FOR IMMEDIATE RELEASE
MONDAY, APRIL 25, 2005
HEARTLAND FINANCIAL USA, INC. REPORTS FIRST QUARTER EARNINGS
Dubuque, Iowa, April 25, 2005—Heartland Financial USA, Inc. (Nasdaq NMS: HTLF) today reported results for the first quarter of 2005.
First Quarter 2005 Highlights
| § | Income before taxes, exclusive of securities gains, improved by 34% over first quarter 2004 |
| § | Average earning assets increased 31% over first quarter 2004 |
| § | Net interest margin was consistent with the fourth quarter 2004 |
| | | | | | | | Quarter Ended Mar. 31, | |
| | | | | | | | | | | | 2005 | | | | 2004 | |
| Net income (in millions) | | | | | | | | | | $ | 5.3 | | | $ | 5.1 | |
| Diluted earnings per share | | | | | | | | | | | .32 | | | | .33 | |
| | | | | | | | | | | | | | | | | |
| Return on average assets | | | | | | | | | | | .81 | % | | | 1.02 | % |
| Return on average equity | | | | | | | | | | | 12.06 | | | | 14.26 | |
| Net interest margin | | | | | | | | | | | 3.97 | | | | 3.94 | |
“In light of what is typically a slower quarter from a seasonal perspective, we are pleased with our first quarter results.We were able to maintain our net interest margin near the levels of the fourth quarter of 2004 even as earning assets grew more slowly over the same time period.”-- Lynn B. Fuller, chairman, president and chief executive officer, Heartland Financial USA
Dubuque, Iowa, April 25, 2005—Heartland Financial USA, Inc. (Nasdaq NMS: HTLF) today reported improved earnings for the first quarter of 2005. Net income for the first quarter ended March 31, 2005, was $5.3 million, or $0.32 per diluted share, compared to net income of $5.1 million, or $0.33 per diluted share, during the first quarter of 2004. Return on average equity was 12.06 percent and return on average assets was 0.81 percent for the first quarter of 2005, compared to 14.26 percent and 1.02 percent, respectively, for the same quarter in 2004. The first quarter 2004 earnings included securities gains of $1.5 million. Exclusive of securities gains, first-quarter 2005 pre-tax income increased $1.9 million or 34 percent over the first quarter 2004 pre-tax income.
A major contributing factor to the improved earnings for the first quarter of 2005 compared to the first quarter of 2004 was the acquisition of Rocky Mountain Bank. Since this acquisition was completed on June 1, 2004, their earnings were not included in the first quarter 2004 results. Rocky Mountain Bank’s contribution to net income during the first quarter of 2005 was $457,000.
“In light of what is typically a slower quarter from a seasonal perspective, we are pleased with our first quarter results,” said Lynn B. Fuller, chairman, president and chief executive officer. “We were able to maintain our net interest margin near the levels of the fourth quarter of 2004 even as earning assets grew more slowly over the same time period. The more recent acquisition of Rocky Mountain Bank will continue to contribute to improved earnings as full integration into the Heartland community banking model proceeds during the second and third quarters of this year. Conversion to our mainframe software was completed this month, providing Rocky Mountain Bank the opportunity to offer enhanced products and services to its customer base. Costs associated with the full integration have been somewhat of a drag on earnings and will begin to diminish as the year proceeds.”
