EX-99 3 fx998k902press.txt EARNINGS PRESS RELEASE FOR QUARTER ENDED 9-30-2002 Exhibit 99 [LOGO] Heartland Financial USA, Inc. PRESS RELEASE October 17, 2002 FROM: Lynn B. Fuller - Chairman, President and CEO (563) 589-2105 John K. Schmidt - Executive Vice President and CFO (563) 589-1994 RE: Third Quarter 2002 Earnings RELEASE: Immediate HEARTLAND FINANCIAL USA, INC. REPORTS A 79% INCREASE IN THIRD QUARTER EARNINGS (Dubuque, Iowa) Heartland Financial USA, Inc. (HTLF - OTC BB) today announced a $2.115 million or 79% increase in earnings for the third quarter of 2002. Net income totaled $4.777 million, or $.48 on a diluted earnings per common share basis, compared to $2.662 million, or $.27 on a diluted earnings per common share basis, during the same quarter in 2001. Return on common equity was 16.20% and return on assets was 1.13% for the third quarter of 2002. For the same period in 2001, return on equity was 10.38% and return on assets was .67%. Chairman, President and Chief Executive Officer Lynn B. Fuller noted, "Heartland's third quarter was an excellent quarter, as we saw growth in margin, reduced provision expense and relatively modest growth in noninterest expense. The resultant record third quarter earnings and continued asset growth continues to reinforce the value of Heartland's community banking model." Contributing to the improved earnings during the third quarter of 2002 was the $2.542 million or 19% growth in net interest income due primarily to growth in earning assets. Average earning assets went from $1.420 billion during the third quarter of 2001 to $1.511 billion during the same quarter in 2002, a change of $91 million or 6%. Also contributing to the increased earnings during the third quarter was the $1.020 million or 85% decrease in provision for loan and lease losses. Additionally, noninterest income experienced a $760 thousand or 10% increase, exclusive of securities gains and losses, including impairment losses on equity securities and trading account securities gains and losses, and a valuation adjustment on mortgage servicing rights. Noninterest expense was held to an $874 thousand or 6% increase. For the nine-month period ended on September 30, 2002, net income increased $4.829 million or 61% when compared to the same period in 2001. Net income totaled $12.761 million, or $1.30 on a diluted per common share basis, compared to $7.932 million, or $.82 on a diluted per common share basis, during the same period in 2001. Return on common equity was 15.14% and return on assets was 1.03% for the nine-month period in 2002 compared to 10.65% and .69%, respectively, for the same period in 2001. The largest contributor to the improved earnings during the first nine months of 2002 was the $7.102 million or 19% growth in net interest income. Average earning assets went from $1.375 billion during the first nine months of 2001 to $1.477 billion during the same period in 2002, a change of $101 million or 7%. The $1.263 million or 42% decrease in provision for loan and lease losses also contributed to the improved earnings for the first nine months of 2002. Additionally, noninterest income experienced a $2.707 million or 13% increase, exclusive of securities gains and losses, including impairment losses on equity securities and trading account securities gains and losses, and valuation adjustments on mortgage servicing rights. In addition to gains on sale of loans, the other noninterest income category to reflect significant improvement was service charges and fees. Noninterest expense was held to a $2.609 million or 6% increase. The Company's adoption of the provisions of Statement of Financial Accounting Standards ("FAS") No. 142, Goodwill and Other Intangible Assets, on January 1, 2002, discontinued the amortization of $9.507 million in unamortized goodwill. The Company's adoption of the provisions of FAS No. 147, Acquisitions of Certain Financial Institutions, on September 30, 2002, discontinued the amortization of $6.543 million in unamortized other intangibles retroactively to January 1, 2002. The amount of amortization expense recorded during the third quarter of 2001 on this goodwill and other intangibles was $264 thousand ($.03 on a diluted per common share basis). For the nine-month period ended on September 