Time deposits in other financial institutions | - | - | 755 | 377 | - | - | 1,132 | 6.67 | 1,132 | |||||||||||||||||||
Trading | 1,073 | 1,073 | 0.44 | 1,073 | ||||||||||||||||||||||||
Securities | 96,156 | 73,905 | 53,454 | 52,138 | 32,880 | 142,147 | 450,680 | 3.85 | 450,680 | |||||||||||||||||||
Loans and leases: | ||||||||||||||||||||||||||||
Fixed rate loans | 227,313 | 111,188 | 130,599 | 56,087 | 92,811 | 81,307 | 699,305 | 6.85 | 715,018 | |||||||||||||||||||
Variable rate loans | 275,722 | 64,338 | 67,985 | 31,943 | 55,760 | 153,174 | 648,922 | 5.38 | 652,861 | |||||||||||||||||||
Loans and leases, net | 503,035 | 175,526 | 198,584 | 88,030 | 148,571 | 234,481 | 1,348,227 | 1,367,879 | ||||||||||||||||||||
Total Market Risk Sensitive Assets | $ | 602,636 | $ | 249,431 | $ | 252,793 | $ | 140,545 | $ | 181,451 | $ | 377,701 | $ | 1,804,557 | $ | 1,824,209 | ||||||||||||
LIABILITIES | ||||||||||||||||||||||||||||
Savings | $ | 569,285 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 569,285 | 0.83 | % | $ | 569,285 | ||||||||||
Time deposits | ||||||||||||||||||||||||||||
Fixed rate time certificates less than $100 | 196,428 | 126,723 | 57,886 | 93,189 | 42,006 | 6,907 | 523,139 | 3.51 | 531,295 | |||||||||||||||||||
Variable rate time certificates less than $100 | 3,268 | 11,396 | 2 | - | - | - | 14,666 | 2.38 | 14,666 | |||||||||||||||||||
Time deposits less than $100 | 199,696 | 138,119 | 57,888 | 93,189 | 42,006 | 6,907 | 537,805 | 545,961 | ||||||||||||||||||||
Time deposits of $100 or more | 87,294 | 28,247 | 4,282 | 8,783 | 10,213 | 296 | 139,115 | 2.51 | 141,488 | |||||||||||||||||||
Federal funds purchased, securities sold under repurchase agreements and other short-term borrowings | 176,835 | 176,835 | 1.36 | 176,835 | ||||||||||||||||||||||||
Other borrowings: | ||||||||||||||||||||||||||||
Fixed rate borrowings | 22,263 | 23,771 | 40,392 | 1,291 | 21,043 | 52,198 | 160,958 | 5.14 | 202,156 | |||||||||||||||||||
Variable rate borrowings | - | 13,000 | 13,000 | 4.77 | 13,000 | |||||||||||||||||||||||
Other borrowings | 22,263 | 23,771 | 40,392 | 1,291 | 21,043 | 65,198 | 173,958 | 215,156 | ||||||||||||||||||||
Total Market Risk Sensitive Liabilities | $ | 1,055,373 | $ | 190,137 | $ | 102,562 | $ | 103,263 | $ | 73,262 | $ | 72,401 | $ | 1,596,998 | $ | 1,648,725 | ||||||||||||
HEARTLAND FINANCIAL USA, INC. | ||||||||||
CONSOLIDATED BALANCE SHEETS | ||||||||||
(Dollars in thousands, except per share data) | ||||||||||
Notes | December 31, 2003 | December 31, 2002 | ||||||||
ASSETS | ||||||||||
Cash and due from banks | 4 | $ | 68,424 | $ | 61,106 | |||||
Federal funds sold and other short-term investments | 3,445 | 39,886 | ||||||||
Cash and cash equivalents | 71,869 | 100,992 | ||||||||
Time deposits in other financial institutions | 1,132 | 1,677 | ||||||||
Securities: | 5 | |||||||||
Trading, at fair value | 1,073 | 915 | ||||||||
Available for sale-at fair value (cost of $441,606 for 2003 and $381,398 for 2002) | 450,680 | 389,900 | ||||||||
Loans and leases: | 6 | |||||||||
Held for sale | 25,678 | 23,167 | ||||||||
Held to maturity | 1,322,549 | 1,152,069 | ||||||||
Allowance for loan and lease losses | 7 | (18,490 | ) | (16,091 | ) | |||||
Loans and leases, net | 1,329,737 | 1,159,145 | ||||||||
Assets under operating lease | 31,636 | 30,367 | ||||||||
Premises, furniture and equipment, net | 8 | 49,842 | 35,591 | |||||||
Other real estate, net | 599 | 452 | ||||||||
Goodwill, net | 20,167 | 16,050 | ||||||||
Core deposit premium and mortgage servicing rights | 9 | 5,069 | 4,879 | |||||||
Other assets | 56,562 | 46,011 | ||||||||
TOTAL ASSETS | $ | 2,018,366 | $ | 1,785,979 | ||||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||||
LIABILITIES: | ||||||||||
Deposits: | 10 | |||||||||
Demand | $ | 246,282 | $ | 197,516 | ||||||
Savings | 569,286 | 511,979 | ||||||||
Time | 676,920 | 628,490 | ||||||||
Total deposits | 1,492,488 | 1,337,985 | ||||||||
Short-term borrowings | 11 | 176,835 | 161,379 | |||||||
Other borrowings | 12 | 173,958 | 126,299 | |||||||
Accrued expenses and other liabilities | 34,162 | 36,275 | ||||||||
TOTAL LIABILITIES | 1,877,443 | 1,661,938 | ||||||||
STOCKHOLDERS' EQUITY: | 16,17,18,19 | |||||||||
Preferred stock (par value $1 per share; authorized, 184,000 shares, none issued or outstanding) | - | - | ||||||||
Series A Junior Participating preferred stock (par value $1 per share; authorized, | - | - | ||||||||
16,000 shares, none issued or outstanding) | ||||||||||
Common stock (par value $1 per share; authorized, 16,000,000 shares at | ||||||||||
December 31, 2003 and December 31, 2002; issued 15,261,714 and 9,905,783 shares at December 31, 2003 and December 31, 2002, respectively) | 15,262 | 9,906 | ||||||||
Capital surplus | 20,065 | 16,725 | ||||||||
Retained earnings | 102,584 | 94,048 | ||||||||
Accumulated other comprehensive income | 4,794 | 4,230 | ||||||||
Treasury stock at cost (98,211 shares at December 31, 2003 and 59,369 shares at | ||||||||||
December 31, 2002, respectively) | (1,782 | ) | (868 | ) | ||||||
TOTAL STOCKHOLDERS' EQUITY | 140,923 | 124,041 | ||||||||
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 2,018,366 | $ | 1,785,979 | ||||||
See accompanying Notes to Consolidated Financial Statements. |
HEARTLAND FINANCIAL USA, INC. | |||||||||||||
CONSOLIDATED STATEMENTS OF INCOME | |||||||||||||
(Dollars in thousands, except per share data) | |||||||||||||
For the Years Ended December 31, | |||||||||||||
Notes | 2003 | 2002 | 2001 | ||||||||||
INTEREST INCOME: | |||||||||||||
Interest and fees on loans and leases | 6 | $ | 85,936 | $ | 83,553 | $ | 89,452 | ||||||
Interest on securities: | |||||||||||||
Taxable | 9,100 | 13,132 | 14,143 | ||||||||||
Nontaxable | 3,952 | 2,757 | 1,790 | ||||||||||
Interest on federal funds sold | 355 | 322 | 1,981 | ||||||||||
Interest on interest bearing deposits in other financial institutions | 174 | 248 | 243 | ||||||||||
TOTAL INTEREST INCOME | 99,517 | 100,012 | 107,609 | ||||||||||
INTEREST EXPENSE: | |||||||||||||
Interest on deposits | 10 | 27,763 | 31,395 | 45,783 | |||||||||
Interest on short-term borrowings | 2,350 | 2,643 | 4,515 | ||||||||||
Interest on other borrowings | 8,214 | 8,294 | 8,322 | ||||||||||
TOTAL INTEREST EXPENSE | 38,327 | 42,332 | 58,620 | ||||||||||
NET INTEREST INCOME | 61,190 | 57,680 | 48,989 | ||||||||||
