Submitted pursuant to Rule 901(d) of Regulation S-T
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, 1997
[ ] 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
classes of Registrant's common stock as of the latest practicable
date: As of May 12, 1997 the Registrant had outstanding
4,736,642 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 1
Item 2. Management's Discussion and Analysis of 8
Financial Condition and Results of
Operations
Part II
Item 1. Legal Proceedings 18
Item 2. Changes in Securities 18
Item 3. Defaults Upon Senior Securities 18
Item 4. Submission of Matters to a Vote of
Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
Form 10-Q Signature Page 19
HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED BALANCE SHEETS (Unaudited)
(Dollars in thousands, except per share data)
3/31/97 12/31/96
------- --------
ASSETS
Cash and due from banks $ 24,635 $ 40,080
Federal funds sold 3,929 -
--------- ---------
Cash and cash equivalents 28,564 40,080
Time deposits in other
financial institutions 372 167
Securities:
Available for sale-at market
(cost of $184,663 for 1997
and $179,697 for 1996) 185,692 181,815
Held to maturity-at cost (approximate
market value of $6,548 for 1997 and
$2,245 for 1996) 6,481 2,151
Loans and leases:
Held for sale 1,781 2,412
Held to maturity 514,829 481,673
Allowance for possible loan and
lease losses (6,853) (6,191)
--------- ---------
Loans and leases, net 509,757 477,894
Premises, furniture and equipment, net 18,153 16,715
Other real estate, net 562 532
Other assets 21,532 17,198
--------- ---------
TOTAL ASSETS $771,113 $736,552
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits:
Demand $ 52,493 $ 55,482
Savings 237,173 224,317
Time 301,996 278,544
--------- ---------
Total deposits 591,662 558,343
Short-term borrowings 60,197 56,358
Accrued expenses and other liabilities 8,823 9,086
Other borrowings 39,582 42,506
--------- ---------
TOTAL LIABILITIES 700,264 666,293
--------- ---------
STOCKHOLDERS' EQUITY:
Preferred stock (par value $1 per share;
authorized, 200,000 shares) - -
Common stock (par value $1 per share;
authorized, 7,000,000 shares;
issued, 4,853,626 shares at
March 31, 1997, and December 31, 1996) 4,854 4,854
Capital surplus 13,396 13,366
Retained earnings 54,165 52,864
Net unrealized gain on
securities available for sale 646 1,327
Treasury stock at cost
(118,678 and 118,066 shares
at March 31, 1997, and
December 31, 1996, respectively) (2,212) (2,152)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 70,849 70,259
--------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $771,113 $736,552
========= =========
See accompanying notes to consolidated financial statements.
HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(Dollars in thousands, except per share data)
Three Months Ended
3/31/97 3/31/96
-------- --------
INTEREST INCOME:
Interest and fees on loans and leases $ 10,740 $ 9,886
Interest on securities:
Taxable 2,591 2,088
Nontaxable 287 355
Interest on trading account securities - -
Interest on federal funds sold 151 213
Interest on interest bearing deposits
in other financial institutions 19 75
-------- --------
TOTAL INTEREST INCOME 13,788 12,617
-------- --------
INTEREST EXPENSE:
Interest on deposits 5,996 5,717
Interest on short-term borrowings 737 416
Interest on other borrowings 637 674
-------- --------
TOTAL INTEREST EXPENSE 7,370 6,807
-------- --------
NET INTEREST INCOME 6,418 5,810
Provision for possible loan
and lease losses 321 747
-------- --------
NET INTEREST INCOME AFTER
PROVISION FOR POSSIBLE LOAN
AND LEASE LOSSES 6,097 5,063
-------- --------
OTHER INCOME:
Service charges 667 566
Trust fees 471 414
Brokerage commissions 63 35
Insurance commissions 139 154
Investment securities gains, net 293 1,322
Gain on sale of loans 41 28
Other 175 67
-------- --------
TOTAL OTHER INCOME 1,849 2,586
-------- --------
OTHER EXPENSES:
Salaries and employee benefits 3,034 2,750
Occupancy 353 283
Equipment 380 317
Outside services 375 239
FDIC assessment 20 50
Advertising 164 350
Other operating expense 928 696
-------- --------
TOTAL OTHER EXPENSES 5,254 4,685
-------- --------
INCOME BEFORE INCOME TAXES 2,692 2,964
Income taxes 774 686
-------- --------
NET INCOME $ 1,918 $ 2,278
======== ========
NET INCOME PER COMMON SHARE $ 0.40 $ 0.48
CASH DIVIDENDS DECLARED
PER COMMON SHARE $ 0.13 $ 0.10
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 4,736,756 4,708,447
See accompanying notes to consolidated financial statements.
HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in thousands)
Three Months Ended
3/31/97 3/31/96
------- -------
NET CASH PROVIDED BY
OPERATING ACTIVITIES $ 4,072 $ 3,131
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of time deposits (16) (3)
Redemption of time deposits 6 -
Proceeds from the sale of
securities available for sale 11,699 4,589
Proceeds from the sale of mortgage-
backed securities available for sale - -
Proceeds from the maturity of and
principal paydowns on
securities held to maturity 100 40
Proceeds from the maturity of and
principal paydowns on
securities available for sale 5,387 6,645
Proceeds from the maturity of and
principal paydowns on mortgage-
backed securities available for sale 1,801 2 075
Purchase of securities available
for sale (15,209) (9,962)
Purchase of mortgage-backed
securities available for sale (968) (16,357)
Excess of cash and cash equivalents
over purchase price of acquired bank (2,521) -
Purchase of interest in low-income
housing project - (2,865)
Net increase in loans and leases (10,770) (2,958)
Capital expenditures (918) (578)
Proceeds on sale of fixed assets 1 -
Proceeds on sale of repossessed assets 4 156
--------- ---------
NET CASH USED BY INVESTING ACTIVITIES (11,404) (19,218)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in demand deposits
and savings accounts (6,439) (8,667)
Net increase in time deposit accounts 6,888 2,255
Net increase in other borrowings 1,500 -
Net increase (decrease) in
short-term borrowings (5,614) 5,160
Purchase of treasury stock (154) (167)
Proceeds from sale of treasury stock 251 651
Dividends (616) (472)
--------- ---------
NET CASH USED BY FINANCING ACTIVITIES (4,184) (1,240)
--------- ---------
Net decrease in cash and cash
equivalents (11,516) (17,327)
Cash and cash equivalents at
beginning of year 40,080 54,805
--------- ---------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 28,564 $ 37,478
========= =========
Supplemental disclosures:
Cash paid for income/franchise taxes $ 18 $ 197
========= =========
Cash paid for interest $ 7,254 $ 6,627
========= =========
Securities contributed to public
charitable trust $ 220
=========
Other borrowings transferred to
short-term borrowings $ 6,555 $ 5,000
========= =========
Fair value of assets acquired $ 42,418
Cash acquired (1,504)
Liabilities assumed (34,528)
Issuance of notes payable (3,865)
---------
Excess of cash and cash equivalents
over purchase price of acquired
bank $ 2,521
=========
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, 1996,
included in the Company's Form 10-K filed with the Securities and
Exchange Commission on March 29, 1997. 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, 1997, are not
necessarily indicative of the results expected for the year
ending December 31, 1997.
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
stockholders 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.
NOTE 2: ACQUISITIONS
On March 1, 1997, the Company acquired Cottage Grove State Bank,
a Wisconsin state bank located in Cottage Grove, Wisconsin, with
total assets of $39 million. The total cost of the acquisition
was $7,890,000. The excess of the purchase price over the fair
value of net assets acquired was $3,015,000. The transaction was
accounted for as a purchase; accordingly, the results of
operations, which were not material, were included in the
Consolidated Financial Statements (unaudited) from the
acquisition date.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SAFE HARBOR STATEMENT
This report contains certain forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. The Company intends such forward-looking statements
to be covered by the safe harbor provisions for forward-looking
statements contained in the Private Securities Reform Act of
1995, and is including this statement for the purposes of these
safe harbor provisions. Forward-looking statements, which are
based on certain assumptions and describe future plans,
strategies and expectations of the Company, are generally
identifiable by use of the words "believe," "expect," "intend,"
"anticipate," "estimate," "project" or similar expressions. The
Company's ability to predict results or the actual effect of
future plans or strategies is inherently uncertain. Factors
which could have a material adverse affect on the operations and
future prospects of the Company and its subsidiaries include, but
are not limited to, changes in: interest rates, general economic
conditions, legislative/regulatory changes, monetary and fiscal
policies of the U.S. Government, including policies of the U.S.
Treasury and the Federal Reserve Board, the quality or
composition of the loan or investment portfolios, demand for loan
products, deposit flows, competition, demand for financial
services in the Company's market area and accounting principles,
policies and guidelines. These risks and uncertainties should be
considered in evaluating forward-looking statements and undue
reliance should not be placed on such statements. Further
information concerning the Company and its business, including
additional factors that could materially affect the Company's
financial results, is included in the Company's filings with the
Securities and Exchange Commission.
