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, 1998
[ ] 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 11, 1998 the Registrant had outstanding
4,725,817 shares of common stock, $1.00 par value per share.
<PAGE>
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
<PAGE>
HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
3/31/98 12/31/97
(Unaudited)
----------- --------
ASSETS
Cash and due from banks $ 25,157 $ 24,267
Federal funds sold 9,762 32,918
--------- ---------
Cash and cash equivalents 34,919 57,185
Time deposits in other
financial institutions 194 194
Securities:
Available for sale-at market
(cost of $198,782 for 1998 and
$193,805 for 1997) 202,107 197,869
Held to maturity-at cost
(approximate market value of $3,509
for 1998 and $3,999 for 1997) 3,394 3,879
Loans and leases:
Held for sale 14,606 10,437
Held to maturity 547,317 545,969
Allowance for possible loan and
lease losses (7,668) (7,362)
--------- ---------
Loans and leases, net 554,255 549,044
Premises, furniture and equipment, net 17,101 17,204
Other real estate, net 924 774
Other assets 29,018 25,911
--------- ---------
TOTAL ASSETS $841,912 $852,060
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits:
Demand $ 58,734 $ 60,950
Savings 249,810 252,292
Time 318,710 310,290
--------- ---------
Total deposits 627,254 623,532
Short-term borrowings 77,192 96,239
Accrued expenses and other liabilities 11,554 11,494
Other borrowings 47,350 43,023
--------- ---------
TOTAL LIABILITIES 763,350 774,288
--------- ---------
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, 1998,
and December 31, 1997) 4,854 4,854
Capital surplus 13,730 13,706
Retained earnings 60,685 58,914
Net unrealized gain on
securities available for sale 2,143 2,545
Treasury stock at cost
(125,819 and 106,251 shares at March
31, 1998, and December 31, 1997,
respectively) (2,850) (2,247)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 78,562 77,772
--------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $841,912 $852,060
========= =========
See accompanying notes to consolidated financial statements.
<PAGE>
HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(Dollars in thousands, except per share data)
Three Months Ended
3/31/98 3/31/97
-------- --------
INTEREST INCOME:
Interest and fees on loans and leases $ 12,207 $ 10,740
Interest on securities:
Taxable 2,816 2,591
Nontaxable 293 287
Interest on federal funds sold 373 151
Interest on interest bearing deposits
in other financial institutions 57 19
-------- --------
TOTAL INTEREST INCOME 15,746 13,788
-------- --------
INTEREST EXPENSE:
Interest on deposits 6,670 5,996
Interest on short-term borrowings 1,188 737
Interest on other borrowings 698 637
-------- --------
TOTAL INTEREST EXPENSE 8,556 7,370
-------- --------
NET INTEREST INCOME 7,190 6,418
Provision for possible loan
and lease losses 350 321
-------- --------
NET INTEREST INCOME AFTER
PROVISION FOR POSSIBLE LOAN
AND LEASE LOSSES 6,840 6,097
-------- --------
OTHER INCOME:
Service charges and fees 698 667
Trust fees 496 471
Brokerage commissions 72 63
Insurance commissions 253 139
Securities gains, net 661 293
Rental income on operating leases 398 125
Gain on sale of loans 273 41
Other noninterest income 97 50
-------- --------
TOTAL OTHER INCOME 2,948 1,849
-------- --------
OTHER EXPENSES:
Salaries and employee benefits 3,562 3,034
Occupancy 377 353
Furniture and equipment 495 338
Outside services 260 375
FDIC deposit insurance assessment 32 20
Advertising 175 164
Depreciation on equipment under
operating leases 284 90
Other noninterest expense 1,028 880
-------- --------
TOTAL OTHER EXPENSES 6,213 5,254
-------- --------
INCOME BEFORE INCOME TAXES 3,575 2,692
Income taxes 1,094 774
-------- --------
NET INCOME $ 2,481 $ 1,918
======== ========
EARNINGS PER COMMON SHARE-BASIC $ 0.52 $ 0.40
EARNINGS PER COMMON SHARE-DILUTED 0.52 0.40
CASH DIVIDENDS DECLARED
PER COMMON SHARE $ 0.15 $ 0.13
See accompanying notes to consolidated financial statements.