Provision for loan and lease losses | 7 | 4,183 | 3,553 | 4,258 | |||||||||
NET INTEREST INCOME AFTER PROVISION FOR LOAN AND LEASE LOSSES | 57,007 | 54,127 | 44,731 | ||||||||||
NONINTEREST INCOME: | |||||||||||||
Service charges and fees | 6,207 | 5,977 | 4,667 | ||||||||||
Trust fees | 3,814 | 3,407 | 3,148 | ||||||||||
Brokerage commissions | 863 | 658 | 615 | ||||||||||
Insurance commissions | 703 | 765 | 807 | ||||||||||
Securities gains, net | 1,823 | 790 | 1,489 | ||||||||||
Gain (loss) on trading account securities | 453 | (598 | ) | (417 | ) | ||||||||
Impairment loss on equity securities | (317 | ) | (267 | ) | (773 | ) | |||||||
Rental income on operating leases | 13,807 | 14,602 | 15,446 | ||||||||||
Gains on sale of loans | 6,339 | 4,656 | 2,738 | ||||||||||
Valuation adjustment on mortgage servicing rights | 338 | (469 | ) | - | |||||||||
Other noninterest income | 2,511 | 1,124 | 900 | ||||||||||
TOTAL NONINTEREST INCOME | 36,541 | 30,645 | 28,620 | ||||||||||
NONINTEREST EXPENSES: | |||||||||||||
Salaries and employee benefits | 15 | 33,113 | 28,571 | 25,182 | |||||||||
Occupancy | 16 | 3,880 | 3,178 | 3,014 | |||||||||
Furniture and equipment | 4,115 | 3,273 | 3,144 | ||||||||||
Depreciation on equipment under operating leases | 11,353 | 11,555 | 11,805 | ||||||||||
Outside services | 4,695 | 4,318 | 3,433 | ||||||||||
FDIC deposit insurance assessment | 218 | 209 | 208 | ||||||||||
Advertising | 2,354 | 1,917 | 1,588 | ||||||||||
Goodwill amortization | - | - | 1,057 | ||||||||||
Core deposit premium amortization | 404 | 495 | 615 | ||||||||||
Other noninterest expenses | 7,560 | 7,143 | 6,646 | ||||||||||
TOTAL NONINTEREST EXPENSES | 67,692 | 60,659 | 56,692 | ||||||||||
INCOME BEFORE INCOME TAXES | 25,856 | 24,113 | 16,659 | ||||||||||
Income taxes | 14 | 8,137 | 7,523 | 5,530 | |||||||||
INCOME FROM CONTINUING OPERATIONS | 17,719 | 16,590 | 11,129 | ||||||||||
Discontinued operations | |||||||||||||
Income from operation of discontinued branch (including gain on sale of $2,602) | - | 3,751 | 469 | ||||||||||
Income taxes | - | 1,474 | 184 | ||||||||||
Income on discontinued operation | - | 2,277 | 285 | ||||||||||
NET INCOME | $ | 17,719 | $ | 18,867 | $ | 11,414 | |||||||
EARNINGS PER COMMON SHARE - BASIC | $ | 1.18 | $ | 1.28 | $ | 0.79 | |||||||
EARNINGS PER COMMON SHARE - DILUTED | $ | 1.16 | $ | 1.28 | $ | 0.79 | |||||||
CASH DIVIDENDS DECLARED PER COMMON SHARE | $ | 0.27 | $ | 0.27 | $ | 0.27 | |||||||
See accompanying Notes to Consolidated Financial Statements. |
HEARTLAND FINANCIAL USA, INC. | ||||||||||
CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||||
For the years ended December 31, 2003, 2002 and 2001 | ||||||||||
(Dollars in thousands) | ||||||||||
2003 | 2002 | 2001 | ||||||||
Cash Flows From Operating Activities: | ||||||||||
Net income | $ | 17,719 | $ | 18,867 | $ | 11,414 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||
Depreciation and amortization | 15,543 | 15,203 | 16,616 | |||||||
Provision for loan and lease losses | 4,183 | 3,553 | 4,283 | |||||||
Provision for income taxes less than (in excess of) payments | 716 | 1,996 | (635 | ) | ||||||
Net amortization of premium on securities | 7,580 | 4,420 | 1,285 | |||||||
Securities gains, net | (1,823 | ) | (790 | ) | (1,489 | ) | ||||
(Increase) decrease in trading account securities | (158 | ) | 613 | (1,528 | ) | |||||
Loss on impairment of equity securities | 317 | 267 | 773 | |||||||
Loans originated for sale | (434,851 | ) | (278,650 | ) | (207,332 | ) | ||||
Proceeds on sales of loans | 438,679 | 287,106 | 201,565 | |||||||
Net gain on sales of loans | (6,339 | ) | (4,656 | ) | (2,738 | ) | ||||
Increase (decrease) in accrued interest receivable | (104 | ) | 235 | 1,603 | ||||||
Increase (decrease) in accrued interest payable | 468 | 491 | (1,597 | ) | ||||||
Other, net | (1,805 | ) | 199 | (4,923 | ) | |||||
Net cash provided by operating activities | 40,125 | 48,854 | 17,297 | |||||||
Cash Flows From Investing Activities: | ||||||||||
Purchase of time deposits | (95 | ) | (1,068 | ) | - | |||||
Proceeds on maturities of time deposits | 700 | 3 | 959 | |||||||
Proceeds from the sale of securities available for sale | 81,545 | 47,086 | 65,010 | |||||||
Proceeds from the maturity of and principal paydowns on securities available for sale | 188,529 | 151,099 | 109,436 | |||||||
Purchase of securities available for sale | (334,944 | ) | (263,566 | ) | (267,354 | ) | ||||
Net increase in loans and leases | (171,795 | ) | (109,282 | ) | (55,118 | ) | ||||
Purchase of bank-owned life insurance policies | (10,000 | ) | - | (8,568 | ) | |||||
Increase in assets under operating leases | (12,622 | ) | (6,495 | ) | (11,663 | ) | ||||
Capital expenditures | (18,677 | ) | (7,398 | ) | (4,602 | ) | ||||
Cash and cash equivalents received for sale of operation | - | 30,469 | - | |||||||
Proceeds on sale of OREO and other repossessed assets | 1,249 | 1,192 | 790 | |||||||
Net cash used by investing activities | (276,110 | ) | (157,960 | ) | (171,110 | ) | ||||
Cash Flows from Financing Activities: | ||||||||||
Net increase in demand deposits and and savings accounts | 106,073 | 58,758 | 111,338 | |||||||
Net increase (decrease) in time deposit accounts | 48,430 | 77,802 | (7,492 | ) | ||||||
Net increase in short-term borrowings | 15,456 | 676 | 20,794 | |||||||
Proceeds from other borrowings | 52,750 | 7,840 | 69,381 | |||||||
Repayments of other borrowings | (5,091 | ) | (25,330 | ) | (28,448 | ) | ||||
Purchase of treasury stock | (7,999 | ) | (1,348 | ) | (1,026 | ) | ||||
Proceeds from sale of common stock | 1,339 | 2,076 | 1,689 | |||||||
Dividends | (4,096 | ) | (3,926 | ) | (3,560 | ) | ||||
Net cash provided by financing activities | 206,862 | 116,548 | 162,676 | |||||||
Net increase (decrease) in cash and cash equivalents | (29,123 | ) | 7,442 | 8,863 | ||||||
Cash and cash equivalents at beginning of year | 100,992 | 93,550 | 84,687 | |||||||
CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | 71,869 | $ | 100,992 | $ | 93,550 | ||||
Supplemental disclosures: | ||||||||||
Cash paid for income/franchise taxes | $ | 7,795 | $ | 6,648 | $ | 6,365 | ||||
Cash paid for interest | $ | 38,694 | $ | 41,841 | $ | 61,790 | ||||
Securities held to maturity transferred to securities available for sale | $ | - | $ | - | $ | 2,154 | ||||
See accompanying Notes to Consolidated Financial Statements. |