30, 2001, amortization expense on this goodwill and other intangibles was $793 thousand ($.08 on a diluted per common share basis). A majority of the $76 million or 5% growth in total assets since year-end 2001 occurred during the third quarter. Loans and leases were $1.164 billion and deposits were $1.290 billion at the end of the third quarter, an increase of 5% and 7%, respectively, since year-end 2001. Commercial and agricultural loan growth was $80 million or 12% and $12 million or 9%, respectively, during the first nine months of 2002. A portion of this growth was offset by the $25 million or 15% decrease in the mortgage loan portfolio due to paydowns experienced as customers continued to refinance their mortgage loans into fifteen- and thirty-year fixed rate loans, which the Company usually sells into the secondary market. Net interest margin, expressed as a percentage of average earning assets, was 4.12% for the third quarter of 2002 compared to 4.02% during the second quarter of 2002 and 3.67% for the third quarter of 2001. The Company manages its balance sheet to minimize the effect a change in interest rates has on its net interest margin. The Company has been successful in the utilization of floors on its commercial loan portfolio to minimize the affect downward rates have on its interest income. If rates begin to edge upward, the Company will not see a corresponding increase in its interest income until rates have moved above the floors in place on these loans. Interest income as a percentage of average earning assets went from 7.83% during the third quarter of 2001 to 6.95% during the third quarter of 2002, a decline of 88 basis points. Additionally, on the liability side of the balance sheet, the Company has locked in some funding in the three- to five-year maturities as rates were at historical low levels. Interest expense as a percentage of average earning assets went from 4.16% during the third quarter of 2001 to 2.83% for the same quarter in 2002, a decline of 133 basis points. The allowance for loan and lease losses at September 30, 2002, was 1.34% of loans and 253% of nonperforming loans, compared to 1.33% of loans and 180% of nonperforming loans, at year-end 2001. Nonperforming loans decreased to .53% of total loans and leases at September 30, 2002, compared to .73% of total loans and leases at December 31, 2001. The $1.778 million provision for loan losses made during the first nine months of 2002, a decrease of $1.263 million or 42% when compared to the same period in 2001, resulted primarily from a large recovery on a prior-year charge- off and the decrease in nonperforming loans. Heartland also today announced the signing of an agreement to sell its branch facility in Eau Claire, Wisconsin. The branch has approximately $38 million in loans. The transaction is subject to receipt of regulatory approval and is expected to close in the fourth quarter of 2002. Heartland is a $1.7 billion financial services company with six banks in Iowa, Illinois, Wisconsin and New Mexico: Dubuque Bank and Trust Company, with eight offices in Dubuque, Epworth, Farley and Holy Cross, Iowa Galena State Bank and Trust Company, with three offices in Galena and Stockton, Illinois First Community Bank, FSB, with three offices in Keokuk, Iowa and Carthage, Illinois Riverside Community Bank, with three offices in Rockford, Illinois Wisconsin Community Bank, with six offices in Cottage Grove, Middleton, Sheboygan, Green Bay, Monroe and Eau Claire, Wisconsin New Mexico Bank and Trust, with eight offices in Albuquerque and Clovis, New Mexico Other subsidiaries include: ULTEA, Inc., a fleet leasing company with offices in Madison and Milwaukee, Wisconsin Citizens Finance Co., a consumer finance company with offices in Madison and Appleton, Wisconsin; Dubuque, Iowa; and Rockford, Illinois Additional information about Heartland is available through our website at www.