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 September 30, 1999
[ ] 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 November 12, 1999, the Registrant had outstanding
9,584,783 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
Item 3. Quantitative and Qualitative Disclosures About
Market Risk
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)
9/30/99 12/31/98
(Unaudited)
----------- ----------
ASSETS
Cash and due from banks $ 32,274 $ 25,355
Federal funds sold 8,700 17,476
----------- -----------
Cash and cash equivalents 40,974 42,831
Time deposits in other
financial institutions 6,151 6,127
Securities:
Available for sale-at market
(cost of $203,417 for 1999 and
$236,417 for 1998) 201,876 239,770
Held to maturity-at cost
(approximate market value of $2,715
for 1999 and $2,871 for 1998) 2,631 2,718
Loans and leases:
Held for sale 17,843 10,985
Held to maturity 775,529 579,148
Allowance for possible loan and
lease losses (10,406) (7,945)
----------- -----------
Loans and leases, net 782,966 582,188
Assets under operating leases 35,441 34,622
Premises, furniture and equipment, net 25,356 19,780
Other real estate, net 906 857
Goodwill and other intangibles 15,671 3,901
Other assets 25,951 20,991
----------- -----------
TOTAL ASSETS $1,137,923 $ 953,785
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits:
Demand $ 96,217 $ 70,871
Savings 352,378 292,852
Time 393,912 354,154
----------- -----------
Total deposits 842,507 717,877
Short-term borrowings 135,701 75,920
Accrued expenses and other liabilities 17,756 18,095
Other borrowings 56,042 57,623
----------- -----------
TOTAL LIABILITIES 1,052,006 869,515
----------- -----------
STOCKHOLDERS' EQUITY:
Preferred stock (par value $1 per share;
authorized, 200,000 shares) - -
Common stock (par value $1 per share;
authorized, 12,000,000 shares; issued,
9,707,252 shares at September 30, 1999,
and December 31, 1998) 9,707 9,707
Capital surplus 15,281 14,984
Retained earnings 63,986 60,154
Accumulated other comprehensive income (994) 2,107
Treasury stock at cost
(122,469 and 172,173 shares at September
30, 1999, and December 31, 1998,
respectively) (2,063) (2,682)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 85,917 84,270
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $1,137,923 $ 953,785
=========== ===========
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 Nine Months Ended
9/30/99 9/30/98 9/30/99 9/30/98
------- ------- ------- -------
INTEREST INCOME:
Interest and fees on
loans and leases $ 16,189 $ 12,503 $ 43,215 $ 37,112
Interest on securities:
Taxable 2,695 3,009 8,519 8,551
Nontaxable 307 286 905 862
Interest on federal
funds sold 138 381 217 1,110
Interest on interest
bearing deposits in
other financial
institutions 137 108 349 251
-------- -------- -------- --------
TOTAL INTEREST INCOME 19,466 16,287 53,205 47,886
-------- -------- -------- --------
INTEREST EXPENSE:
Interest on deposits 7,978 7,425 22,475 21,000
Interest on short-term
borrowings 1,721 990 4,025 3,117
Interest on other
borrowings 907 1,039 2,662 2,582
-------- -------- -------- --------
TOTAL INTEREST EXPENSE 10,606 9,454 29,162 26,699
-------- -------- -------- --------
NET INTEREST INCOME 8,860 6,833 24,043 21,187
Provision for possible
loan and lease losses 680 604 1,976 889
-------- -------- -------- --------
NET INTEREST INCOME
AFTER PROVISION FOR
POSSIBLE LOAN AND
LEASE LOSSES 8,180 6,529 22,067 20,298
-------- -------- -------- --------
OTHER INCOME:
Service charges and fees 1,054 788 2,822 2,199
Trust fees 736 676 1,961 1,716
Brokerage commissions 183 86 431 272
Insurance commissions 231 179 628 581
Securities gains, net 45 535 762 1,620
Rental income on