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.
Operating earnings of $1,732,000 for the first quarter of 1997,
were up 4.65% from the $1,655,000 earned in the same quarter of
1996. On a per common share basis, exclusive of nonrecurring
items, the first quarter earnings increased from $.35 in 1996 to
$.37 in 1997. Total earnings of $2,278,000 for the first quarter
of 1996 included two significant items, the foremost of which was
a gain of $1,174,000 on the sale of stock from the securities
portfolio at First Community Bank, FSB ("FCB"). Additionally,
FCB recorded a $469,000 writedown within its loan portfolio. Net
income for the first quarter of 1997 totaled $1,918,000, a
decrease of 15.80%. On a per common share basis, first quarter
earnings decreased from $.48 in 1996 to $.40 in 1997.
NET INTEREST INCOME
For the first quarter of 1997, net interest income increased
$608,000 or 10.46% when compared to the same period in 1996.
This increase was primarily attributable to growth within the
loan portfolio and continued emphasis on controlling the
Company's cost of funds. Net interest income to average earning
assets on a fully tax equivalent basis was 3.94% for the three
month period ended March 31, 1997, as compared to 3.86% for the
three month period ended March 31, 1996.
NONINTEREST INCOME
Noninterest income decreased $737,000 or 28.50% for the first
quarter of 1997 when compared to the same period in 1996. The
largest component of this decrease was the $1,029,000 or 77.84%
change in investment securities gains. Of these gains,
$1,174,000 resulted from the sale of Federal Home Loan Mortgage
Corporation common stock held in the security portfolio at FCB.
As interest rates declined during 1994, this stock experienced
tremendous appreciation and, in anticipation of rising interest
rates in 1996, management elected to sell the stock to reduce the
interest rate risk within the investment portfolio.
One of the most significant components of noninterest income is
service charges and fees which increased $101,000 or 17.84% for
the first three months of 1997 compared to the same period in
1996. This growth reflects:
- - the addition of new merchants in the credit card processing
area which increased revenues by $37,000 or 21.81% and
- - the continued emphasis on enhancing revenues from services
provided to customers which increased revenues by $55,000 or
16.84%.
Trust fees increased $57,000 or 13.77% for the quarter ended
March 31, 1997, compared to the same period in 1996. This
increase was attributable to growth in assets under management
due to investment performance. Total trust assets under
management grew $12,647,000 or 3.45% from $366,158,000 at
December 31, 1996, to $378,805,000 at March 31, 1997.
For the first three months of 1997, brokerage commissions grew
$28,000 or 80.00% as compared to the same period in 1996. This
increase was primarily the result of the replacement, during the
summer of 1996, of two sales personnel lost in 1995, combined
with the integration of the brokerage area into the retail
division.
The majority of the $108,000 or 161.19% increase in other income
for the first quarter of 1997 over the same period in 1996 was
attributable to the first full quarter of operations of ULTEA,
the Company's fleet leasing company headquartered in Madison,
Wisconsin.
NONINTEREST EXPENSE
Noninterest expense increased $569,000 or 12.15% for the three
months ended March 31, 1997, when compared to the same period in
1996. Salaries and employee benefits, the largest component of
noninterest expense, increased $284,000 or 10.33% for the periods
under comparison. This increase was primarily the result of
personnel additions associated with the first full quarter of
operations of ULTEA along with normal merit and cost of living
raises.
Occupancy and equipment expenses for the period ended March 31,
1997, increased $70,000 (24.73%) and $63,000 (19.87%),
respectively, when compared to the same period in 1996. These
increased costs represented additional depreciation and property
tax costs associated with new facilities at three of the
subsidiary banks.
Fees paid for outside services grew $136,000 or (56.90%) for the
first quarter of 1997 over the same period in 1996. Expenses
relating to the data processing conversion of the bank
subsidiaries to Fiserv's Comprehensive Banking Systems software
contributed to the growth in this area. The Company elected to
maintain the data processing function in-house to provide the
subsidiary banks with enhanced technology and flexibility.
FDIC insurance premium expense decreased $30,000 or 60.00% when
comparing the first quarter of 1997 to the first quarter of 1996.
This decrease was the result of a reduction in the deposit
insurance assessments charged to members of the Savings
Association Insurance Fund ("SAIF") from .23% to .065% of
deposits effective January 1, 1997. FCB, as a SAIF member,
experienced this reduction.
