SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For quarterly period ended March 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For transition period __________ to __________
Commission File Number: 0-24724
HEARTLAND FINANCIAL USA, INC.
(Exact name of Registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
42-1405748
(I.R.S. Employer identification number)
1398 Central Avenue, Dubuque, Iowa 52001
(Address of principal executive offices Zip Code)
319) 589-2100
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the Registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the
Registrant's common stock as of the latest practicable date: As
of May 10, 1996, the Registrant had outstanding 4,719,152 shares
of common stock, $1.00 par value per share.
HEARTLAND FINANCIAL USA, INC.
Form 10-Q Quarterly Report
Table of Contents
Part I
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations
Part II
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of
Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Form 10-Q Signature Page
HEARTLAND FINANCIAL USA, INC. CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except per share data)
3/31/96 12/31/95
------- --------
ASSETS
Cash and due from banks $ 28,428 $ 31,305
Federal funds sold 9,050 23,500
--------- ---------
Cash and cash equivalents 37,478 54,805
Time deposits in other
financial institutions 148 145
Securities:
Available for sale-at market
(cost of $156,115 for 1996
and $141,680 for 1995 156,948 145,857
Held to maturity-at cost (approximate
market value of $2,432 for 1996 and
$2,503 for 1995) 2,328 2,369
Loans and leases:
Held for sale 624 790
Held to maturity 455,235 454,115
Allowance for possible loan and
lease losses (5,892) (5,580)
--------- ---------
Loans and leases, net 449,967 449,325
Premises, furniture and equipment, net 12,584 12,519
Other real estate, net 599 640
Other assets 15,386 11,653
--------- ---------
TOTAL ASSETS $675,438 $677,313
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits:
Demand $ 42,117 $ 49,283
Savings 209,352 210,853
Time 276,706 274,451
--------- ---------
Total deposits 528,175 534,587
Short-term borrowings 33,401 23,241
Accrued expenses and other liabilities 8,732 9,579
Other borrowings 40,400 45,400
--------- ---------
TOTAL LIABILITIES 610,708 612,807
--------- ---------
STOCKHOLDERS' EQUITY:
Common stock (par value $1 per share;
authorized, 7,000,000 shares;
issued, 4,853,626 shares at
March 31, 1996 and December 31, 1995) 4,854 4,854
Capital surplus 10,696 10,663
Retained earnings 50,976 49,171
Net unrealized gain (loss) on
securities available for sale 522 2,620
Treasury stock at cost
(134,474 and 16,652 shares
at March 31, 1996, and
December 31, 1995, respectively) (2,318) (2,802)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 64,730 64,506
--------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $675,438 $677,313
========= =========
See accompanying notes to consolidated financial statements.
HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(In thousands, except per share data)
Three Months Ended
3/31/96 3/31/95
------- -------
INTEREST INCOME:
Interest and fees on loans and leases $ 9,886 $ 9,001
Interest on investment securities:
Taxable 2,088 2,024
Nontaxable 355 477
Interest on trading account securities - 10
Interest on federal funds sold 213 31
Interest on interest-bearing deposits
in other financial institutions 75 10
-------- --------
TOTAL INTEREST INCOME 12,617 11,553
-------- --------
INTEREST EXPENSE:
Interest on deposits 5,717 5,081
Interest on short-term borrowings 416 346
Interest on other borrowings 674 354
-------- --------
TOTAL INTEREST EXPENSE 6,807 5,781
-------- --------
NET INTEREST INCOME 5,810 5,772
Provision for possible loan
and lease losses 747 218
-------- --------
NET INTEREST INCOME AFTER
PROVISION FOR POSSIBLE LOAN
AND LEASE LOSSES 5,063 5,554
-------- --------
OTHER INCOME:
Service charges 566 489
Trust fees 430 385
Brokerage commissions 35 37
Insurance commissions 154 159
Investment securities gains, net 1,322 76
Gain on sale of loans 28 5
Other 111 75
-------- --------
TOTAL OTHER INCOME 2,646 1,226
-------- --------
OTHER EXPENSES:
Salaries and employee benefits 2,794 2,534
Occupancy 283 272
Equipment 317 346
Outside services 255 251
FDIC assessment 50 287
Advertising 350 174
Other operating expense 696 629
-------- --------
TOTAL OTHER EXPENSES 4,745 4,493
-------- --------
INCOME BEFORE INCOME TAXES 2,964 2,287
Income taxes 686 597
-------- --------
NET INCOME $ 2,278 $ 1,690
======== ========
NET INCOME AVAILABLE FOR COMMON STOCK $ 2,278 $ 1,690
======== ========
NET INCOME PER COMMON SHARE $ 0.48 $ 0.35
DIVIDENDS DECLARED PER COMMON SHARE $ .10 $ .08
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 4,708,447 4,840,358
See accompanying notes to consolidated financial statements.
HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in thousands)
Three Months Ended
3/31/96 3/31/95
------- -------
NET CASH PROVIDED BY
OPERATING ACTIVITIES $ 3,131 $ 5,204
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of time deposits (3) -
Proceeds from the sale of investment
securities available for sale 4,589 5,802
Proceeds from the sale of mortgage-
backed securities available for sale - 576
Proceeds from the maturity of and
principal paydowns on investment
securities held to maturity 40 2,619
Proceeds from the maturity of and
principal paydowns on investment
securities available for sale 6,645 8,730
Proceeds from the maturity of and
principal paydowns on mortgage-
backed securities held to maturity - 171
Proceeds from the maturity of and
principal paydowns on mortgage-
backed securities available for sale 2 075 1,530
Purchase of investment securities
available for sale (9,962) (14,559)
Purchase of mortgage-backed
securities available for sale (16,357) (2,892)
Purchase of interest in low-income
housing project (2,865) (250)
Net increase in loans and leases (2,958) (15,604)
Capital expenditures (578) (183)
Proceeds on sale of fixed assets - 23
Proceeds on sale of repossessed assets 156 -
--------- ---------
NET CASH USED BY INVESTING ACTIVITIES (19,218) (14,037)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in demand deposits
and savings accounts (8,667) (21,717)
Net increase in time deposit accounts 2,255 17,178
Net increase in other borrowings - 11,338
Net increase (decrease) in
short-term borrowings 5,160 (8,174)
Purchase of treasury stock (167) (294)
Proceeds from sale of treasury stock 651 233
Dividends (472) (1,285)
--------- ---------
NET CASH USED BY FINANCING ACTIVITIES (1,240) (2,721)
--------- ---------
Net decrease in cash and cash
equivalents (17,327) (11,554)
Cash and cash equivalents at
beginning of year 54,805 35,656
--------- ---------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 37,478 $ 24,102
========= =========
Supplemental disclosures:
Cash paid for income/franchise taxes $ 197 $ 80
Cash paid for interest $ 6,627 $ 5,582
Investment securities transferred
from available for sale to public
charitable trust $ 220 $ -
Other borrowings transferred to
short-term borrowings $ 5,000 $ -
See accompanying notes to consolidated financial statements.
HEARTLAND FINANCIAL USA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
NOTE 1: BASIS OF PRESENTATION
The interim unaudited consolidated financial statements contained
herein should be read in conjunction with the audited
consolidated financial statements and accompanying notes to the
financial statements for the fiscal year ended December 31, 1995,
included in the Company's Form 10-K filed with the Securities and
Exchange Commission on March 29, 1996. Accordingly, footnote
disclosure which would substantially duplicate the disclosure
contained in the audited consolidated financial statements has
been omitted.
The financial information of Heartland Financial USA, Inc. (the
"Company") included herein is prepared pursuant to the rules and
regulations for reporting on Form 10-Q. Such information
reflects all adjustments (consisting of normal recurring
adjustments) which are, in the opinion of management, necessary
for a fair presentation of results for the interim periods. The
results of the interim period ended March 31, 1996, are not
necessarily indicative of the results expected for the year
ending December 31, 1996.
On March 4, 1996, the Company's Board of Directors declared a two-
for-one stock split in the form of a 100% stock dividend to
shareholders of record on March 14, 1996, payable on March 29,
1996. Accordingly, all share and per share data have been
restated to reflect the stock split.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company's results of operations depend primarily on net
interest income, which is the difference between interest income
from interest earning assets and interest expense on interest
bearing liabilities. Noninterest income, which includes service
charges, fees and gains on loans and trust income, also affects
the Company's results of operations. The Company's principal
operating expenses, aside from interest expense, consist of
compensation and employee benefits, occupancy and equipment costs
and provision for loan and lease losses.