operating leases 3,695 2,901 10,993 3,866
Gains on sale of loans 171 272 921 847
Other 243 78 664 263
-------- -------- -------- --------
TOTAL OTHER INCOME 6,358 5,515 19,182 11,364
-------- -------- -------- --------
OTHER EXPENSES:
Salaries and employee
benefits 5,006 4,050 13,920 11,324
Occupancy 603 409 1,533 1,208
Furniture and equipment 616 525 1,709 1,343
Outside services 608 392 1,612 1,026
FDIC deposit insurance
assessment 32 28 93 89
Advertising 405 316 1,054 813
Depreciation on equipment
under operating leases 2,755 2,069 8,078 2,763
Other operating expenses 1,777 1,309 4,518 3,619
-------- -------- -------- --------
TOTAL OTHER EXPENSES 11,802 9,098 32,517 22,185
-------- -------- -------- --------
INCOME BEFORE INCOME
TAXES 2,736 2,946 8,732 9,477
Income taxes 731 892 2,515 2,851
-------- -------- -------- --------
NET INCOME $ 2,005 $ 2,054 $ 6,217 $ 6,626
======== ======== ======== ========
EARNINGS PER COMMON
SHARE-BASIC $ 0.21 $ 0.22 $ 0.65 $ 0.70
EARNINGS PER COMMON
SHARE-DILUTED $ 0.20 $ 0.22 $ 0.64 $ 0.69
CASH DIVIDENDS DECLARED
PER COMMON SHARE $ 0.09 $ 0.08 $ 0.25 $ 0.23
See accompanying notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME (Unaudited)
(Dollars in thousands, except per share data)
Common Capital Retained
Stock Surplus Earnings
------- ------- --------
Balance at January 1, 1998 $ 4,854 $13,706 $58,914
Net Income-First nine months
1998 - - 6,626
Unrealized gain (loss) on
securities available for sale - - -
Reclassification adjustment for
gains realized in net income - - -
Income taxes - - -
Two-for-one stock split 4,853 - (4,853)
Comprehensive income
Cash dividends declared:
Common, $.23 per share - - (2,169)
Purchase of 50,062 shares
of common stock - - -
Sale of 308,910 shares
of common stock - 1,265 -
------- ------- -------
Balance at September 30, 1998 $ 9,707 $14,971 $58,518
======= ======= =======
Balance at January 1, 1999 $ 9,707 $14,984 $60,154
Net Income-First nine months
1999 - - 6,217
Unrealized gain (loss) on
securities available for sale - - -
Reclassification adjustment for
gains realized in net income - - -
Income taxes - - -
Comprehensive income
Cash dividends declared:
Common, $.25 per share - - (2,385)
Purchase of 29,375 shares
of common stock - - -
Sale of 79,079 shares
of common stock - 297 -
------- ------- -------
Balance at September 30, 1999 $ 9,707 $15,281 $63,986
======= ======= =======
Accumulated
Other
Comprehensive Treasury
Income Stock Total
------------- -------- -----
Balance at January 1, 1998 $ 2,545 $(2,247) $77,772
Net Income-First nine months
1998 - - 6,626
Unrealized gain (loss) on
securities available for sale 820 - 820
Reclassification adjustment for
gains realized in net income (1,620) - (1,620)
Income taxes 272 - 272
Two-for-one stock split - - -
-------
Comprehensive income 6,098
Cash dividends declared:
Common, $.23 per share - - (2,169)
Purchase of 50,062 shares
of common stock - (4,163) (4,163)
Sale of 308,910 shares
of common stock - 3,703 4,968
------- ------- -------
Balance at September 30, 1998 $ 2,017 $(2,707) $82,506
======= ======= =======
Balance at January 1, 1999 $ 2,107 $(2,682) $84,270
Net Income-First nine months
1999 - - 6,217
Unrealized gain (loss)on
securities available for sale (3,937) - (3,937)
Reclassification adjustment for
gains realized in net income (762) - (762)
Income taxes 1,598 - 1,598
-------
Comprehensive income 3,116
Cash dividends declared:
Common, $.25 per share - - (2,385)
Purchase of 29,375 shares
of common stock - (547) (547)
Sale of 79,079 shares
of common stock - 1,166 1,463
------- ------- -------
Balance at September 30, 1999 $ (994) $(2,063) $85,917
======= ======= =======
See accompanying notes to consolidated financial statements.