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 September 11th, (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. HEARTLAND FINANCIAL USA, INC. CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited) DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA For the Quarter Ended September 30, 2002 2001 ---------------------------- INCOME STATEMENT DATA Interest income (tax equivalent adjusted) $ 26,464 $ 28,044 Interest expense 10,786 14,908 ---------- ---------- Net interest income 15,678 13,136 Provision for loan and lease losses 177 1,197 Noninterest income 7,514 7,167 Noninterest expense 15,626 14,752 Income tax expense 2,175 1,422 Tax equivalent adjustment 437 270 ---------- ---------- Net income $ 4,777 $ 2,662 ========== ========== PER COMMON SHARE DATA Earnings per common share - basic $ 0.49 $ 0.28 Earnings per common share - diluted 0.48 0.27 Adjusted earnings per common share - basic (1) 0.49 0.30 Adjusted earnings per common share - diluted (1) 0.48 0.30 Dividends declared per common share 0.10 0.09 Weighted average shares outstanding - basic 9,819,148 9,584,400 Weighted average shares outstanding - diluted 9,894,883 9,692,878 AVERAGE BALANCES Assets $1,681,632 $1,585,087 Loans and leases, net of unearned 1,135,481 1,080,299 Deposits 1,265,459 1,179,506 Earning assets 1,510,709 1,420,128 Stockholders' equity 116,974 101,727 EARNINGS PERFORMANCE RATIOS Return on average assets 1.13% 0.67% Return on average equity 16.20 10.38 Net interest margin 4.12 3.67 Net interest margin, excluding fleet leasing company debt 4.20 3.80 Efficiency ratio 69.08 74.69 Efficiency ratio, banks only 56.37 63.98 (1) Excludes goodwill amortization discontinued with the adoption of FAS No. 142 on January 1, 2002, and the adoption of FAS No. 147 on September 30, 2002. HEARTLAND FINANCIAL USA, INC. CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited) DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA For the Nine Months Ended September 30, 2002 2001 ---------------------------- INCOME STATEMENT DATA Interest income (tax equivalent adjusted) $ 77,076 $ 84,417 Interest expense 32,879 47,322 ---------- ---------- Net interest income 44,197 37,095 Provision for loan and lease losses 1,778 3,041 Noninterest income 23,292 22,155 Noninterest expense 46,147 43,538 Income tax expense 5,699 3,903 Tax equivalent adjustment 1,104 836 ---------- ---------- Net income $ 12,761 $ 7,932 ========== ========== PER COMMON SHARE DATA Earnings per common share - basic $ 1.30 $ 0.83 Earnings per common share - diluted 1.30 0.82 Adjusted earnings per common share - basic (1) 1.30 0.91 Adjusted earnings per common share - diluted (1) 1.30 0.90 Dividends declared per common share 0.30 0.27 Weighted average shares outstanding - basic 9,785,180 9,593,741 Weighted average shares outstanding - diluted 9,849,890 9,696,340 AVERAGE BALANCES Assets $1,648,550 $1,535,248 Loans and leases, net of unearned 1,108,473 1,064,991 Deposits 1,232,423 1,135,700 Earning assets 1,476,602 1,375,343 Stockholders' equity 112,722 99,555 EARNINGS PERFORMANCE RATIOS Return on average assets 1.03% 0.69% Return on average equity 15.14 10.65 Net interest margin 4.00 3.61 Net interest margin, excluding fleet leasing company debt 4.09 3.74 Efficiency ratio 69.12 75.36 Efficiency ratio, banks only 58.41 65.70 (1) Excludes goodwill amortization discontinued with the adoption of FAS No. 142 on January 1, 2002, and the adoption of FAS No. 147 on September 30, 2002. HEARTLAND FINANCIAL USA, INC. CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited) DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA As of and As of and For the For the Nine Months Year Ended Ended September 30, December 31, 2002 2001 ---------------------------- BALANCE SHEET DATA Total Assets $1,720,241 $1,644,064 Securities 380,211 325,217 Total loans and leases 1,164,386 1,105,205 Allowance for loan & lease losses 15,565 14,660 Total deposits 1,290,373 1,205,159 Long-term debt 130,219 143,789 Total stockholders' equity 119,588 107,090 PER COMMON SHARE DATA Book value per common share $ 12.19 $ 11.06 FAS 115 effect on book value per common share 0.54 0.37 LOAN AND LEASE DATA Commercial and commercial real estate $ 731,294 $ 651,479 Residential mortgage 144,221 168,912 Agricultural and agricultural real estate 157,830 145,460 Consumer 121,020 127,874 Direct financing leases, net 13,266 15,570 Unearned discount and deferred loan fees (3,245) (4,090) ---------- ---------- Total Loans and Leases $1,164,386 $1,105,205 ========== ========== ASSET QUALITY Nonaccrual loans $ 5,296 $ 7,623 Restructured loans - - Loans past due ninety days or more as to interest or principal