<PAGE>
HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
(Dollars in thousands)
Three Months Ended
3/31/98 3/31/97
-------- --------
NET INCOME $ 2,481 $ 1,918
Other comprehensive income, net of tax:
Unrealized gains (losses) on
securities available for sale:
Unrealized holding gains (losses)
arising during the period 34 (488)
Less: reclassification adjustment for
gains included in net income (436) (193)
-------- --------
Other comprehensive income (402) (681)
-------- --------
COMPREHENSIVE INCOME $ 2,079 $ 1,237
======== ========
See accompanying notes to consolidated financial statements.
<PAGE>
HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in thousands)
Three Months Ended
3/31/98 3/31/97
------- -------
NET CASH PROVIDED BY
OPERATING ACTIVITIES $ 6,705 $ 1,805
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of time deposits - (16)
Proceeds on the maturities of time
deposits - 6
Proceeds from the sale of
securities available for sale 1,144 11,699
Proceeds from the maturity of and
principal paydowns on
securities held to maturity 306 100
Proceeds from the maturity of and
principal paydowns on
securities available for sale 5,999 5,387
Proceeds from the maturity of and
principal paydowns on mortgage-
backed securities held to maturity 204 -
Proceeds from the maturity of and
principal paydowns on mortgage-
backed securities available for sale 6,459 1,801
Purchase of securities available
for sale (2,245) (15,209)
Purchase of mortgage-backed
securities available for sale (15,692) (968)
Net increase in loans and leases (10,164) (10,770)
Net increase in assets under operating
leases (1,536) (924)
Capital expenditures (346) (918)
Net cash and cash equivalents received
in acquisition of subsidiaries - 670
Proceeds on sale of fixed assets 8 1
Proceeds on sale of repossessed assets 4 4
--------- ---------
NET CASH USED BY INVESTING ACTIVITIES (15,859) (9,137)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in demand deposits
and savings accounts (4,698) (6,439)
Net increase in time deposit accounts 8,420 6,888
Net increase in other borrowings 4,327 1,500
Net decrease in short-term borrowings (19,871) (5,614)
Purchase of treasury stock (645) (154)
Proceeds from sale of treasury stock 66 251
Dividends (711) (616)
--------- ---------
NET CASH USED BY FINANCING ACTIVITIES (13,112) (4,184)
--------- ---------
Net decrease in cash and cash
equivalents (22,266) (11,516)
Cash and cash equivalents at
beginning of year 57,185 40,080
--------- ---------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 34,919 $ 28,564
========= =========
Supplemental disclosures:
Cash paid for income/franchise taxes $ 245 $ 18
========= =========
Cash paid for interest $ 8,532 $ 7,254
========= =========
Other borrowings transferred to
short-term borrowings
- $ 6,555
========= =========
See accompanying notes to consolidated financial statements.
<PAGE>
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, 1997,
included in Heartland Financial USA, Inc.'s ("the Company") Form
10-K filed with the Securities and Exchange Commission on March
31, 1998. Accordingly, footnote disclosure which would
substantially duplicate the disclosure contained in the audited
consolidated financial statements has been omitted.
The financial information of 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, 1998, are not necessarily indicative of the results expected
for the year ending December 31, 1998.
Basic earnings per share is determined using net income and
weighted average common shares outstanding. Diluted earnings per
share is computed by dividing net income by the weighted average
common shares and assumed incremental common shares issued.
Amounts used in the determination of basic and diluted earnings
per share for the quarters ended March 31, 1998 and 1997, are
shown in the table below:
Three Months Ended
3/31/98 3/31/97
-------- --------
Net Income $ 2,481 $ 1,918
======== ========
Weighted average common shares
outstanding 4,736 4,737
Assumed incremental common shares issued
upon exercise of stock options 64 64
-------- --------
Weighted average common shares for
diluted earnings per share 4,800 4,801
======== ========
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.
Total earnings of $2,481,000 for the first quarter of 1998 were
up 29.35% from the $1,918,000 earned in the same quarter of 1997.
On a basic per common share basis, the first quarter earnings
increased from $.40 in 1997 to $.52 in 1998. Return on common
equity for the first quarter of 1998 increased to 12.81% from
10.88% for the same quarter of 1997 and return on assets was
1.19% for the first quarter of 1998 as compared to 1.06% for the
same quarter in 1997.