<PAGE>
HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in thousands)
Nine Months Ended
9/30/99 9/30/98
------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 6,217 $ 6,626
Adjustments to reconcile net income
to net cash provided from operating
activities:
Depreciation and amortization 10,336 4,591
Provision for possible loan and lease
losses 1,976 889
Provision for income taxes (128) (503)
Net amortization of premium on
securities 1,260 540
Securities gains, net (762) (1,620)
Loans originated for sale (70,219) (97,598)
Proceeds on sales of loans 64,694 101,360
Net gain on sales of loans (921) (847)
Increase in accrued interest
receivable (1,482) (1,439)
Increase (decrease) in accrued
payable (44) 521
Other, net (3,425) 892
--------- ---------
NET CASH PROVIDED FROM OPERATING
ACTIVITIES 7,502 13,412
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of time deposits (24) (1,462)
Proceeds from the sale of
securities available for sale 13,538 23,697
Proceeds from the sale of
mortgage-backed securities
available for sale - 2,276
Proceeds from the maturity of and
principal paydowns on
securities held to maturity 85 637
Proceeds from the maturity of and
principal paydowns on
securities available for sale 27,404 31,787
Proceeds from the maturity of and
principal paydowns on mortgage-
backed securities held to maturity - 343
Proceeds from the maturity of and
principal paydowns on mortgage-
backed securities available for sale 58,629 38,472
Purchase of securities available
for sale (54,503) (63,768)
Purchase of mortgage-backed
securities available for sale (11,586) (56,739)
Net increase in loans and leases (159,098) (6,218)
Increase in assets under operating
leases (8,897) (7,454)
Capital expenditures (6,177) (3,524)
Net cash and cash equivalents
received in acquisition of
subsidiaries 43,682 2,730
Net cash and cash equivalents paid
in acquisition of trust assets (528) -
Proceeds on sale of other real estate
owned 50 497
Proceeds on sale of fixed assets 13 8
Proceeds on sale of repossessed assets 413 85
--------- ---------
NET CASH USED BY INVESTING ACTIVITIES (96,999) (38,633)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand deposits
and savings accounts 32,008 36,210
Net increase in time deposit accounts 1,222 37,088
Net increase in other borrowings 7,014 19,758
Net increase (decrease) in short-term
borrowings 48,808 (43,080)
Purchase of treasury stock (547) (4,163)
Proceeds from sale of treasury stock 1,463 593
Proceeds from the sale of minority
interest 57 -
Dividends (2,385) (2,169)
--------- ---------
NET CASH PROVIDED FROM FINANCING
ACTIVITIES 87,640 44,237
--------- ---------
Net increase (decrease) in cash
and cash equivalents (1,857) 19,016
Cash and cash equivalents at
beginning of year 42,831 57,185
--------- ---------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 40,974 $ 76,201
========= =========
Supplemental disclosures:
Cash paid for income/franchise taxes $ 2,563 $ 2,619
========= =========
Cash paid for interest $ 29,206 $ 26,178
========= =========
Other borrowings transferred to
short-term borrowings $ 8,595 $ 12,323
========= =========
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, 1998,
included in Heartland Financial USA, Inc.'s (the "Company") Form
10-K filed with the Securities and Exchange Commission on March
31, 1999. 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 periods ended
September 30, 1999, are not necessarily indicative of the results
expected for the year ending December 31, 1999.