HEARTLAND FINANCIAL USA, INC. | |||||||||||||||||||
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME | |||||||||||||||||||
For the years ended December 31, 2003, 2002 and 2001 (Dollars in thousands, except per share data) | |||||||||||||||||||
Common Stock | Capital Surplus | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Treasury Stock | Total | ||||||||||||||
Balance at January 1, 2001 | $ | 9,906 | $ | 18,812 | $ | 71,253 | $ | 1,301 | $ | (5,126 | ) | $ | 96,146 | ||||||
Net Income-2001 | 11,414 | 11,414 | |||||||||||||||||
Unrealized gain on securities available for sale | 3,796 | 3,796 | |||||||||||||||||
Unrealized gain (loss) on derivatives arising during the period net of reclassification of $46 | 350 | 350 | |||||||||||||||||
Reclassification adjustment for net security gains realized in net income | (716 | ) | (716 | ) | |||||||||||||||
Income taxes | (1,166 | ) | (1,166 | ) | |||||||||||||||
Comprehensive income | 13,678 | ||||||||||||||||||
Cash dividends declared: | |||||||||||||||||||
Common, $.25 per share | (3,560 | ) | (3,560 | ) | |||||||||||||||
Purchase of 118,884 shares of common stock | (1,026 | ) | (1,026 | ) | |||||||||||||||
Sale of 211,197 shares of common stock | (696 | ) | 2,548 | 1,852 | |||||||||||||||
Balance at December 31, 2001 | $ | 9,906 | $ | 18,116 | $ | 79,107 | $ | 3,565 | $ | (3,604 | ) | $ | 107,090 | ||||||
Net Income-2002 | 18,867 | 18,867 | |||||||||||||||||
Unrealized gain on securities available for sale | 3,630 | 3,630 | |||||||||||||||||
Unrealized gain (loss) on derivatives arising during the period,net of reclassification of $667 | (2,100 | ) | (2,100 | ) | |||||||||||||||
Reclassification adjustment for net security gains realized in net income | (523 | ) | (523 | ) | |||||||||||||||
Income taxes | (342 | ) | (342 | ) | |||||||||||||||
Comprehensive income | 19,532 | ||||||||||||||||||
Cash dividends declared: | |||||||||||||||||||
Common, $.27 per share | (3,926 | ) | (3,926 | ) | |||||||||||||||
Purchase of 143,314 shares of common stock | (1,348 | ) | (1,348 | ) | |||||||||||||||
Sale of 393,307 shares of common stock | (1,391 | ) | 4,084 | 2,693 | |||||||||||||||
Balance at December 31, 2002 | $ | 9,906 | $ | 16,725 | $ | 94,048 | $ | 4,230 | $ | (868 | ) | $ | 124,041 | ||||||
Net Income-2003 | 17,719 | 17,719 | |||||||||||||||||
Unrealized gain on securities available for sale | 2,153 | 2,153 | |||||||||||||||||
Unrealized gain (loss) on derivatives arising during the period, net of reclassification of $123 | 208 | 208 | |||||||||||||||||
Reclassification adjustment for net security gains realized in net income | (1,506 | ) | (1,506 | ) | |||||||||||||||
Income taxes | (291 | ) | (291 | ) | |||||||||||||||
Comprehensive income | 18,283 | ||||||||||||||||||
Cash dividends declared: | |||||||||||||||||||
Common, $.27 per share | (4,096 | ) | (4,096 | ) | |||||||||||||||
Three-for-two stock split | 5,087 | (5,087 | ) | ||||||||||||||||
Purchase of 427,344 shares of common stock | (7,999 | ) | (7,999 | ) | |||||||||||||||
Issuance of 821,226 shares of common stock | 269 | 3,340 | 7,085 | 10,694 | |||||||||||||||
Balance at December 31, 2003 | $ | 15,262 | $ | 20,065 | $ | 102,584 | $ | 4,794 | $ | (1,782 | ) | $ | 140,923 | ||||||
See accompanying Notes to Consolidated Financial Statements. |
(Dollars in thousands) | |||||||
2003 |
| 2002 | |||||
Balance, beginning of year | $ | 2,443 | $ | 1,174 | |||
Originations | 2,546 | 2,499 | |||||
Amortization | (2,290 | ) | (761 | ) | |||
Valuation adjustment | 338 | (469 | ) | ||||
Balance, end of year | $ | 3,037 | $ | 2,443 | |||
(Dollars in thousands) | ||||||||||
2003 | 2002 | 2001 | ||||||||
Income from continuing operations | $ | 17,719 | $ | 16,590 | $ | 11,129 | ||||
Discontinued operations: | ||||||||||
Income from operations of discontinued branch(including gain on sale of $2,602) | - | 3,751 | 469 | |||||||
Income taxes | - | 1,474 | 184 | |||||||
Income from discontinued operations | - | 2,277 | 285 | |||||||
Net income | $ | 17,719 | $ | 18,867 | $ | 11,414 | ||||
Weighted average common shares outstanding for basic earnings per share1 | 14,984 | 14,688 | 14,403 | |||||||
Assumed incremental common shares issud upon exercise of stock options1 | 274 | 96 | 155 | |||||||
Weighted average common shares for diluted earnings per share1 | 15,258 | 14,784 | 14,558 | |||||||
Earnings per common share-basic | $ | 1.18 | $ | 1.28 | $ | 0.79 | ||||
Earnings per common share-diluted | $ | 1.16 | $ | 1.28 | $ | 0.78 | ||||
Adjusted earnings per share from continuing operations-basic2 | $ | 1.18 | $ | 1.13 | $ | 0.77 | ||||
Adjusted earnings per share from continuing operations-diluted2 | $ | 1.16 | $ | 1.12 | $ | 0.76 | ||||
Earnings per common share-basic3 | $ | 1.18 | $ | 1.28 | $ | 0.87 | ||||
Earnings per common share-diluted3 | $ | 1.16 | $ | 1.28 | $ | 0.85 | ||||
Adjusted earnings per share from continuing operations-basic4 | $ | 1.18 | $ | 1.13 | $ | 0.85 | ||||
Adjusted earnings per share from continuing operations-diluted4 | $ | 1.16 | $ | 1.12 | $ | 0.84 | ||||
1In thousands. | ||||||||||
2Excludes the discontinued operations of our Eau Claire branch and the related gain on sale in the fourth quarter of 2002. | ||||||||||
3Excludes goodwill amortization discontinued with the adoption of FAS 142 on January 1, 2002, and the adoption of FAS 147 on September 30, 2002. | ||||||||||
4Excludes goodwill amortization discontinued with the adoption of FAS 142 on January 1, 2002, and the adoption of FAS 147 on September 30, 2002, and thediscontinued operations of our Eau Claire branch and the related gain on sale in the fourth quarter of 2002. |
Cash Flows-For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks, federal funds sold and other short-term investments. Generally, federal funds are purchased and sold for one-day periods.
Effect of New Financial Accounting Standards-In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement No. 143 (FAS 143), "Accounting for Asset Retirement Obligations," which addresses the recognition and measurement of obligations with the retirement of tangible long-lived assets. FAS 143 was effective January 1, 2003, with early adoption permitted. Heartland adopted FAS 143 effective January 1, 2003, and the adoption of the Statement did not have a material effect on the financial statements.