Advertising and public relations expense experienced a $186,000
or 53.14% decrease for the first quarter of 1997 compared to the
same quarter of 1996. The primary component of this decrease 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
1996.
An increase of $232,000 or 33.33% occurred in other operating
expenses for the three month period ended March 31, 1997,
compared to the same period in 1996. Again, this increase was
attributable to expenses incurred due to the first full quarter
of operation of ULTEA along with growth in the credit card
processing area.
INCOME TAX EXPENSE
Income tax expense for the first three months of 1997 increased
$88,000 or 12.83% over the same period in 1996, primarily as a
result of corresponding increases in pre-tax earnings. The
Company's effective tax rate increased from 23.14% for the three
month period ended March 31, 1996, to 28.75% for the same period
in 1997. The previously discussed contribution of appreciated
property to a public charitable trust partially contributed to
the lower effective tax rate in 1996.
FINANCIAL CONDITION
LOANS AND PROVISION FOR LOAN AND LEASE LOSSES
Net loans and leases grew $31,863,000 or 6.67% from December 31,
1996, to March 31, 1997. The acquisition of Cottage Grove State
Bank ("CGSB") on March 1, 1997, accounted for $21,759,000 or
68.29% of the growth experienced. Excluding the CGSB loan
portfolio, agricultural and consumer loan outstandings
experienced the most significant growth during the first quarter
of 1997. Agricultural loans and agricultural real estate loans,
exclusive of CGSB, increased $5,352,000 or 9.30% from December
31, 1996, to March 31, 1997. Consumer loan outstandings,
exclusive of CGSB, grew $2,246,000 or 4.64% during the same
period.
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 on an ongoing basis by the loan review
staff, senior management and the Board of Directors. Factors
considered by the Heartland Loan Review Committee included the
following: i) a continued increase in higher-risk consumer 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 nonaccrual
loans. There can be no assurances that the allowance for loan
and lease losses will be adequate to cover all losses, but
management believes that the allowance for loan and lease losses
was adequate at March 31, 1997. The allowance for loan and lease
losses was increased $662,000 or 10.69% during the first quarter
of 1997, $331,000 of which was attributable to the acquisition of
CGSB.
The Company's provision for loan and lease losses was $321,000
for the three months ended March 31, 1997, compared to $747,000
for the same period in 1996. Net recoveries were $10,000 during
the first quarter of 1997 compared to net charge-offs of $435,000
during the first quarter of 1996. Included in the first three
months of 1996 charge-offs was the $469,000 writedown of a loan
at FCB. The allowance for loan and lease losses as a percentage
of total loans was 1.33% as of March 31, 1997, 1.28% as of
December 31, 1996, and 1.29% as of March 31, 1996.
Nonperforming loans, defined as nonaccrual loans, restructured
loans and loans past due ninety days or more, increased from
$1,974,000 at December 31, 1996, to $2,119,000 at March 31, 1997,
an increase of $145,000 or 7.55%. As a percentage of total loans
and leases, nonperforming loans remained at .41% on March 31,
1997, and December 31, 1996.
SECURITIES
The dual objectives of the securities portfolio are to provide
the Company with sources of both liquidity and earnings.
Securities represented 24.92% of total assets at March 31, 1997,
as compared to 24.98% at December 31, 1996. Exclusive of CGSB
securities of $11,445,000 at March 31, 1997, the securities
portfolio experienced a $3,238,000 or 1.76% decrease.
DEPOSITS AND BORROWED FUNDS
Exclusive of CGSB deposits totaling $33,862,000 at March 31,
1997, total deposits decreased less than .10% during the first
quarter of 1997. Demand deposits experienced a decrease of
$7,890,000 or 14.22%, exclusive of the $4,900,000 at CGSB. Much
of this reduction can be attributed to normal seasonal
fluctuations. Savings accounts, exclusive of $11,979,000 at
CGSB, experienced a slight increase of $878,000 or .39%.
Certificates of deposit increased $6,470,000 or 2.32% over the
December 31, 1996, total, exclusive of CGSB certificates of
deposit totaling $16,983,000 at March 31, 1997. This increase
was the result of rate specials in isolated maturities which were
utilized to fund growth in loan outstandings.
Short-term borrowings generally include federal funds purchased,
securities sold under agreement to repurchase, treasury tax and
loan note options 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, 1997, the balance in this account had increased $3,839,000 or
6.81% primarily due to the transfer of $6,500,000 in FHLB
borrowings from other borrowings to short-term borrowings due to
approaching maturities.