Net income totaled $2,278,000 or $.48 per common share for the
quarter ended March 31, 1996, an increase of $588,000 (34.79%)
from the first quarter of 1995 total of $1,690,000 or $.35 per
common share. Much of this increase in net income resulted from
a gain of $1,174,000 on the sale of stock held in the investment
portfolio at First Community Bank, FSB ("FCB"), one of the
Company's bank subsidiaries. This gain impacted per common share
earnings by $.16. Also recorded during the first quarter of 1996
was the writedown of a $469,000 loan at FCB.
NET INTEREST INCOME
Net interest income was $5,810,000 and $5,772,000 for the three
month periods ended March 31, 1996 and 1995, respectively, an
increase of .66%. Net interest income to average earning assets
on a fully tax equivalent basis was 3.86% for the three month
period ended March 31, 1996, as compared to 4.28% for the three
month period ended March 31, 1995. This reduction was primarily
attributable to higher funding costs and lower reinvestment rates
on investment portfolio additions.
NONINTEREST INCOME
Noninterest income was $2,646,000 for the three months ended
March 31, 1996, and $1,226,000 for the same period in 1995, an
increase of $1,420,000 (115.82%). The largest component of this
increase was the $1,246,000 change in investment security gains
from $76,000 during the first quarter of 1995 to $1,322,000
during the same period in 1996. Of these gains, $1,174,000
resulted from the sale of Federal Home Loan Mortgage Corporation
common stock held in the investment portfolio at FCB. As
interest rates declined during 1994, this stock experienced
tremendous appreciation and, in anticipation of rising interest
rates in 1996, management decided to sell the stock to reduce the
interest rate risk within their investment portfolio.
Service charges totaled $566,000 and $489,000 for the three month
periods ended March 31, 1996 and March 31, 1995, respectively, an
increase of $77,000 (15.75%). The addition of new merchants in
the credit card processing area was primarily responsible for
this increase.
Trust fees increased $45,000 (11.69%) for the quarter ended March
31, 1996, compared to the same period in 1995. This increase is
attributable to growth in assets under management due to
investment performance and the development of new trust
relationships through continued marketing efforts. Total trust
assets under management grew $28,616,000 (9.89%) from
$289,391,000 at December 31, 1995, to $318,007,000 at March 31,
1996.
Brokerage commissions remained relatively flat at $35,000 for the
three month period ended March 31, 1996. Commissions for the
same period in 1995 totaled $37,000.
During the three month period ended March 31, 1996, insurance
commissions also remained flat at $154,000 compared to $159,000
for the same period in 1995.
Gains on sales of loans increased $23,000 (460.00%) from $5,000
for the quarter ended March 31, 1995, to $28,000 for the same
period ended March 31, 1996. This increase was reflective of
consumers' renewed interest in fixed rate fifteen- and thirty-
year loans which the Company sells into the secondary market
while retaining servicing of the loans.
The majority of the $36,000 (48.00%) increase in other income
from $75,000 for the three month period ended March 31, 1995, to
$111,000 for the same period in 1996, was attributable to
increases in the cash surrender value of life insurance policies
on officers of the Company.
NONINTEREST EXPENSE
Noninterest expense increased from $4,493,000 for the three
months ended March 31, 1995, to $4,745,000 for the same period in
1996, an increase of $252,000 (5.61%). Salaries and employee
benefits, the largest component of noninterest expense, increased
$260,000 (10.26%) for the periods under comparison. This
increase was primarily the result of personnel additions
associated with the October 16, 1995, opening of the Company's de
novo bank, Riverside Community Bank ("RCB"), in Rockford,
Illinois.
Occupancy expense for the period ended March 31, 1996, was
$283,000 compared to $272,000 for the same period in 1995, an
increase of $11,000 (4.04%). Furniture and equipment expense
decreased $29,000 (8.38%) from $346,000 during the first three
months of 1995 to $317,000 during the same period in 1996.
Fees paid for outside services remained stable at $255,000 for
the quarter ended March 31, 1996, as compared to the first
quarter 1995 total of $251,000.
FDIC insurance premium expense decreased $237,000 (82.58%) to
$50,000 for the three month period ended March 31, 1996, compared
to $287,000 for the same period in 1995. This decrease was the
result of a reduction in the deposit insurance assessments
charged to members of the Bank Insurance Fund ("BIF")from a range
of .23% to .31% of deposits for the semi-annual assessment period
which began January 1, 1995 to a range of $1,000 to .27% of
deposits for the semi-annual assessment period which began
January 1, 1996. Three of the Company's four banks were affected
by this reduction. FCB, a federal savings bank, is a member of
the Savings Association Insurance Fund, ("SAIF"). Because the
SAIF reserves do not yet equal the statutorily designated reserve
ratio of 1.25% of total SAIF-insured deposits, the FDIC is
prohibited by federal law from reducing SAIF deposit insurance
assessments to the levels currently charged members of the BIF.