ADJUSTED EARNINGS SCHEDULE | ||||||||||||||||
(Dollars in thousands, except per share data) | ||||||||||||||||
Year ended December 31, 2003 | Year ended December 31, 2002 | Year ended December 31, 2001 | ||||||||||||||
Reported Earnings | Reported Earnings | Reported Earnings | Goodwill Amortization | "Adjusted" Earnings | ||||||||||||
Income from continuing operations before income taxes | $ | 25,856 | $ | 24,113 | $ | 16,659 | $ | 1,057 | $ | 17,716 | ||||||
Income taxes | 8,137 | 7,523 | 5,530 | - | 5,530 | |||||||||||
Income from continuing operations | $ | 17,719 | $ | 16,590 | $ | 11,129 | $ | 1,057 | $ | 12,186 | ||||||
Net income | $ | 17,719 | $ | 18,867 | $ | 11,414 | $ | 1,057 | $ | 12,471 | ||||||
Earnings per share before effect of change in accounting principle | $ | 1.18 | $ | 1.13 | $ | 0.77 | $ | 0.07 | $ | 0.85 | ||||||
Earnings per common share | $ | 1.18 | $ | 1.28 | $ | 0.79 | $ | 0.07 | $ | 0.87 | ||||||
Earnings per share-diluted before effect of change in accounting principle | $ | 1.16 | $ | 1.12 | $ | 0.76 | $ | 0.07 | $ | 0.84 | ||||||
Earnings per share-diluted | $ | 1.16 | $ | 1.28 | $ | 0.78 | $ | 0.07 | $ | 0.85 | ||||||
(Dollars in thousands, except earnings per share data) | ||||||||||
2003 | 2002 | 2001 | ||||||||
Net income as reported | $ | 17,719 | $ | 18,867 | $ | 11,414 | ||||
Pro forma | 17,503 | 18,619 | 11,112 | |||||||
Earnings per share-basic as reported | $ | 1.18 | $ | 1.28 | $ | .79 | ||||
Pro forma | 1.17 | 1.27 | .77 | |||||||
Earnings per share-diluted as reported | $ | 1.16 | $ | 1.28 | $ | .78 | ||||
Pro forma | 1.15 | 1.26 | .76 |
(Dollars in thousands) | |||||||||||||
Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value | ||||||||||
2003 | |||||||||||||
Securities available for sale: | |||||||||||||
U.S. government corporations, agencies and treasuries | $ | 182,078 | $ | 1,247 | $ | (391 | ) | $ | 182,934 | ||||
Mortgage-backed securities | 149,431 | 2,047 | (245 | ) | 151,233 | ||||||||
Obligations of states and political subdivisions | 87,299 | 6,007 | (96 | ) | 93,210 | ||||||||
Total debt securities | 418,808 | 9,301 | (732 | ) | 427,377 | ||||||||
Equity securities | 22,798 | 558 | (53 | ) | 23,303 | ||||||||
Total | $ | 441,606 | $ | 9,859 | $ | (785 | ) | $ | 450,680 | ||||
Amortized Cost |
|
| Gross Unrealized Gains |
|
| Gross Unrealized Losses |
|
| Estimated Fair Value | ||||
2002 | |||||||||||||
Securities available for sale: | |||||||||||||
U.S. government corporations, agencies and treasuries | $ | 98,088 | $ | 3,251 | $ | - | $ | 101,339 | |||||
Mortgage-backed securities | 185,216 | 2,353 | (251 | ) | 187,318 | ||||||||
Obligations of states and political subdivisions | 67,810 | 3,648 | (67 | ) | 71,391 | ||||||||
Total debt securities | 351,114 | 9,252 | (318 | ) | 360,048 | ||||||||
Equity securities | 30,284 | 157 | (589 | ) | 29,852 | ||||||||
Total | $ | 381,398 | $ | 9,409 | $ | (907 | ) | $ | 389,900 | ||||
The amortized cost and estimated fair value of debt securities available for sale at December 31, 2003, by estimated maturity, are as follows. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without penalties.
(Dollars in thousands) | |||||||
Amortized Cost | Estimated Fair Value | ||||||
Securities available for sale: | |||||||
Due in 1 year or less | $ | 94,739 | $ | 96,156 | |||
Due in 1 to 5 years | 210,903 | 212,377 | |||||
Due in 5 to 10 years | 33,737 | 35,733 | |||||
Due after 10 years | 79,429 | 83,111 | |||||
Total | $ | 418,808 | $ | 427,377 | |||
(Dollars in thousands) | ||||||||||
2003 | 2002 | 2001 | ||||||||
Securities sold: | ||||||||||
Proceeds from sales | $ | 81,545 | $ | 46,796 | $ | 65,010 | ||||
Gross security gains | 1,990 | 941 | 2,233 | |||||||
Gross security losses | 167 | 151 | 744 |
UNREALIZED LOSSES ON SECURITIES | |||||||||||||||||||
December 31, 2003 | |||||||||||||||||||
Less than 12 months | 12 months or longer | Total | |||||||||||||||||
Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | ||||||||||||||
U.S. government corporations, agencies and treasuries | $ | 76,610 | $ | 391 | - | - | $ | 76,610 | $ | 391 | |||||||||
Mortgage-backed securities | 24,696 | 245 | - | - | 24,696 | 245 | |||||||||||||
Obligations of states and political subdivisions | 6,150 | 96 | - | - | 6,150 | 96 | |||||||||||||
Total debt securities | 107,456 | 732 | - | - | 107,456 | 732 | |||||||||||||
Equity securities | 226 | 43 | 117 | 10 | 343 | 53 | |||||||||||||
Total temporarily impaird securities | $ | 107,682 | $ | 775 | $ | 117 | $ | 10 | $ | 107,799 | $ | 785 | |||||||
SIX
(Dollars in thousands) | |||||||
2003 | 2002 | ||||||
Commercial and commercial real estate | $ | 881,821 | $ | 743,520 | |||
Residential mortgage | 152,580 | 145,931 | |||||
Agricultural and agricultural real estate | 166,182 | 155,596 | |||||
Consumer | 136,806 | 120,853 | |||||
Loans, gross | 1,337,389 | 1,165,900 | |||||
Unearned discount | (1,836 | ) | (2,161 | ) | |||
Deferred loan fees | (947 | ) | (811 | ) | |||
Loans, net | 1,334,606 | 1,162,928 | |||||
Direct financing leases: | |||||||
Gross rents receivable | 11,020 | 9,765 | |||||
Estimated residual value | 4,217 | 4,336 | |||||
Unearned income | (1,616 | ) | (1,793 | ) | |||
Direct financing leases, net | 13,621 | 12,308 | |||||
Allowance for loan and lease losses | (18,490 | ) | (16,091 | ) | |||
Loans and leases, net | $ | 1,329,737 | $ | 1,159,145 | |||
(Dollars in thousands) | |||||||
2003 | 2002 | ||||||
Balance at beginning of year | $ | 31,941 | $ | 26,912 | |||
Advances | 10,638 | 24,357 | |||||
Repayments | (11,646 | ) | (19,328 | ) | |||
Balance, end of year | $ | 30,933 | $ | 31,941 | |||
(Dollars in thousands) | ||||||||||
2003 | 2002 | 2001 | ||||||||
Balance at beginning of year | $ | 16,091 | $ | 14,660 | $ | 13,592 | ||||
Provision for loan and lease losses from continuing operations | 4,183 | 3,553 | 4,258 | |||||||
Provision for loan and lease losses from discontinued operations | - | (329 | ) | 25 | ||||||
Recoveries on loans and leases previously charged off | 608 | 1,410 | 542 | |||||||
Loans and leases charged off | (2,392 | ) | (3,203 | ) | (3,757 | ) | ||||
Balance at end of year | $ | 18,490 | $ | 16,091 | $ | 14,660 | ||||
(Dollars in thousands) | |||||||
2003 | 2002 | ||||||
Land and land improvements | $ | 7,669 | $ | 6,610 | |||
Buildings and building improvements | 39,185 | 29,899 | |||||
Furniture and equipment | 26,849 | 20,960 | |||||
Total | 73,703 | 57,469 | |||||
Less accumulated depreciation | (23,861 | ) | (21,878 | ) | |||
Premises, furniture and equipment, net | $ | 49,842 | $ | 35,591 | |||
(Dollars in thousands) | December 31, 2003 | December 31, 2002 | |||||||||||
Gross Carrying Amount | Accumulated Amortization | Gross Carrying Amount | Accumulated Amortization | ||||||||||
Amortized intangible assets | |||||||||||||
Core deposit intangibles | $ | 4,492 | $ | 2,460 | $ | 4,492 | $ | 2,056 | |||||
Mortgage servicing rights | 3,712 | 675 | 3,346 | 903 | |||||||||
Total | $ | 8,204 | $ | 3,135 | $ | 7,838 | $ | 2,959 | |||||
Unamortized intangible assets | $ | 5,069 | $ | 4,879 | |||||||||
(Dollars in thousands) | ||||||||||
Core Deposit Intangibles | Mortgage Servicing Rights | Total | ||||||||
Year ended | ||||||||||
2004 | $ | 353 | $ | 1,092 | $ | 1,445 | ||||
2005 | 353 | 555 | 908 | |||||||
2006 | 353 | 463 | 816 | |||||||
2007 | 353 | 370 | 723 | |||||||
2008 | 353 | 278 | 631 |
(Dollars in thousands) | ||||
2003 | ||||
2004 | $ | 286,990 | ||
2005 | 166,367 | |||
2006 | 62,169 | |||
2007 | 101,972 | |||
2008 | 52,219 | |||
Thereafter | 7,203 | |||
$ | 676,920 | |||
Interest expense on deposits for the years ended December 31, 2003, 2002 and 2001, was as follows:
(Dollars in thousands) | ||||||||||
2003 | 2002 | 2001 | ||||||||
Savings and money market accounts | $ | 4,798 | $ | 6,530 | $ | 11,858 | ||||
Time certificates of deposit in denominations of $100,000 or more | 3,720 | 4,505 | 8,220 | |||||||
Other time deposits | 19,245 | 20,360 | 25,705 | |||||||
Interest expense on deposits | $ | 27,763 | $ | 31,395 | $ | 45,783 | ||||
(Dollars in thousands) | |||||||
2003 | 2002 | ||||||
Securities sold under agreements to repurchase | $ | 112,827 | $ | 99,004 | |||
Federal funds purchased | 32,050 | 28,325 | |||||
U.S. Treasury demand note | 4,946 | 6,550 | |||||
Citizens short-term notes | 2,012 | 2,500 | |||||
Notes payable to unaffiliated banks | 25,000 | 25,000 | |||||
Total | $ | 176,835 | $ | 161,379 | |||
On September 28, 2000, Heartland entered into a credit agreement with two unaffiliated banks to replace an existing term credit line, as well as to increase availability under a revolving credit line. Under the new unsecured revolving credit lines, Heartland may borrow up to $50.0 million at any one time. At December 31, 2003 and December 31, 2002, $25.0 million was outstanding on the revolving credit lines. The additional credit line was established primarily to provide additional working capital to the nonbanking subsidiaries and to meet general corporate commitments.