Growth of the Company's asset base and expansion of noninterest
income were responsible for increased earnings during the first
quarter of 1998 compared to the same period in 1997. Major
contributors in the noninterest income area were securities
gains, rental income on operating leases and gains on the sale of
loans. The strong growth in noninterest income was partially
offset by an increase in noninterest expense during the same
periods under comparison. Wisconsin Community Bank's opening of
a new branch location in Middleton, Wisconsin, along with the
establishment of a de novo community bank in Albuquerque, New
Mexico, were the largest contributors to the growth in
noninterest expense.
NET INTEREST INCOME
For the first quarter of 1998, net interest income increased
$772,000 or 12.03% when compared to the same period in 1997.
This increase was primarily attributable to the 9.18% growth in
total assets from $771,113,000 on March 31, 1997, to $841,912,000
on March 31, 1998, the majority of which occurred in the loan
portfolio. Net interest income to average earning assets on a
fully tax equivalent basis was 3.82% for the three month period
ended March 31, 1998, as compared to 3.94% for the three month
period ended March 31, 1997.
NONINTEREST INCOME
Noninterest income grew $1,099,000 or 59.44% during the first
quarter of 1998 when compared to the same period in 1997.
Securities gains was the largest component, increasing $368,000
or 125.60% for the periods under comparison. The strong
performance of the Company's equity portfolio has been
responsible for these continued gains.
The $273,000 or 218.40% increase in rental income on operating
leases during the first quarter of 1998 compared to the same
period in 1997 was attributable to the operations of ULTEA, the
Company's fleet leasing company. The first quarter of 1997 was
ULTEA's first full quarter of operations as a subsidiary of the
Company.
Gains on the sale of loans were up $232,000 or 565.85% for the
first quarter of 1998 compared to the first quarter of 1997. The
Company experienced refinancing activity in its real estate
mortgage loan portfolio as a result of decreasing interest rates.
The majority of these new fixed rate fifteen- and thirty-year
real estate loans were sold into the secondary market, while the
servicing of these loans was retained by the Company.
During the first quarter of 1998, insurance commissions grew
$114,000 over the same period in 1997. This 82.01% increase was
primarily due to additional sales of annuity products resulting
from enhancements in this product line.
NONINTEREST EXPENSE
Noninterest expense increased $959,000 or 18.25% for the three
months ended March 31, 1998, when compared to the same period in
1997. Salaries and employee benefits, the largest component of
noninterest expense, increased $528,000 or 17.40% for the periods
under comparison. This increase partially resulted from the
acquisition of Wisconsin Community Bank on March 1, 1997, and its
subsequent opening of a branch facility in Middleton, Wisconsin,
in February of this year. Also contributing to this increase
were personnel additions related to the May opening of New Mexico
Bank and Trust, the Company's most recent de novo community bank
located in Albuquerque, New Mexico.
Furniture and equipment expense for the period ended March 31,
1998, increased $157,000 or 46.45% when compared to the same
period in 1997. In addition to the expansion at Wisconsin
Community Bank and the opening of New Mexico Bank and Trust,
additional equipment expense was incurred at all the banks to
provide them with enhanced technological capabilities.
Fees paid for outside services declined $115,000 or 30.67% for
the first quarter of 1998 over the same period in 1997. The
majority of this decrease was attributable to the elimination of
data processing fees at First Community Bank.
Concurrent with the growth experienced at ULTEA, the depreciation
on equipment under operating leases increased $194,000 or 215.56%
during the first quarter of 1998 compared to the same quarter in
1997.
Other noninterest expenses grew $148,000 or 16.82% during the
three month period ended March 31, 1998, when compared to the
same period in 1997. Included in these expenses were maintenance
and amortization on software which has increased due to the
conversion of the bank subsidiaries to Fiserv's Comprehensive
Banking Systems during the spring of 1997.
The Company utilizes and is dependent upon data processing
systems and software to conduct its business. The data
processing systems and software include those developed and
maintained by Heartland's third-party data processing vendor and
purchased software which is run on personal computer networks.
