Heartland Financial USA(HTLF) - 2021 Q1 - Quarterly Report

Part I - Financial Information Item 1. Financial Statements This section presents Heartland Financial USA, Inc.'s unaudited consolidated financial statements and detailed notes for Q1 2021 Consolidated Financial Statements For Q1 2021, total assets reached $18.24 billion, with net income available to common stockholders significantly increasing to $50.8 million Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Total Assets | $18,244,427 | $17,908,339 | | Cash and cash equivalents | $467,862 | $337,903 | | Securities | $6,455,788 | $6,216,814 | | Loans receivable, net | $9,920,284 | $9,891,445 | | Goodwill | $576,005 | $576,005 | | Total Liabilities | $16,188,220 | $15,829,108 | | Total deposits | $15,559,051 | $14,979,905 | | Total Stockholders' Equity | $2,056,207 | $2,079,231 | Consolidated Income Statement Highlights (in thousands, except per share data) | Metric | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :--- | :--- | :--- | | Net Interest Income | $139,605 | $112,511 | | Provision (benefit) for credit losses | $(648) | $21,520 | | Noninterest Income | $30,317 | $25,817 | | Noninterest Expenses | $102,423 | $90,859 | | Net Income | $52,814 | $20,040 | | Net Income Available to Common Stockholders | $50,801 | $20,040 | | Earnings Per Common Share - Diluted | $1.20 | $0.54 | - Net cash provided by operating activities was $66.6 million for the three months ended March 31, 2021, compared to $17.1 million for the same period in 2020. Net cash used in investing activities was $369.6 million, while net cash provided by financing activities was $433.0 million, driven by a net increase in deposits[13][14] Notes to Consolidated Financial Statements The notes detail accounting policies and financial components, including recent acquisitions, loan portfolio, credit loss allowance, goodwill, and fair value measurements - In December 2020, the company completed the acquisition of certain assets of Johnson Bank's Arizona operations, acquiring $419.7 million in assets and $415.5 million in deposits. It also acquired AIM Bancshares, Inc., adding $1.97 billion in assets and $1.67 billion in deposits[24][25] Loan Portfolio Composition (in thousands) | Loan Category | March 31, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Commercial and industrial | $2,421,260 | $2,534,799 | | Paycheck Protection Program (PPP) | $1,155,328 | $957,785 | | Owner occupied commercial real estate | $1,837,559 | $1,776,406 | | Non-owner occupied commercial real estate | $1,967,183 | $1,921,481 | | Real estate construction | $796,027 | $863,220 | | Agricultural and agricultural real estate | $683,969 | $714,526 | | Residential real estate | $786,994 | $840,442 | | Consumer | $402,136 | $414,392 | | Total loans receivable held to maturity | $10,050,456 | $10,023,051 | - The allowance for credit losses on loans decreased slightly to $130.2 million at March 31, 2021, from $131.6 million at December 31, 2020. The company recorded a net provision benefit of $648,000 for the quarter, compared to a provision expense of $21.5 million in Q1 2020[57][11] - Goodwill remained unchanged at $576.0 million at March 31, 2021. Core deposit and customer relationship intangibles, net, were $39.9 million[58][62] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2021 financial performance, emphasizing net income growth driven by increased net interest income and credit loss provision reversal, alongside impacts of acquisitions and PPP loans Key Performance Ratios | Metric | Q1 2021 | Q1 2020 | | :--- | :--- | :--- | | Return on average assets | 1.19% | 0.61% | | Return on average common equity | 10.49% | 4.98% | | Net interest margin (tax-equivalent, non-GAAP) | 3.48% | 3.84% | | Efficiency ratio (tax-equivalent, non-GAAP) | 56.61% | 61.82% | - Net interest income increased by 24% to $139.6 million in Q1 2021 from $112.5 million in Q1 2020. This was driven by a 38% increase in average earning assets, primarily from acquisitions and PPP loans, which offset a 79 basis point decline in asset yields. Interest expense decreased by 58% due to lower market rates[177][178] - The company originated a second round of PPP loans totaling $429.0 million in Q1 2021. As of March 31, 2021, total PPP loans outstanding were $1.16 billion[163][211] - Total deposits grew by $579.1 million (4%) during the quarter to $15.56 billion, with growth in non-time deposits positively impacted by federal government stimulus payments[230] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section details the company's management of market risk, primarily interest rate risk, using simulation analysis to assess the impact of rate changes on net interest income Net Interest Margin Sensitivity Analysis (Year 1) | Interest Rate Scenario | Estimated Net Interest Margin | % Change From Base | | :--- | :--- | :--- | | Down 100 Basis Points | $492,640,000 | (2.09)% | | Base | $503,131,000 | 0.00% | | Up 200 Basis Points | $529,261,000 | 5.19% | - The company's interest rate risk analysis shows that a gradual 200 basis point increase in rates over 12 months would increase net interest margin by 5.19% in the first year. A 100 basis point decrease would lower it by 2.09%[264] Item 4. Controls and Procedures Management concluded that as of March 31, 2021, the company's disclosure controls and procedures were effective, with no material changes in internal controls - The CEO and CFO have certified that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[267] - No changes in internal control over financial reporting occurred during the first quarter of 2021 that have materially affected, or are reasonably likely to materially affect, these controls[267] Part II - Other Information Item 1. Legal Proceedings The company is involved in ordinary litigation not expected to have a material financial effect, with a $5.3 million holdback from the AimBank acquisition for potential losses - HTLF is subject to ordinary legal proceedings incidental to its business, which are not expected to have a material financial impact[269] - A $5.3 million holdback from the AimBank acquisition consideration was set aside for potential losses from a specific legal case involving a former customer. Management believes this amount is sufficient to cover any potential losses[270] Item 1A. Risk Factors There have been no material changes to the risk factors disclosed in the company's 2020 Annual Report on Form 10-K - No material changes in risk factors were reported since the company's 2020 Annual Report on Form 10-K[271] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company did not repurchase any of its common stock during the quarter ended March 31, 2021 - HTLF and its affiliated purchasers made no purchases of its common stock during the first quarter of 2021[272] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including amended bylaws, stock award agreements, and CEO/CFO certifications