(Dollars in thousands) | ||||||||||
2003 | 2002 | 2001 | ||||||||
Maximum month-end balance | $ | 176,835 | $ | 161,379 | $ | 162,744 | ||||
Average month-end balance | 151,037 | 140,282 | 151,139 | |||||||
Weighted average interest rate for the year | 1.54 | % | 1.96 | % | 3.96 | % | ||||
Weighted average interest rate at year-end | 1.36 | % | 1.59 | % | 1.39 | % |
(Dollars in thousands) | |||||||
2003 | 2002 | ||||||
Advances from the FHLB; weighted average maturity dates at December 31, 2003 and 2002 were August 2006 and February 2005, respectively; and weighted average interest rates were 4.29% and 5.04%, respectively | $ | 101,476 | $ | 72,481 | |||
Notes payable on leased assets with interest rates varying from 2.36% to 8.52% | 13,063 | 14,245 | |||||
Trust preferred securities | 58,000 | 38,000 | |||||
Contracts payable to previous stockholders of National Bancshares, Inc. for acquisition due over a three- or five-year schedule at 7.00% through January 2004 | 627 | 1,255 | |||||
Community Development Block Grant Loan Program with the City of Dubuque at 3.00% due April 2013 | 500 | - | |||||
Contracts payable for purchase of real estate | 292 | 318 | |||||
Total | $ | 173,958 | $ | 126,299 | |||
The Heartland banks are members of the Federal Home Loan Bank ("FHLB") of Des Moines, Chicago, or Dallas. The advances from the FHLB are collateralized by the banks’ investment in FHLB stock of $13.0 and $26.7 million at December 31, 2003 and 2002, respectively. Additional collateral is provided by the banks’ one-to-four unit residential mortgages, commercial and agricultural mortgages and securities pledged totaling $461.5 million at December 31, 2003 and $195.8 million at December 31, 2002.
(Dollars in thousands) | ||||
2004 | $ | 22,263 | ||
2005 | 23,771 | |||
2006 | 40,392 | |||
2007 | 1,291 | |||
2008 | 21,043 | |||
Thereafter | 65,198 | |||
$ | 173,958 | |||
THIRTEEN
DERIVATIVE FINANCIAL INSTRUMENTS
(Dollars in thousands) | ||||||||||
Current | Deferred | Total | ||||||||
2003: | ||||||||||
Federal | $ | 4,200 | $ | 2,467 | $ | 6,667 | ||||
State | 1,472 | (2 | ) | 1,470 | ||||||
Total | $ | 5,672 | $ | 2,465 | $ | 8,137 | ||||
2002: | ||||||||||
Federal | $ | 6,591 | $ | 967 | $ | 7,558 | ||||
State | 1,156 | 283 | 1,439 | |||||||
Total | $ | 7,747 | $ | 1,250 | $ | 8,997 | ||||
2001: | ||||||||||
Federal | $ | 5,310 | $ | (540 | ) | $ | 4,770 | |||
State | 1,037 | (93 | ) | 944 | ||||||
Total | $ | 6,347 | $ | (633 | ) | $ | 5,714 | |||
(Dollars in thousands) | |||||||
2003 | 2002 | ||||||
Deferred tax assets: | |||||||
Tax effect of net unrealized loss on derivatives reflected in stockholders’ equity | $ | 529 | $ | 653 | |||
Securities | - | 112 | |||||
Allowance for loan and lease losses | 6,742 | 5,798 | |||||
Deferred compensation | 1,601 | 1,427 | |||||
Organization and acquisitions costs | 556 | 265 | |||||
Net operating loss carryforwards | 330 | 608 | |||||
Other | 8 | 52 | |||||
Gross deferred tax assets | $ | 9,766 | $ | $8,915 | |||
Deferred tax liabilities: | |||||||
Tax effect of net unrealized gain on securities available for sale reflected in stockholders’ equity | $ | (3,391 | ) | $ | (3,175 | ) | |
Securities | (269 | ) | - | ||||
Premises, furniture and equipment | (8,413 | ) | (6,085 | ) | |||
Lease financing | (3,197 | ) | (2,627 | ) | |||
Tax bad debt reserves | (517 | ) | (549 | ) | |||
Purchase accounting | (965 | ) | (954 | ) | |||
Prepaid expenses | (354 | ) | (309 | ) | |||
Mortgage servicing rights | (1,133 | ) | (911 | ) | |||
Other | (157 | ) | (130 | ) | |||
Gross deferred tax liabilities | $ | (18,396 | ) | $ | (14,740 | ) | |
Net deferred tax liability | $ | (8,630 | ) | $ | (5,825 | ) | |
(Dollars in thousands) | ||||||||||
2003 | 2002 | 2001 | ||||||||
Computed "expected" amount | $ | 9,050 | $ | 9,752 | $ | 5,995 | ||||
Increase (decrease) resulting from: | ||||||||||
Nontaxable interest income | (1,360 | ) | (944 | ) | (610 | ) | ||||
State income taxes, net of federal tax benefit | 954 | 935 | 614 | |||||||
Goodwill and other intangibles not deductible | 64 | 78 | 270 | |||||||
Graduated income tax rates | - | - | (36 | ) | ||||||
Tax credits | (442 | ) | (792 | ) | (440 | ) | ||||
Other | (129 | ) | (32 | ) | (79 | ) | ||||
Income taxes | $ | 8,137 | $ | 8,997 | $ | 5,714 | ||||
Effective tax rates | 31.5 | % | 32.3 | % | 33.4 | % | ||||
(Dollars in thousands) | ||||
2004 | $ | 782 | ||
2005 | 687 | |||
2006 | 546 | |||
2007 | 385 | |||
2008 | 300 | |||
Thereafter | 424 | |||
$ | 3,124 | |||
Shares (000) | 2003 Weighted- Average Exercise Price | Shares (000) | 2002 Weighted-Average Exercise Price | Shares (000) | 2001 Weighted-Average Exercise Price | ||||||||||||||
Outstanding at beginning of year | 918 | $ | 9 | 1,263 | $ | 8 | 1,197 | $ | 8 | ||||||||||
Granted | 110 | 12 | 72 | 9 | 68 | 9 | |||||||||||||
Exercised | (188 | ) | 6 | (345 | ) | 6 | - | - | |||||||||||
Forfeited | (8 | ) | 9 | (72 | ) | 6 | (2 | ) | 12 | ||||||||||
Outstanding at end of year | 832 | $ | 10 | 918 | $ | 9 | 1,263 | $ | 8 | ||||||||||
Options exercisable at end of year | 499 | $ | 10 | 549 | $ | 8 | 1,175 | $ | 6 | ||||||||||
Weighted-average fair value of options granted during the year | $4.08 | $2.57 | $ | 3.00 |
2003 | 2002 | 2001 | |
Risk-free interest rate | 4.01% | 4.88% | 5.36% |
Expected option life | 10 years | 10 years | 10 years |
Expected volatility | 17.69% | 15.35% | 16.03% |
Expected dividends | 2.25% | 3.03% | 2.77% |
(Dollars in thousands) | |||||||||||||||||||
Actual | For Capital Adequacy Purposes | To Be Well Capitalized Under Prompt Corrective Action Provisions | |||||||||||||||||