Net interest margin, expressed as a percentage of average earning assets, was 3.97 percent during the first quarter of 2005 compared to 3.94 percent for the first quarter of 2004 and 3.99 percent for the fourth quarter of 2004. Net interest income totaled $22.0 million during the first quarter of 2005, an increase of $5.2 million or 31 percent from the $16.8 million recorded during the first quarter of 2004. Contributing to this increase was the 31 percent growth in average earning assets, of which 13 percent resulted from internal growth and 18 percent from the acquisition of Rocky Mountain Bank. Additionally, the early redemption of all $25.0 million of our 9.60% trust preferred securities on September 30, 2004, contributed to the improvement in net interest margin. Rocky Mountain Bank’s net interest income during the first quarter of 2005 was $3.5 million. Interest income in the first quarter of 2004 totaled $35.0 million compared to $26.4 million in the first quarter of 2004. Interest expense for the first quarter of 2005 was $13.0 million compared to $9.6 million in the first quarter of 2004. Rocky Mountain Bank had interest income of $4.9 million and interest expense of $1.4 million during the first quarter of 2005. Our net interest income simulations suggest that the Company’s balance sheet is well protected from near term exposure to both rising and falling rate scenarios.
Noninterest income totaled $9.7 million during the first quarters of both 2005 and 2004. During the first quarter of 2005, securities gains totaled $53,000 compared to $1.5 million recorded during the first quarter of 2004. Exclusive of these securities gains, noninterest income increased $1.5 million or 19 percent during the first quarter of 2005 compared to the same quarter in 2004. The two categories contributing to this increase were service charges and fees and trust fees. Service charges on deposit accounts increased $562,000 or 26 percent during the first quarter of 2005, of which $292,000 was due to the addition of Rocky Mountain Bank to the Heartland family of bank subsidiaries. Trust fees improved during the first quarter of 2005 by $575,000 or 56 percent, primarily as a result of the $379,000 additional fees generated by the accounts acquired from the Wealth Management Group of Colonial Trust Company on August 31, 2004.
For the first quarter of 2005, noninterest expense increased $4.7 million or 26 percent, reflecting increased costs related to the acquisitions of Rocky Mountain Bank and the Wealth Management Group of Colonial Trust Company. Additionally, Arizona Bank & Trust opened a second branch in May 2004. Total full-time equivalent employees increased to 859 at quarter-end 2005 from 677 at quarter-end 2004. Of that increase, 123 are full-time equivalent employees at Rocky Mountain Bank and 13 are full-time equivalent employees of the acquired trust operations in Arizona. Noninterest expense at Rocky Mountain Bank totaled $3.3 million during the first quarter of 2005.
Heartland’s effective tax rate was 30.80 percent for the first quarter of 2005 compared to 29.56 percent during the first quarter of 2004. The lower effective rate during the first quarter of 2004 was the result of anticipated federal historic rehabilitation tax credits and low-income housing tax credits totaling $840,000. During 2005, these credits are anticipated to total $436,000. Tax-exempt interest income went from 15.71 percent of pre-tax income during the first quarter of 2004 to 18.94 percent during the same quarter of 2005. The tax-equivalent adjustment for this tax-exempt interest income was $776,000 during the first quarter of 2005 compared to $608,000 during the same quarter in 2004.
At March 31, 2005, total assets remained steady at $2.63 billion when compared to total assets at year-end 2004. Total loans and leases were $1.78 billion at March 31, 2005, an increase of $10.3 million since year-end 2004. Loan demand tapered off during the first quarter of 2005, but management is optimistic that it will pick up during the remaining quarters of 2005. The banks experiencing loan growth during the first quarter were Dubuque Bank and Trust Company, Galena State Bank and Trust Company and Arizona Bank & Trust. Over half the growth at Dubuque Bank and Trust Company was in the agricultural and agricultural real estate portfolio as farmers geared up for the planting season. The growth at Galena State Bank and Trust Company and Arizona Bank & Trust occurred primarily in the commercial and commercial real estate portfolio. Additionally, Citizens Finance Co.’s recent opening of an office in Crystal Lake, Illinois, contributed to the growth during the first quarter. Loans held for sale also increased $9.5 million or 30 percent during the first quarter of 2005. This increase was primarily the result of additional variable-rate commercial and commercial real estate loans at Wisconsin Community Bank structured to qualify under the United States Small Business Administration’s Certified Development Company (504) Loan Program.