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 three and nine month periods ended September
30, 1999 and 1998, are shown in the tables below:
Three Months Ended
9/30/99 9/30/98
------- -------
Net Income $ 2,005 $ 2,054
======= =======
Weighted average common shares
outstanding (000's) 9,588 9,334
Assumed incremental common shares issued
upon exercise of stock options (000's) 207 202
------- -------
Weighted average common shares for
diluted earnings per share (000's) 9,795 9,536
======= =======
Nine Months Ended
9/30/99 9/30/98
------- -------
Net Income $ 6,217 $ 6,626
======= =======
Weighted average common shares
outstanding (000's) 9,547 9,443
Assumed incremental common shares issued
upon exercise of stock options (000's) 196 194
------- -------
Weighted average common shares for
diluted earnings per share (000's) 9,743 9,637
======= =======
NOTE 2. ACQUISITIONS
On July 23, 1999, Wisconsin Community Bank ("WCB"), a wholly-
owned subsidiary of the Company, completed its acquisition of
Bank One Wisconsin's branch in Monroe, Wisconsin. Included in
the acquisition were deposits of $93,780 and loans of $38,581.
Trust assets of the Monroe branch were also acquired by WCB. The
acquisition was accounted for as a purchase; accordingly, the
results of operations of the Monroe banking center have been
included in the financial statements from the acquisition date.
The resultant acquired deposit base intangible of $2,505 is being
amortized over a period of 10 years and the remaining goodwill of
$9,163 is being amortized over a period of 15 years.
As a result of this business combination, WCB became the
Company's second largest community bank subsidiary, as WCB's
total assets reached $177,254 at July 31, 1999. The Company's
presence in Wisconsin began in 1997 with the purchase of the
$39,287 Cottage Grove State Bank, subsequently renamed Wisconsin
Community Bank. In addition to the recent Monroe addition, WCB
has opened new locations in the Wisconsin communities of
Middleton, Sheboygan, Green Bay and Eau Claire.
On August 17, 1999, the Company signed a definitive agreement to
acquire National Bancshares, Inc. ("NBI"), the one-bank holding
company of First National Bank of Clovis ("FNB") in New Mexico.
The bank has four locations in the New Mexico communities of
Clovis and Melrose, with $119,316 in assets and $98,731 in
deposits at September 30, 1999. The total purchase price for NBI
will be approximately $23,300, of which up to $5,800 may be paid
in common stock of the Company. The acquisition is expected to
close by the end of 1999 or during the first quarter of 2000,
pending stockholder and regulatory approvals. The Company
expects to merge FNB into its New Mexico Bank & Trust ("NMB")
subsidiary after the closing of the acquisition. As a result of
this merger, the Company's ownership in NMB will rise to
approximately 86%.
NOTE 3. OTHER BORROWINGS
On July 23, 1999, the Company amended its credit agreement with
an unaffiliated bank increasing the Company's unsecured credit
line from $20,000 to $40,000. Under the terms of this agreement,
the Company has a term loan of $25,000 and a revolving credit
loan of up to $15,000. At December 31, 1999, the revolving
credit loan is required to be reduced to $5,000. The term loan
is payable quarterly in $1,000 installments beginning March 31,
2000, with the final payment of $10,000 payable on December 31,
2003. The additional credit line was established primarily to
provide the $18,000 capital investment required at WCB upon its
acquisition of the Monroe branch.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in thousands, except per share data)
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 other 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, rental income on operating
leases 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, depreciation on
equipment under operating leases and provision for loan and lease
losses.
During the third quarter of 1999, the Company continued to
experience significant growth, as total assets increased 10.71%
since June 30, 1999, to $1,137,923. Contributing to this growth
was the completion of the acquisition of Bank One Wisconsin's
banking center in Monroe ("Monroe") which had total deposits of
$93,780 and total loans of $38,581 on the acquisition date.
Exclusive of the acquired loan portfolio, total loans grew by
8.91% or $61,733 since June 30, 1999. These increases are
consistent with the Company's growth strategies.