As a result, SAIF assessments for the semi-annual assessment
period which began January 1, 1996, remain at the range of .23%
to .31% of deposits, the same range in effect for the semi-annual
assessment period which began January 1, 1995.
Advertising and public relations expense experienced the largest
single percentage increase within the noninterest expense
category, rising $176,000 (101.15%) during the quarter ended
March 31, 1996, to $350,000 from $174,000. The primary component
of this increase was the contribution of stock from FCB's
investment portfolio to a public charitable trust at a cost basis
of $220,000 with an associated market value of $820,000. During
the first quarter of 1995, the Company increased advertising
expense to publicize the opening of the building addition at its
lead bank subsidiary, Dubuque Bank and Trust Company.
Other operating expenses for the three month periods ended March
31, 1996 and 1995, were $696,000 and $629,000, respectively, an
increase of $67,000 (10.65%). This increase was attributable to
expenses incurred due to growth within the merchant credit card
processing area and the opening of RCB.
INCOME TAX EXPENSE
Income tax expense for the first three months of 1996 increased
14.91% over the same period in 1995, primarily as a result of
corresponding increases in pre-tax earnings. The Company's
effective tax rate declined from 26.10% for the three month
period ended March 31, 1995, to 23.14% for the same period in
1996. Components of this change were additional tax credits
associated with the investment in low-income housing projects and
the previously discussed contribution of appreciated property to
a public charitable trust.
FINANCIAL CONDITION
LOANS AND PROVISION FOR LOAN AND LEASE LOSSES
Net loans and leases remained stable at $449,967,000 at March 31,
1996, when compared to the December 31, 1995, total of
$449,325,000. Commercial loans experienced modest growth of
$1,765,000 (.92%) during the first quarter of 1996, rising from
$191,866,000 at December 31, 1995, to $193,631,000 at March 31,
1996. Agricultural loans were $59,535,000 at March 31, 1996,
another modest increase of $446,000 (.75%) over the December 31,
1995, balance of $59,089,000. Real estate loans decreased
$1,492,000 (.94%) from the December 31, 1995, balance of
$158,324,000 to the March 31, 1996, balance of $156,832,000.
Consumer loans experienced growth of $904,000 (2.32%), increasing
to $39,892,000 at March 31, 1996, from $38,988,000 at December
31, 1995. Due to reduced demand for lease financing during the
first quarter and to scheduled paydowns, the Company's lease
financing balances declined $637,000 (7.47%) to a total of
$7,893,000 at March 31, 1996.
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, types of loans, past loss
experience, loan delinquencies, and potential substandard and
doubtful credits. The adequacy of the allowance for loan and
lease losses is monitored by the loan review staff, senior
management and the Board of Directors. The increase in the
allowance for loan and lease losses to an amount in excess of six
times nonperforming loans and leases is due to a number of
factors considered by the Loan Review Committee. Included were
the following: i) a continued increase in higher-risk and more-
complex commercial and agricultural loans from relatively lower-
risk real estate loans; ii) the economies of the Company's
primary market areas have been stable since 1989 and the growth
of the allowance is intended to anticipate the cyclical nature of
most economies; and iii) an increase in the amount of charge-offs
for the first time since 1992.
The Company's provision for loan and lease losses was $747,000
for the three months ended March 31, 1996, compared to $218,000
for the same period in 1995. Net charge-offs were $435,000 and
$364,000 during the first quarter of 1996 and 1995, respectively.
Included in the first three months of 1996 chargeoffs is the
$469,000 writedown on a loan at FCB. The allowance for loan and
lease losses as a percentage of total loans was 1.29% as of March
31, 1996, and 1.23% as of December 31, 1995, and March 31, 1995.
Nonperforming loans, defined as nonaccrual loans and loans past
due ninety days or more, declined from $1,203,000 at December 31,
1995, to $981,000 at March 31, 1996, a decrease of $222,000
(18.45%).
Other real estate owned totaled $598,000 at March 31, 1996, a
decrease of $41,000 (6.41%), from the December 31, 1995, total of
$640,000.
SECURITIES
The dual objectives of the investment portfolio are to provide
the Company with sources of both liquidity and earnings.