Amount | Ratio | Amount | Ratio | Amount | Ratio | ||||||||||||||
As of December 31, 2003 | |||||||||||||||||||
Total Capital (to Risk-Weighted Assets) | |||||||||||||||||||
Consolidated | $ | 191,060 | 12.42 | % | $ | 123,072 | 8.0 | % | N/A | ||||||||||
Dubuque Bank and Trust Company | 60,931 | 10.79 | 45,169 | 8.0 | 56,461 | 10.0 | % | ||||||||||||
Galena State Bank | 18,758 | 12.62 | 11,888 | 8.0 | 14,861 | 10.0 | |||||||||||||
First Community Bank | 10,025 | 12.11 | 6,622 | 8.0 | 8,278 | 10.0 | |||||||||||||
Riverside Community Bank | 13,525 | 11.05 | 9,796 | 8.0 | 12,245 | 10.0 | |||||||||||||
Wisconsin Community Bank | 28,004 | 10.79 | 20,759 | 8.0 | 25,949 | 10.0 | |||||||||||||
New Mexico Bank & Trust | 32,310 | 10.94 | 23,620 | 8.0 | 29,526 | 10.0 | |||||||||||||
Arizona Bank & Trust | 13,261 | 57.89 | 1,833 | 8.0 | 2,291 | 10.0 | |||||||||||||
Tier 1 Capital (to Risk-Weighted Assets) | |||||||||||||||||||
Consolidated | $ | 158,346 | 10.29 | % | $ | 61,536 | 4.0 | % | N/A | ||||||||||
Dubuque Bank and Trust Company | 54,809 | 9.71 | 22,584 | 4.0 | 33,877 | 6.0 | % | ||||||||||||
Galena State Bank | 17,114 | 11.52 | 5,944 | 4.0 | 8,916 | 6.0 | |||||||||||||
First Community Bank | 9,043 | 10.92 | 3,311 | 4.0 | 4,967 | 6.0 | |||||||||||||
Riverside Community Bank | 12,215 | 9.98 | 4,898 | 4.0 | 7,347 | 6.0 | |||||||||||||
Wisconsin Community Bank | 25,051 | 9.65 | 10,380 | 4.0 | 15,569 | 6.0 | |||||||||||||
New Mexico Bank & Trust | 28,610 | 9.69 | 11,810 | 4.0 | 17,715 | 6.0 | |||||||||||||
Arizona Bank & Trust | 13,045 | 56.95 | 916 | 4.0 | 1,374 | 6.0 | |||||||||||||
Tier 1 Capital (to Average Assets) | |||||||||||||||||||
Consolidated | $ | 158,346 | 8.07 | % | $ | 78,464 | 4.0 | % | N/A | ||||||||||
Dubuque Bank and Trust Company | 54,809 | 7.60 | 28,845 | 4.0 | 36,056 | 5.0 | % | ||||||||||||
Galena State Bank | 17,114 | 7.92 | 8,639 | 4.0 | 10,799 | 5.0 | |||||||||||||
First Community Bank | 9,043 | 8.08 | 4,476 | 4.0 | 5,595 | 5.0 | |||||||||||||
Riverside Community Bank | 12,215 | 7.11 | 6,871 | 4.0 | 8,589 | 5.0 | |||||||||||||
Wisconsin Community Bank | 25,051 | 7.72 | 12,976 | 4.0 | 16,221 | 5.0 | |||||||||||||
New Mexico Bank & Trust | 28,610 | 7.54 | 15,170 | 4.0 | 18,962 | 5.0 | |||||||||||||
Arizona Bank & Trust | 13,045 | 47.45 | 1,100 | 4.0 | 1,375 | 5.0 |
Actual | For Capital Adequacy Purposes | To Be Well Capitalized Under Prompt Corrective Action Provisions | |||||||||||||||||
Amount | Ratio | Amount | Ratio | Amount | Ratio | ||||||||||||||
As of December 31, 2002 | |||||||||||||||||||
Total Capital (to Risk-Weighted Assets) | |||||||||||||||||||
Consolidated | $ | 158,010 | 11.86 | % | $ | 106,596 | 8.0 | % | N/A | ||||||||||
Dubuque Bank and Trust Company | 58,288 | 11.02 | 42,304 | 8.0 | 52,880 | 10.0 | % | ||||||||||||
Galena State Bank | 15,919 | 12.27 | 10,380 | 8.0 | 12,975 | 10.0 | |||||||||||||
First Community Bank | 9,278 | 12.53 | 5,922 | 8.0 | 7,403 | 10.0 | |||||||||||||
Riverside Community Bank | 11,680 | 11.58 | 8,072 | 8.0 | 10,090 | 10.0 | |||||||||||||
Wisconsin Community Bank | 24,783 | 13.28 | 14,929 | 8.0 | 18,662 | 10.0 | |||||||||||||
New Mexico Bank & Trust | 28,676 | 10.87 | 21,103 | 8.0 | 26,379 | 10.0 | |||||||||||||
Tier 1 Capital (to Risk-Weighted Assets) | |||||||||||||||||||
Consolidated | $ | 141,918 | 10.65 | % | $ | 53,298 | 4.0 | % | N/A | ||||||||||
Dubuque Bank and Trust Company | 52,450 | 9.92 | 21,152 | 4.0 | 31,728 | 6.0 | % | ||||||||||||
Galena State Bank | 14,487 | 11.17 | 5,190 | 4.0 | 7,785 | 6.0 | |||||||||||||
First Community Bank | 8,352 | 11.28 | 2,961 | 4.0 | 4,442 | 6.0 | |||||||||||||
Riverside Community Bank | 10,591 | 10.50 | 4,036 | 4.0 | 6,054 | 6.0 | |||||||||||||
Wisconsin Community Bank | 22,449 | 12.03 | 7,465 | 4.0 | 11,197 | 6.0 | |||||||||||||
New Mexico Bank & Trust | 25,378 | 9.62 | 10,551 | 4.0 | 15,827 | 6.0 | |||||||||||||
Tier 1 Capital (to Average Assets) | |||||||||||||||||||
Consolidated | $ | 141,918 | 8.24 | % | $ | 68,883 | 4.0 | % | N/A | ||||||||||
Dubuque Bank and Trust Company | 52,450 | 8.03 | 26,118 | 4.0 | 32,648 | 5.0 | % | ||||||||||||
Galena State Bank | 14,487 | 7.61 | 7,613 | 4.0 | 9,516 | 5.0 | |||||||||||||
First Community Bank | 8,352 | 7.67 | 4,355 | 4.0 | 5,443 | 5.0 | |||||||||||||
Riverside Community Bank | 10,591 | 7.01 | 6,045 | 4.0 | 7,556 | 5.0 | |||||||||||||
Wisconsin Community Bank | 22,449 | 8.41 | 10,676 | 4.0 | 13,345 | 5.0 | |||||||||||||
New Mexico Bank & Trust | 25,378 | 8.13 | 12,491 | 4.0 | 15,614 | 5.0 |
(Dollars in thousands) | |||||||||||||
December 31, 2003 | December 31, 2002 | ||||||||||||
Carrying | Fair Value | Carrying Amount | Fair Value | ||||||||||
Financial Assets: | |||||||||||||
Cash and cash equivalents | $ | 71,869 | $ | 71,869 | $ | 100,992 | $ | 100,992 | |||||
Time deposits in other financial institutions | 1,132 | 1,132 | 1,677 | 1,677 | |||||||||
Trading securities | 1,073 | 1,073 | 915 | 915 | |||||||||
Securities available for sale | 450,680 | 450,680 | 389,900 | 389,900 | |||||||||
Loans and leases, net of unearned | 1,348,227 | 1,367,879 | 1,175,236 | 1,225,412 | |||||||||
Financial Liabilities: | |||||||||||||
Demand deposits | $ | 246,282 | $ | 246,282 | $ | 197,516 | $ | 197,516 | |||||
Savings deposits | 569,286 | 569,286 | 511,979 | 511,979 | |||||||||
Time deposits | 676,920 | 687,449 | 628,490 | 663,250 | |||||||||
Short-term borrowings | 176,835 | 176,835 | 161,379 | 161,379 | |||||||||
Other borrowings | 173,958 | 215,156 | 126,299 | 165,133 |
Cash and Cash Equivalents and Time Deposits in Other Financial Institutions-The carrying amount is a reasonable estimate of fair value.