Total deposits at March 31, 2005, were $2.0 billion, an increase of $6.7 million since year-end 2004. The only banks to experience growth in all deposit categories were New Mexico Bank & Trust and First Community Bank. Demand deposits experienced a decline, in large part, due to normal seasonal fluctuations that many banks experience during the first quarter of the year. The Company’s two newerde novo banks, New Mexico Bank & Trust and Arizona Bank & Trust, were able to grow demand deposits during this typically slow quarter. The time deposits category did experience an increase of $15.2 million during the quarter. Except for Wisconsin Community Bank, all of the Company’s subsidiary banks were able to grow deposits in this category. Of particular note is that $15.8 million of brokered deposits that matured during the quarter were replaced with time deposits from the local markets.
The allowance for loan and lease losses at March 31, 2005, was 1.46 percent of loans and 195 percent of nonperforming loans, compared to 1.41 percent of loans and 252 percent of nonperforming loans at December 31, 2004. Nonperforming loans increased to $13.4 million or 0.75 percent of total loans and leases compared to $9.9 million or 0.56 percent of total loans and leases at December 31, 2004. This increase was due primarily to a few large loans, one at Dubuque Bank and Trust Company, two at New Mexico Bank & Trust and one at Rocky Mountain Bank. Because of the net realizable value of collateral, guarantees and other factors, anticipated losses on these loans are not expected to be significant and have been specifically provided for in the allowance for loan and lease losses. Resolution is expected by the end of the second quarter of this year on two of the eight largest nonperforming loans, which comprised 20 percent of the total nonperforming loans outstanding at March 31, 2005.
“Looking ahead, we are beginning to see signs of a pick-up in loan demand and continue to focus efforts on the development of our branch network to grow both sides of the balance sheet. Plans are currently in place for the addition of nine new locations, with seven of those in our Western markets. Rocky Mountain Bank is expected to contribute increasingly to earnings as we approach completion of full integration. We will also continue to pursue growth opportunities where we identify the talent and strategic fit,”continued Fuller.
About Heartland Financial USA:
Heartland Financial USA, Inc. is a financial services company providing a complete line of banking, mortgage, investment, insurance and trust services to individuals and businesses in 42 communities in eight states -- Iowa, Illinois, Wisconsin, New Mexico, Arizona, Colorado, Montana and Massachusetts. Heartland Financial USA, Inc. is listed on Nasdaq. Its trading symbol is HTLF.
Additional information about Heartland Financial USA, Inc. is available through our websiteatwww. htlf.com.
This release may contain, and future oral and written statements of the Company and its management may contain, forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to the financial condition, results of operations, plans, objectives, future performance and business of the Company. Forward-looking statements, which may be based upon beliefs, expectations and assumptions of the Company’s management and on information currently available to management, are generally identifiable by the use of words such as believe, expect, anticipate, plan, intend, estimate, may, will, would, could, should or similar expressions. Additionally, all statements in this release, including forward-looking statements, speak only as of the date they are made, and the Company undertakes no obligation to update any statement in light of new information or future events.
A number of factors, many of which are beyond the ability of the Company to control or predict, could cause actual results to differ materially from those in its forward-looking statements. These factors include, among others, the following: (i) the strength of the local and national economy; (ii) the economic impact of past and any future terrorist threats and attacks and any acts of war or threats thereof, (iii) changes in state and federal laws, regulations and governmental policies concerning the Company’s general business; (iv) changes in interest rates and prepayment rates of the Company’s assets; (v) increased competition in the financial services sector and the inability to attract new customers; (vi) changes in technology and the ability to develop and maintain secure and reliable electronic systems; (vii) the loss of key executives or employees; (viii) changes in consumer spending; (ix) unexpected results of acquisitions; (x) unexpected outcomes of existing or new litigation involving the Company; and (xi) changes in accounting policies and practices. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Additional information concerning the Company and its business, including other factors that could materially affect the Company’s financial results, is included in the Company’s filings with the Securities and Exchange Commission.