Investment securities represented $159,276,000 or 23.58% of total
assets at March 31, 1996, as compared to $148,226,000 or 21.88%
at December 31, 1995. This $11,050,000 (7.46%) change is
representative of the decreased demand for loans.
The available for sale securities portfolio of $145,857,000 at
December 31, 1995, increased $11,091,000 (7.60%) to $156,948,000
at March 31, 1996. Specifically, U.S. treasury and agency
securities increased $1,773,000 (15.42%) to $13,274,000 at March
31, 1996, from the December 31, 1995, total of $11,501,000.
Mortgage-backed securities increased $13,716,000 (34.77%) to
$53,169,000 at March 31, 1996 from $39,453,000 at December 31,
1995. Municipal obligation securities decreased $956,000 (4.68%)
to $19,457,000 at March 31, 1996, due to maturities and scheduled
calls. Other securities totaled $16,565,000 at March 31, 1996, a
decrease of $3,296,000 (16.60%), from the December 31, 1995,
total of $19,861,000 and included equity securities, corporate
bonds and bankers acceptances.
Amortized cost of securities held to maturity was $2,328,000 at
March 31, 1996, a modest decrease of $41,000 (1.73%) from the
December 31, 1995, total of $2,369,000. This decrease was due to
scheduled maturities and calls.
DEPOSITS AND BORROWED FUNDS
Total deposits were $528,175,000 at March 31, 1996, a decline of
$6,412,000 (1.20%) from the December 31, 1995, total of
$534,587,000. Demand deposits experienced the largest percentage
decrease, 14.54% ($7,166,000), ending the period at $42,117,000.
Much of this reduction can be attributed to normal seasonal
fluctuations in demand deposit accounts. Savings accounts
experienced a slight decrease of $1,501,000 (.71%) to
$209,352,000. Certificates of deposit were $276,706,000 at March
31, 1996, reflecting a modest $2,255,000 (.82%) increase over the
December 31, 1995, total of $274,451,000.
Short-term borrowings generally include federal funds purchased,
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. As of March 31, 1996, the balance in
this account had increased to $33,401,000 from the December 31,
1995, total of $23,241,000. This $10,160,000 (43.72%) increase
was primarily attributable to growth in securities sold under
agreement to repurchase and the transfer of $5,000,000 in FHLB
borrowings from other borrowings to short-term borrowings due to
approaching maturities.
Other borrowings includes the Company's long-term FHLB funding
which decreased to $40,400,000 at March 31, 1996 from the
December 31, 1995, total of $45,400,000 due to the transfer of
$5,000,000 to short-term borrowings. Total long-term FHLB
advances had a weighted average remaining term of 3.77 years at a
weighted average rate of 5.85% at March 31, 1996.
CAPITAL RESOURCES
Bank regulatory bodies have adopted capital standards by which
all bank holding companies will be evaluated. Under the risk-
based method of measurement, the resulting ratio is dependent
upon not only the level of capital and assets, but the
composition of assets and capital and the amount of off-balance
sheet commitments. The Company's capital ratios were as follows
for the dates indicated:
CAPITAL RATIOS
(Dollars in thousands)
3/31/96 12/31/95
Amount Ratio Amount Ratio
------ ----- ------ -----
Risk-Based Capital Ratios:(1)
Tier 1 capital $ 60,867 13.05% $ 60,780 13.28%
Tier 1 capital minimum
requirement 18,650 4.00% 18,302 4.00%
-------- ------ -------- ------
Excess $ 42,217 9.05% $ 42,478 9.28%
======== ====== ======== ======
Total capital $ 66,465 14.26% $ 66,165 14.46%
Total capital minimum
requirement 37,300 8.00% 36,603 8.00%
-------- ------ -------- ------
Excess $ 29,165 6.26% $ 29,562 6.46%
======== ====== ======== ======
Total risk adjusted assets $466,248 $457,539
======== ========
Leverage Capital Ratios:(2)
Tier 1 capital $ 60,867 9.02% $ 60,780 9.47%
Tier 1 capital minimum
requirement(3) 33,750 5.00% 32,083 5.00%
-------- ------ -------- ------
Excess $ 27,117 4.02% $ 28,697 4.47%
======== ====== ======== ======
Average adjusted assets
(less goodwill) $674,998 $641,650
======== ========
(1)Based on the risk-based capital guidelines of the Federal
Reserve, a bank holding company is required to maintain a
Tier 1 capital to risk-adjusted assets ratio of 4.00% and
total capital to risk-adjusted assets ratio of 8.00%
(2)The leverage ratio is defined as the ratio of Tier 1 capital
to average adjusted assets.