(Dollars in thousands) | |||||||
Balance Sheets | |||||||
December 31, | |||||||
2003 | 2002 | ||||||
Assets: | |||||||
Cash and interest bearing deposits | $ | 8,621 | $ | 1,985 | |||
Trading securities | 1,073 | 915 | |||||
Securities available for sale | 4,162 | 3,003 | |||||
Investment in subsidiaries | 196,110 | 166,061 | |||||
Other assets | 9,098 | 5,480 | |||||
Due from subsidiaries | 13,000 | 17,250 | |||||
Total | $ | 232,064 | $ | 194,694 | |||
Liabilities and stockholders' equity: | |||||||
Liabilities: | |||||||
Short-term borrowings | $ | 25,000 | $ | 25,000 | |||
Other borrowings | 60,930 | 40,438 | |||||
Accrued expenses and other liabilities | 5,211 | 5,215 | |||||
Total liabilities | 91,141 | 70,653 | |||||
Stockholders equity: | |||||||
Common stock | 15,262 | 9,906 | |||||
Capital surplus | 20,065 | 16,725 | |||||
Retained earnings | 102,584 | 94,048 | |||||
Accumulated other comprehensive income | 4,794 | 4,230 | |||||
Treasury stock | (1,782 | ) | (868 | ) | |||
Total stockholders' equity | 140,923 | 124,041 | |||||
Total | $ | 232,064 | $ | 194,694 | |||
Income Statements for the Years Ended December 31, | 2003 | 2002 | 2001 | |||||||
Operating revenues: | ||||||||||
Dividends from subsidiaries | $ | 13,310 | $ | 9,890 | $ | 15,452 | ||||
Securities gains (losses), net | 99 | 95 | (246 | ) | ||||||
Gain (loss) on trading account securities | 453 | (598 | ) | (192 | ) | |||||
Impairment loss on equity securities | (317 | ) | (267 | ) | (773 | ) | ||||
Other | 853 | 1,016 | 1,047 | |||||||
Total operating revenues | 14,398 | 10,136 | 15,288 | |||||||
Operating expenses: | ||||||||||
Interest | 4,998 | 4,592 | 4,807 | |||||||
Salaries and benefits | 617 | 1,973 | 1,039 | |||||||
Outside services | 427 | 572 | 456 | |||||||
Other operating expenses | 544 | 367 | 262 | |||||||
Minority interest expense | 30 | 403 | 207 | |||||||
Total operating expenses | 6,616 | 7,907 | 6,771 | |||||||
Equity in undistributed earnings | 8,551 | 14,509 | 659 | |||||||
Income before income tax benefit | 16,333 | 16,738 | 9,176 | |||||||
Income tax benefit | 1,386 | 2,129 | 2,238 | |||||||
Net Income | $ | 17,719 | $ | 18,867 | $ | 11,414 | ||||
Statements of Cash Flows for the Years Ended December 31, | 2003 | 2002 | 2001 | |||||||
Cash flows from operating activities: | ||||||||||
Net income | $ | 17,719 | $ | 18,867 | $ | 11,414 | ||||
Adjustments to reconcile net income to net cash | ||||||||||
provided by operating activities | ||||||||||
Undistributed earnings of subsidiaries | (8,551 | ) | (14,509 | ) | (659 | ) | ||||
(Increase) decrease in due from subsidiaries | 4,250 | (1,750 | ) | 1,250 | ||||||
Increase (decrease) in other liabilities | (4 | ) | 3,310 | 601 | ||||||
(Increase) decrease in other assets | (3,618 | ) | (1,105 | ) | (1,531 | ) | ||||
Increase in trading account securities | (158 | ) | 613 | (657 | ) | |||||
Noncash dividend from subsidiary | - | - | (5,149 | ) | ||||||
Other | 825 | (33 | ) | 1,282 | ||||||
Net cash provided by operating activities | 10,463 | 5,393 | 6,551 | |||||||
Cash flows from investing activities: | ||||||||||
Capital injections for subsidiaries | (13,119 | ) | (600 | ) | (1,248 | ) | ||||
Purchases of available for sale securities | (2,537 | ) | (1,774 | ) | (1,377 | ) | ||||
Proceeds from sales of available for sale securities | 2,093 | 1,766 | 1,917 | |||||||
Net cash used by investing activities | (13,563 | ) | (608 | ) | (708 | ) | ||||
Cash flows from financing activities: | ||||||||||
Net decrease in short-term borrowings | - | (4,225 | ) | (10,075 | ) | |||||
Proceeds from other borrowings | 21,119 | 5,155 | 8,248 | |||||||
Payments on other borrowings | (627 | ) | (855 | ) | (1,438 | ) | ||||
Cash dividends paid | (4,096 | ) | (3,926 | ) | (3,560 | ) | ||||
Purchase of treasury stock | (7,999 | ) | (1,348 | ) | (1,026 | ) | ||||
Proceeds from sale of common stock | 1,339 | 2,076 | 1,689 | |||||||
Net cash provided (used) by financing activities | 9,736 | (3,123 | ) | (6,162 | ) | |||||
Net increase (decrease) in cash and cash equivalents | 6,636 | 1,662 | (319 | ) | ||||||
Cash and cash equivalents at beginning of year | 1,985 | 323 | 642 | |||||||
Cash and cash equivalents at end of year | $ | 8,621 | $ | 1,985 | $ | 323 | ||||
SUMMARY OF QUARTERLY FINANCIAL INFORMATION (UNAUDITED) | |||||||||||||
(Dollars in thousands, except per share data) | |||||||||||||
2003 | Dec. 31 | Sept. 30 | June 30 | March 31 | |||||||||
Net interest income | $ | 15,415 | $ | 14,809 | $ | 15,207 | $ | 15,759 | |||||
Provision for loan and lease losses | 1,007 | 950 | 922 | 1,304 | |||||||||
Net interest income after provision for loan and lease losses | 14,408 | 13,859 | 14,285 | 14,455 | |||||||||
Noninterest income | 8,453 | 11,202 | 8,411 | 8,475 | |||||||||
Noninterest expense | 17,654 | 17,406 | 16,575 | 16,057 | |||||||||
Income taxes | 1,483 | 2,391 | 1,914 | 2,349 | |||||||||
Income from continuing operations | 3,724 | 5,264 | 4,207 | 4,524 | |||||||||
Gain from operations of discontinued operations | - | - | - | - | |||||||||
Income tax expense | - | - | - | - | |||||||||
Gain on discontinued operation | - | - | - | - | |||||||||
Net income | $ | 3,724 | $ | 5,264 | $ | 4,207 | $ | 4,524 | |||||
Per share: | |||||||||||||
Earnings per share-basic | $ | 0.25 | $ | 0.35 | $ | 0.28 | $ | 0.30 | |||||
Earnings per share-diluted | 0.24 | 0.34 | 0.28 | 0.30 | |||||||||
Earnings per common share from continuing operations - basic1 | 0.25 | 0.35 | 0.28 | 0.30 | |||||||||
Earnings per common share from continuing operations - diluted1 | 0.24 | 0.34 | 0.28 | 0.30 | |||||||||
Adjusted earnings per common - basic2 | 0.25 | 0.35 | 0.28 | 0.30 | |||||||||
Adjusted earnings per common - diluted2 | 0.24 | 0.34 | 0.28 | 0.30 | |||||||||
Adjusted earnings per common share form continuing operations - basic3 | 0.25 | 0.35 | 0.28 | 0.30 | |||||||||
Adjusted earnings per common share from continuing operations - diluted3 | 0.24 | 0.34 | 0.28 | 0.30 | |||||||||
Cash dividends declared on common stock | 0.07 | 0.07 | 0.07 | 0.07 | |||||||||
Book value per common share | 9.29 | 9.07 | 8.99 | 8.57 | |||||||||
Market price - high | 20.63 | 21.26 | 21.93 | 15.33 | |||||||||
Market price - low | 18.53 | 18.57 | 15.27 | 11.50 | |||||||||
Weighted average common shares outstanding | 15,124,871 | 15,212,826 | 14,811,483 | 14,836,913 | |||||||||
Weighted average diluted common shares outstanding | 15,386,486 | 15,479,334 | 15,088,764 | 15,011,370 | |||||||||