Other borrowings decreased $2,924,000 or 6.88% during the first
quarter of 1997 and included the Company's long-term FHLB
funding. The transfer of $6,500,000 to short-term borrowings was
offset by an additional FHLB advance and the issuance of notes
payable to the stockholders of CGSB. Total long-term FHLB
advances had a weighted average remaining term of 3.88 years at a
weighted average rate of 5.92% at March 31, 1997.
CAPITAL RESOURCES
Bank regulatory agencies 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)
3/31/97 12/31/96
Amount Ratio Amount Ratio
------ ----- ------ -----
Risk-Based Capital Ratios:(1)
Tier 1 capital $ 66,589 11.97% $ 67,701 13.10%
Tier 1 capital minimum
requirement 22,252 4.00% 20,667 4.00%
-------- ------ -------- ------
Excess $ 44,337 7.97% $ 47,034 9.10%
======== ====== ======== ======
Total capital $ 73,326 13.18% $ 73,777 14.28%
Total capital minimum
requirement 44,503 8.00% 41,334 8.00%
-------- ------ -------- ------
Excess $ 28,823 5.18% $ 32,443 6.28%
======== ====== ======== ======
Total risk adjusted
assets $556,291 $516,678
======== ========
Leverage Capital Ratios:(2)
Tier 1 capital $ 66,589 9.09% $ 67,701 9.81%
Tier 1 capital minimum
requirement(3) 29,298 4.00% 27,594 4.00%
-------- ------ -------- ------
Excess $ 37,291 5.09% $ 40,107 5.81%
======== ====== ======== ======
Average adjusted assets
(less goodwill) $732,456 $689,854
======== ========
(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 4.00%. 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 basis points.
Commitments for capital expenditures are an important factor in
evaluating capital adequacy. The Company 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 decreased $7,814,000
during the first three months of 1997 compared to the same period
in 1996. Net principal disbursed on loans increased $7,812,000
for the period under comparison while net purchases of securities
decreased $15,780,000.
Net cash outflows for financing activities increased $2,944,000 for
the three month period ended March 31, 1997, compared to the same
period in 1996. Cash used by a net change in deposits declined
$6,591,000 while cash used by a net change in borrowings increased
by $9,274,000 during the periods under comparison.
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.
Finally, the Company's subsidiary banks' FHLB memberships give
them the ability to borrow funds for short- and long-term
purposes under a variety of programs.
Total cash inflows from operating activities increased $941,000
for the first quarter of 1997 compared to the same quarter of
1996. 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.
RECENT REGULATORY DEVELOPMENTS
Various bills have been introduced in the Congress that would
allow bank holding companies to engage in a wider range of
nonbanking activities. While the scope of permissible nonbanking
activities and the conditions under which the new powers could be
exercised varies among the bills, the expanded powers generally
would be available to a bank holding company only if the bank
holding company and its bank subsidiaries remain well-capitalized
and well-managed. The bills also impose various restrictions on
transactions between the depository institution subsidiaries of
bank holding companies and their nonbank affiliates. These
restrictions are intended to protect the depository institutions
from the risks of the new nonbanking activities permitted to such
affiliates.
Certain of the pending bills also propose to eliminate the
federal thrift charter by requiring each federal thrift to
convert to a national bank or to a state bank or state thrift.
One of the pending bills would require the conversion to occur by
January 1, 1998 while the other institutions would be regulated
for purposes of federal law as state banks. The bills would
allow a converting federal thrift to retain nonconforming
investments and activities for a period of two years following
conversion (subject to extension by the primary federal regulator
of the converted bank for up to two additional one year periods).
Additionally, legislation has been introduced in Illinois that
would allow the Company's Illinois bank subsidiaries to engage in
insurance activities, subject to various conditions, including
restrictions on the manner in which insurance products are
marketed to bank customers and requirements that banks selling
insurance provide certain disclosures to customers. Iowa law
currently allows DB&T to engage in insurance activities through
its subsidiary, DB&T Insurance, Inc. The Illinois legislature is
also considering legislation that would prohibit out-of-state
banks from acquiring an Illinois bank unless the Illinois bank
has been in existence and continuously operated for a period of
at least five years.
At this time, the Company is unable to predict whether any of the
pending bills will be enacted and, therefore, is unable to
predict the impact the pending legislation will have on the
Company and its subsidiaries.
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
27.1 Financial Data Schedule
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
President
By: /s/ John K. Schmidt
-----------------------
John K. Schmidt
Executive Vice President and
Chief Financial Officer
Dated: May 15, 1997