-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OYLzGbmeDLGpJ1/cBD3BU1S7OCifkyuUOlC/xcj6ayZEHcHr6dxJeEVfzbTmy+7Z 8wYTSNqkTx61vFiPiKbneQ== 0000920112-97-000013.txt : 19970520 0000920112-97-000013.hdr.sgml : 19970520 ACCESSION NUMBER: 0000920112-97-000013 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970515 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: HEARTLAND FINANCIAL USA INC CENTRAL INDEX KEY: 0000920112 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTION, FEDERALLY CHARTERED [6035] IRS NUMBER: 421405748 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-24724 FILM NUMBER: 97607315 BUSINESS ADDRESS: STREET 1: 1398 CENTRAL AVE CITY: DUBUQUE STATE: IA ZIP: 52001 BUSINESS PHONE: 3195892000 MAIL ADDRESS: STREET 1: 1398 CENTRAL AVE CITY: DUBUQUE STATE: IA ZIP: 52001 10-Q 1 10Q FOR 3-31-97 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 EX-27 2 FDS SCHEDULE
9 0000920112 HEARTLAND FINANCIAL USA, INC. 1,000 3-MOS 3-MOS DEC-31-1997 DEC-31-1996 MAR-31-1997 MAR-31-1996 21,372 24,299 3,635 4,278 3,929 9,050 000 000 185,692 156,948 6,481 2,328 6,548 2,432 516,610 455,859 (6,853) (5,892) 771,113 675,438 591,662 528,175 60,197 33,401 8,823 8,732 39,582 40,400 000 000 000 000 4,854 4,854 65,995 59,876 771,113 675,438 10,740 9,886 2,878 2,443 170 288 13,788 12,617 5,996 5,717 7,370 6,807 6,418 5,810 321 747 293 1,322 5,254 4,685 2,692 2,964 2,692 2,964 000 000 000 000 1,918 2,278 .40 .48 .40 .48 3.94 3.86 1,884 704 206 277 29 000 000 000 6,191 5,580 (38) (490) 48 55 6,853 5,892 3,838 3,185 000 000 3,015 2,707
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