Ratios: | |||||||||||||
Return on average assets | 0.74 | % | 1.10 | % | 0.92 | % | 1.04 | % | |||||
Return on average equity | 10.74 | 15.52 | 13.15 | 14.56 | |||||||||
Net interest margin | 3.6 | 3.62 | 3.82 | 4.16 | |||||||||
Efficiency ratio | 72.64 | 66.85 | 69.98 | 66.72 | |||||||||
2002 | Dec. 31 |
|
| Sept. 30 |
|
| June 30 |
|
| March 31 | |||
Net interest income | $ | 15,517 | $ | 14,906 | $ | 13,989 | $ | 13,268 | |||||
Provision for loan and lease losses | 1,775 | 167 | 630 | 981 | |||||||||
Net interest income after provision for loan and lease losses | 13,742 | 14,739 | 13,359 | 12,287 | |||||||||
Noninterest income | 8,962 | 6,911 | 6,786 | 7,986 | |||||||||
Noninterest expense | 16,424 | 14,922 | 14,667 | 14,646 | |||||||||
Income taxes | 2,070 | 2,087 | 1,560 | 1,806 | |||||||||
Income from continuing operations | 4,210 | 4,641 | 3,918 | 3,821 | |||||||||
Gain from operations of discontinued operations (including gain on disposal of $2,602) | 3,124 | 224 | 202 | 201 | |||||||||
Income tax expense | 1,228 | 88 | 79 | 79 | |||||||||
Gain on discontinued operation | 1,896 | 136 | 123 | 122 | |||||||||
Net income | $ | 6,106 | $ | 4,777 | $ | 4,041 | $ | 3,943 | |||||
Per share: | |||||||||||||
Earnings per share-basic | $ | 0.41 | $ | 0.32 | $ | 0.27 | $ | 0.27 | |||||
Earnings per share-diluted | 0.41 | 0.32 | 0.27 | 0.27 | |||||||||
Earnings per common share from continuing operations - basic1 | 0.29 | 0.32 | 0.27 | 0.26 | |||||||||
Earnings per common share from continuing operations - diluted1 | 0.29 | 0.31 | 0.26 | 0.26 | |||||||||
Adjusted earnings per common - basic2 | 0.41 | 0.32 | 0.27 | 0.27 | |||||||||
Adjusted earnings per common - diluted2 | 0.41 | 0.32 | 0.27 | 0.27 | |||||||||
Adjusted earnings per common share form continuing operations - basic3 | 0.29 | 0.32 | 0.27 | 0.26 | |||||||||
Adjusted earnings per common share from continuing operations - diluted3 | 0.29 | 0.31 | 0.26 | 0.26 | |||||||||
Cash dividends declared on common stock | 0.07 | 0.07 | 0.07 | 0.07 | |||||||||
Book value per common share | 8.40 | 8.13 | 7.79 | 7.49 | |||||||||
Market price - high | 11.80 | 10.20 | 10.00 | 9.33 | |||||||||
Market price - low | 10.00 | 9.60 | 9.07 | 8.53 | |||||||||
Weighted average common shares outstanding | 14,716,752 | 14,728,722 | 14,713,383 | 14,593,698 | |||||||||
Weighted average diluted common shares outstanding | 14,835,401 | 14,842,325 | 14,809,263 | 14,690,649 | |||||||||
Ratios: | |||||||||||||
Return on average assets | 1.39 | % | 1.13 | % | 0.96 | % | 0.95 | % | |||||
Return on average equity | 20.06 | 16.2 | 13.98 | 14.19 | |||||||||
Net interest margin | 4.06 | 4.12 | 4.02 | 3.86 | |||||||||
Efficiency ratio | 66.78 | 69.08 | 70.43 | 69.04 | |||||||||
1Excludes the discontinued operations for the sale of our Eau Claire branch in the fourth quarter of 2002 and the related gain on sale. | |||||||||||||
2Excludes goodwill amortization discontinued with the adoption of FAS 142 on January 1, and the adoption of FAS 147 on September 30, 2002. | |||||||||||||
3Excludes goodwill amortization discontinued with the adoption of FAS 142 on January 2, 2002, and the adoption of FAS 147 on September 30, 2002, and the discontinued operations for the sale of our Eau Claire branch in the fourth quarter of 2002 and the related gain on sale. |
ITEM 9.
Name | Age | Position with Heartland and Subsidiaries and Principal Occupation |
Lynn B. Fuller | 54 | Chairman, President and Chief Executive Officer of Heartland; Vice Chairman of Dubuque Bank and Trust Company; Director of Galena State Bank, First Community Bank, Riverside Community Bank, Wisconsin Community Bank, New Mexico Bank & Trust, Arizona Bank & Trust; Director and President Citizens Finance Co.; Chairman of ULTEA, Inc.; and Chairman of HTLF Capital Corp. |
John K. Schmidt | 44 | Director, Executive Vice President and Chief Financial Officer of Heartland; Director, President and Chief Executive Officer of Dubuque Bank and Trust Company; Director and Treasurer of Citizens Finance Co.; Treasurer of ULTEA, Inc. |
Kenneth J. Erickson | 52 | Executive Vice President, Chief Credit Officer, of Heartland; Executive Vice President, Lending, of Dubuque Bank and Trust Company; Senior Vice President of Citizens Finance Co.; Director and Senior Vice President of ULTEA, Inc. |
Edward H. Everts | 52 | Senior Vice President, Operations and Retail Banking, of Heartland; Senior Vice President, Operations and Retail Banking, of Dubuque Bank and Trust Company |
Douglas J. Horstmann | 50 | Senior Vice President, Lending, of Heartland; Executive Vice President, Head of Lending, of Dubuque Bank and Trust Company |
Paul J. Peckosh | 58 | Senior Vice President, Trust, of Heartland; Executive Vice President, Trust, of Dubuque Bank and Trust Company |
(b) the weighted-average exercise price of such outstanding options, warrants and rights;
(c) other than securities to be issued upon the exercise of such outstanding options, warrants and rights, the number
of securities remaining available for future issuance under the plans.
EQUITY COMPENSATION PLAN INFORMATION | ||||||||||
Number of securities to be issued upon exercise of outstanding options | Weighted-average exercise price of outstanding options | Number of securities available for future issuance | ||||||||
Equity compensation plans approved by security holders | 831,750 | $ 9.83 | 1,293,902 | |||||||
Equity compensation plans not approved by security holders | - | - | - | |||||||
Total | 831,750 | $ | 9.83 | 1,297,902 | 1 | |||||
1Includes 900,000 shares available for use under the Heartland Stock Option Plan and 397,902 shares available for use under the Heartland Employee Stock Purchase Plan. |
HEARTLAND FINANCIAL USA, INC. | ||
| | |
Date: March 12, 2004 | By: | /s/ Lynn B. Fuller |
Principal Executive Officer |
| | |
Date: March 12, 2004 | By: | /s/ John K. Schmidt |
Executive Vice President and Principal Financial and |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated onMarch 12, 2004.
/s/ Lynn B. Fuller | /s/ John K. Schmidt | ||
Lynn B. Fuller President, CEO, Chairman and Director | John K. Schmidt Executive Vice President, CFO and Director |
/s/ James F. Conlan | /s/ Mark C. Falb | ||
James F. Conlan Director | Mark C. Falb Director |
/s/ Thomas L. Flynn | /s/ John W. Cox, Jr. | ||
Thomas L. Flynn Director | John W. Cox, Jr. Director |
/s/ Ronald A. Larson | |||
Ronald A. Larson Director |