(3)Management of the Company has established a minimum target
leverage ratio of 5.00%. Based on Federal Reserve
guidelines, a bank holding company generally is required to
maintain a leverage ratio of 3.00% plus additional capital of
at least 100 to 200 basis points.
Commitments for capital expenditures are an important factor in
evaluating capital adequacy. Construction of a $2,200,000 bank
facility in Galena, Illinois began during the third quarter of 1995
with anticipated completion by the fall of this year. This project
will allow Galena State Bank and Trust Company to consolidate
operations into one bank building and provide better accessibility
and parking for bank customers.
RCB continues construction of its $1,800,000 permanent facility
with completion scheduled for this summer.
An $800,000 branch facility is under construction on Keokuk's
northwest side in direct response to potential growth
opportunities. Completion is targeted for early this summer.
Heartland continues to explore opportunities to expand its
umbrella of independent community banks through mergers and
acquisitions as well as de novo and branching opportunities.
Future expenditures relating to these efforts are not estimable
at this time.
LIQUIDITY
Liquidity measures the ability of the Company to meet maturing
obligations and its existing commitments, to withstand
fluctuations in deposit levels, to fund its operations and to
provide for customers' credit needs. The liquidity of the
Company principally depends on cash flows from operating
activities, investment in and maturity of assets, changes in
balances of deposits and borrowings and its ability to borrow
funds in the money or capital markets.
Net cash outflows from investing activities were $19,218,000 and
$14,037,000 during the first three months of 1996 and 1995,
respectively. Net principal disbursed on loans totaled
$2,958,000 during the first quarter of 1996 compared to
$15,604,000 for the same period in 1995. Proceeds from the
maturity and paydowns on securities totaled $8,760,000 and
$13,050,000 for the three month periods ended March 31, 1996 and
1995, respectively. Cash provided from the sales of securities
decreased from $6,378,000 for the first quarter of 1995 to
$4,589,000 for the same period in 1996. Cash used for the
purchases of securities was $26,319,000 for the first three
months of 1996 compared to $17,451,000 for the same period in
1995. Additional purchases of interests in low-income housing
projects totaled $2,958,000 during the first quarter of 1996
compared to $250,000 during the first quarter of 1995.
Cash outflows for financing activities decreased from $2,721,000
for the three month period ended March 31, 1995, to $1,240,000 for
the same period in 1996. Cash used by a net decrease in demand
deposits and savings accounts declined from $21,717,000 for the
first quarter of 1995 to $8,667,000 for the same quarter in 1996.
For the three month period ended March 31, 1996, cash provided by a
net increase in time deposit accounts was $2,255,000 compared with
$17,178,000 for the same period in 1995. Short-term borrowings
experienced a net decrease of $8,174,000 during the three month
period ended March 31, 1995, compared to a net increase of
$5,160,000 during the same three month period in 1996. Other
borrowings experienced a net increase of $11,338,000 during the
first quarter of 1995 and no change during the same period in 1996.
In the event of short term liquidity needs, the Company may
purchase federal funds from correspondent banks. The Company may
also borrow funds from the Federal Reserve Bank of Chicago, but
has not done so during the periods covered in this report. The
Company also sells securities under agreements to repurchase.
These agreements, which are principally to local businesses, have
been utilized by Dubuque Bank and Trust Company as a funding
mechanism for several years. Finally, the Company's subsidiary
banks' memberships in the FHLB System have given them the ability
to borrow funds from the FHLBs of Des Moines and Chicago for
short- and long-term purposes.
Total cash inflows from operating activities exceeded outflows
during the first quarter of 1996 by $3,131,000 and $5,204,000
during the first quarter of 1995. Management of investing and
financing activities, and market conditions, determine the level
and the stability of net interest cash flows. Management
attempts to mitigate the impact of changes in market interest
rates to the extent possible, so that balance sheet growth is the
principal determinant of growth in net interest cash flows.
PART II
ITEM 1. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the
Company or its subsidiaries is a party other than ordinary
routine litigation incidental to their respective businesses.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
None
Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned there unto duly authorized.
HEARTLAND FINANCIAL USA, INC.
(Registrant)
By: /s/ Lynn B. Fuller
-----------------------
Lynn B. Fuller
By: /s/ John K. Schmidt
-----------------------
John K. Schmidt
Dated: May 14, 1996