Heartland has completed an assessment and work plan to assure
that all hardware and software utilized by Heartland subsidiaries
will function properly in the year 2000. Testing will be
completed during the second half of 1998 as software enhancements
are installed. Noninterest expense includes the cost of such
projects. Heartland management continues to review the cost
associated with the year 2000 project and presently has not
identified any situations that will require material cost
expenditures to become fully compliant.
INCOME TAX EXPENSE
Income tax expense for the first three months of 1998 increased
$320,000 or 41.34% over the same period in 1997, primarily as a
result of corresponding increases in pre-tax earnings. The
Company's effective tax rate increased from 28.75% for the three
month period ended March 31, 1997, to 30.60% for the same period
in 1998. A reduction in tax-exempt income during 1998
contributed to this increase.
FINANCIAL CONDITION
LOANS AND PROVISION FOR LOAN AND LEASE LOSSES
Net loans and leases remained stable during the first quarter of
1998, increasing $5,211,000 or .95% from December 31, 1997.
Agricultural loan outstandings experienced the most significant
growth, increasing $3,656,000 or 5.28% from December 31, 1997, to
March 31, 1998. Residential mortgage outstandings, the only
category to experience a decrease during the first quarter of
1998, declined $4,488,000 or 2.56% as customers elected to take
fixed rate fifteen- and thirty-year mortgages which the bank
subsidiaries sold into the secondary market.
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 for some time and the
growth of the allowance is intended to anticipate the cyclical
nature of most economies; and iii) the amount of nonaccrual loans
has continued to grow over the past three years. 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,
1998. The allowance for loan and lease losses was increased
$306,000 or 4.16% during the first quarter of 1998.
The Company's provision for loan and lease losses was $350,000
for the three months ended March 31, 1998, compared to $321,000
for the same period in 1997. Net charge-offs were $44,000 during
the first quarter of 1998 compared to net recoveries of $10,000
during the first quarter of 1997. The allowance for loan and
lease losses as a percentage of total loans was 1.36% as of March
31, 1998, 1.32% as of December 31, 1997, and 1.33% as of March
31, 1997.
Nonperforming loans, defined as nonaccrual loans, restructured
loans and loans past due ninety days or more, increased from
$2,032,000 at December 31, 1997, to $2,652,000 at March 31, 1998,
an increase of $620,000 or 30.51%. A major portion of this
increase was driven by the deterioration of one large commercial
credit at Wisconsin Community Bank. As a percentage of total
loans and leases, nonperforming loans was at .47% on March 31,
1998, and .37% at December 31, 1997.
SECURITIES
The primary objective of the securities portfolio continues to be
to provide the Company's bank subsidiaries with a source of
liquidity given their high loan-to-deposit ratios. Securities
represented 24.41% of total assets at March 31, 1998, as compared
to 23.68% at December 31, 1997. During the first quarter of
1998, the composition of the portfolio was maintained at the
December 31, 1997, levels.
DEPOSITS AND BORROWED FUNDS
Total deposits remained stable during the first quarter of 1998,
increasing $3,722,000 or .60%. Demand and savings deposits
experienced a decrease of $2,216,000 (3.64%) and $2,482,000
(.98%), respectively. Much of this reduction can be attributed
to normal seasonal fluctuations. Certificates of deposit
increased $8,420,000 or 2.71% over the December 31, 1997, total.
The subsidiary banks continued to experience only moderate growth
in time deposits as customers were drawn to alternative
investment products, such as mutual funds.
Short-term borrowings generally include federal funds purchased,
treasury tax and loan note options, 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.
Over the three month period ended March 31, 1998, the balance in
this account had decreased $19,047,000 or 19.79%. This change
was primarily the result of reduced treasury tax and loan note
options. Also contributing to this decrease was a reduction in
the amount of repurchase agreements requested by the corporate
cash management customers and the maturity of $5,000,000 in FHLB
advances.
Other borrowings increased $4,327,000 or 10.06% during the first
quarter of 1998. To meet general corporate commitments and
provide working capital to the nonbanking subsidiaries,
borrowings under Heartland's unsecured revolving credit line were
increased from $3,500,000 at December 31, 1997, to $6,100,000 at
March 31, 1998. Long-term FHLB advances were increased $2,000,000
during the first quarter of 1998. These long-term advances
totaled $38,900,000 on March 31, 1998, with a weighted average
remaining term of 3.71 years and a weighted average rate of
6.01%.