payments 861 500 Other real estate owned 322 130 Other repossessed assets 424 343 ---------- ---------- Total nonperforming assets $ 6,903 $ 8,596 ========== ========== ALLOWANCE FOR LOAN AND LEASE LOSSES Balance, beginning of period $ 14,660 $ 13,592 Provision charged to operating expense 1,778 4,283 Loans charged off (2,123) (3,757) Recoveries 1,250 542 Additions related to acquisitions - - ---------- ---------- Balance, end of period $ 15,565 $ 14,660 ========== ========== ASSET QUALITY RATIOS Ratio of nonperforming loans to total loans & leases 0.53% 0.73% Ratio of nonperforming assets to total assets 0.40 0.52 Ratio of net loan chargeoffs to average loans and leases 0.08 0.30 Allowance for loan losses as a percent of loans 1.34 1.33 Allowance for loan losses as a percent of nonperforming loans and leases 252.80 180.47 As of and As of and For the For the Nine Months Year Ended Ended September 30, December 31, 2001 2000 ---------------------------- BALANCE SHEET DATA Total Assets $1,587,886 $1,466,387 Securities 336,322 228,065 Total loans and leases 1,082,697 1,042,096 Allowance for loan & lease losses 15,244 13,592 Total deposits 1,186,669 1,101,313 Long-term debt 123,042 102,856 Total stockholders' equity 103,618 96,146 PER COMMON SHARE DATA Book value per common share $ 10.82 $ 10.00 FAS 115 effect on book value per common share 0.42 0.14 LOAN AND LEASE DATA Commercial and commercial real estate $ 616,004 $ 550,366 Residential mortgage 178,451 215,638 Agricultural and agricultural real estate 145,692 133,614 Consumer 130,430 128,685 Direct financing leases, net 16,149 17,590 Unearned discount and deferred loan fees (4,029) (3,797) ---------- ---------- Total Loans and Leases $1,082,697 $1,042,096 ========== ========== ASSET QUALITY Nonaccrual loans $ 8,017 $ 5,860 Restructured loans - 357 Loans past due ninety days or more as to interest or principal payments 696 523 Other real estate owned 93 489 Other repossessed assets 488 219 ---------- ---------- Total nonperforming assets $ 9,294 $ 7,448 ========== ========== ALLOWANCE FOR LOAN AND LEASE LOSSES Balance, beginning of period $ 13,592 $ 10,844 Provision charged to operating expense 3,041 3,301 Loans charged off (1,737) (2,280) Recoveries 348 585 Additions related to acquisitions - 1,142 ---------- ---------- Balance, end of period $ 15,244 $ 13,592 ========== ========== ASSET QUALITY RATIOS Ratio of nonperforming loans to total loans & leases 0.80% 0.65% Ratio of nonperforming assets to total assets 0.59 0.51 Ratio of net loan chargeoffs to average loans and leases 0.13 0.17 Allowance for loan losses as a percent of loans 1.41 1.30 Allowance for loan losses as a percent of nonperforming loans and leases 174.96 201.60 HEARTLAND FINANCIAL USA, INC. CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited) DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA For the For the Quarter Ended Nine Months Ended September 30, September 30, 2002 2001 2002 2001 ------------------ ------------------- NONINTEREST INCOME Service charges and fees $ 2,188 $ 1,702 $ 6,338 $ 4,717 Trust fees 871 767 2,607 2,311 Brokerage commissions 122 181 452 474 Insurance commissions 158 161 535 590 Securities gains, net 573 552 729 1,476 Gain (loss) on trading account securities (450) (331) (692) (510) Rental income on operating leases 3,583 3,842 11,113 11,491 Gain on sale of loans 1,049 584 2,578 1,500 Valuation adjustment on mortgage servicing rights (503) - (829) - Impairment loss on equity securities (267) (455) (267) (455) Other noninterest income 190 164 728 561 -------- -------- -------- -------- Total noninterest income $ 7,514 $ 7,167 $ 23,292 $ 22,155 ======== ======== ======== ======== NONINTEREST EXPENSE Salaries and employee benefits $ 7,180 $ 6,381 $ 21,088 $ 18,919 Occupancy 799 758 2,353 2,365 Furniture and equipment 792 765 2,441 2,349 Depreciation on equipment under operating leases 2,845 2,947 8,754 8,739 Outside services 1,054 901 3,051 2,525 FDIC deposit insurance assessment 51 52 157 155 Advertising 406 394 1,245 1,180 Goodwill and core deposit intangibles amortization 124 418 371 1,254 Other noninterest expenses 2,375 2,136 6,687 6,052 -------- -------- -------- -------- Total noninterest expense $ 15,626 $ 14,752 $ 46,147 $ 43,538 ======== ======== ======== ========