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)
3/31/98 12/31/97
Amount Ratio Amount Ratio
------ ----- ------ -----
Risk-Based Capital Ratios:(1)
Tier 1 capital $ 72,987 11.57% $ 71,713 11.54%
Tier 1 capital minimum
requirement 25,237 4.00% 24,854 4.00%
-------- ------ -------- ------
Excess $ 47,750 7.57% $ 46,859 7.54%
======== ====== ======== ======
Total capital $ 80,653 12.78% $ 78,995 12.71%
Total capital minimum
requirement 50,474 8.00% 49,707 8.00%
-------- ------ -------- ------
Excess $ 30,179 4.78% $ 29,288 4.71%
======== ====== ======== ======
Total risk adjusted assets $630,923 $621,338
======== ========
Leverage Capital Ratios:(2)
Tier 1 capital $ 72,987 8.65% $ 71,713 8.76%
Tier 1 capital minimum
requirement(3) 33,754 4.00% 32,729 4.00%
-------- ------ -------- ------
Excess $ 39,233 4.65% $ 38,984 4.76%
======== ====== ======== ======
Average adjusted assets
(less goodwill) $843,859 $818,232
======== ========
(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. As a result of the acquisition of
Wisconsin Community Bank, the Company has cash payments remaining
under the agreement of $823,000 in 1999, $594,000 in 2000 and
$584,000 in 2001.
During April, 1998, the Company funded the remaining $10,800,000
of its 80% or $12,000,000 investment in New Mexico Bank and Trust
which opened on May 4, 1998. The Company's unsecured revolving
credit line was utilized to fund this advance.
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 increased $6,722,000
during the first three months of 1998 compared to the same period
in 1997. During the first three months of 1998, proceeds from
the sale and maturity of securities decreased $4,875,000 compared
to the same period in 1997.
Net cash outflows for financing activities increased $8,928,000 for
the three month period ended March 31, 1998, compared to the same
period in 1997. Cash provided by a net change in deposits
increased $3,273,000 while cash used by a net change in borrowings
increased $11,430,000 during the periods under comparison.
Total cash inflows from operating activities increased $4,900,000
for the first quarter of 1998 compared to the same quarter of
1997. 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.
In the event of short term liquidity needs, the bank subsidiaries
may purchase federal funds from each other or from correspondent
banks. The bank subsidiaries may also borrow funds from the
Federal Reserve Bank, but has not done so during the periods
covered in this report. Also, the subsidiary banks' FHLB
memberships give them the ability to borrow funds for short- and
long-term purposes under a variety of programs.
The Company's revolving credit agreement provides for total
borrowings of up to $20,000,000 at any one time. The agreement
contains specific covenants which, among other things, limit
dividend payments and restrict the sale of assets by the Company
under certain circumstances. Also contained within the agreement
are certain financial covenants, including the maintenance by the
Company of a maximum nonperforming assets to total loans ratio,
minimum return on average assets ratio, maximum funded debt to
total equity capital ratio, and requires that each of the bank
subsidiaries remain well capitalized, as defined from time to
time by the federal banking regulators.
RECENT REGULATORY DEVELOPMENTS
The federal banking regulators have issued several statements
providing guidance to financial institutions on the steps the
regulators expect financial institutions to take to become Year
2000 compliant. Each of the federal banking regulators is also
examining the financial institutions under its jurisdiction to
assess each institution's compliance with the outstanding
guidance. If an institution's progress in addressing the Year
2000 problem is deemed by its primary federal regulator to be
less than satisfactory, the institution will be required to enter
into a memorandum of understanding with the regulator which will,
among other things, require the institution to promptly develop
and submit an acceptable plan for becoming Year 2000 compliant
and to provide periodic reports describing the institution's
progress in implementing the plan. Failure to satisfactorily
address the Year 2000 problem may also expose a financial
institution to other forms of enforcement action that its primary
federal regulator deems appropriate to address the deficiencies
in the institution's Year 2000 remediation program. Each of the
bank subsidiaries have been examined by their primary federal
regulator relative to the Year 2000 problem and none have been
required to enter into a memorandum of understanding with their
regulator.
<PAGE>
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
<PAGE>
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, 1998
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