Earnings for the third quarter of 1999 remained consistent with
those posted during the same quarter of 1998 even though
securities gains and gains on sale of loans had declined and
noninterest expense continued to increase as a result of the
expansion efforts underway. Additionally, the loan loss
provision has grown significantly, primarily in response to the
loan growth experienced. For the third quarter of 1999, net
income was $2,005, consistent with the $2,054 earned during the
same period in 1998. On a basic per common share basis, earnings
were $.21 during the third quarter of 1999 compared to $.22 for
the same period in 1998. Return on common equity was 9.23% and
return on assets was .73% for the third quarter of 1999. For the
same period in 1998, return on equity was 10.08% and return on
assets was .90%.
For the first nine months of 1999, net income was $6,217 or $.65
on a basic per common share basis. Return on common equity was
9.75% and return on assets was .82%. For the same period in
1998, earnings totaled $6,626 or $.70 on a basic per common share
basis, return on equity was 11.21% and return on assets was
1.02%. Operating results for the nine month period under
comparison were also negatively impacted by a reduction in
securities gains, an increase in the provision for loan and lease
losses and additional overhead costs associated with the
Company's recent growth initiatives.
NET INTEREST INCOME
Exclusive of the interest recorded on debt at ULTEA, Inc.
("ULTEA"), the Company's fleet management subsidiary, net
interest margin expressed as a percentage of average earning
assets increased to 3.91% during the third quarter of 1999
compared to 3.64% during the same quarter of 1998. For the nine
month periods ended September 30, 1999 and 1998, the net interest
margin expressed as a percentage of average earning assets,
exclusive of the interest on ULTEA's debt, was 3.86% and 3.75%,
respectively. ULTEA, which was acquired during the fourth
quarter of 1996, has outstanding debt which is necessary to fund
its vehicles under operating leases, while the income derived
from these leases is recorded as noninterest income. These
increases were primarily the result of an increase in rates
during the second half of 1999. Total net interest margin
increased to 3.69% during the third quarter of 1999, compared to
3.43% for the same quarter of 1998. For the nine month periods
ended on September 30, 1999 and 1998, total net interest margin
was 3.63% and 3.66%, respectively.
For the three and nine month periods ended September 30, 1999,
interest income increased $3,179 or 19.52% and $5,319 or 11.11%,
respectively, when compared to the same periods in 1998. These
increases were primarily attributable to the significant growth
in loans and was partially offset by a reduction in the amount of
interest on federal funds sold, as loan growth outpaced deposit
growth and shifted the Company into a position of purchasing
federal funds.
The Company was able to keep the increase in interest expense
below the growth in interest income, which resulted in additional
net interest income. For the three and nine month periods ended
September 30, 1999, interest expense increased $1,152 or 12.19%
and $2,463 or 9.23%, respectively, when compared to the same
periods in 1998. In addition to the shift of purchasing federal
funds, additional borrowings resulted from the growth in vehicles
under operating leases at ULTEA, which increased from $8,461 at
June 30, 1998, to $52,874 at December 31, 1998, and $54,934 at
September 30, 1999. This growth at ULTEA was primarily
attributable to the acquisition of Lease Associates Group ("LAG")
in July of 1998, making ULTEA the largest Wisconsin-based fleet
management company.
PROVISION FOR LOAN AND LEASE LOSSES
The Company's provision for loan and lease losses increased $376
and $1,087 for the three and nine month periods ended September
30, 1999, respectively, compared to the same periods in 1998.
These increases were recorded primarily in response to the
significant loan growth experienced by the Company and were made
to provide, in the Company's opinion, an adequate allowance for
loan and lease losses.
NONINTEREST INCOME
Noninterest income increased $843 or 15.29% during the quarter
ended on September 30, 1999, compared to the same period in 1998.
On a year-to-date comparative basis, noninterest income rose
$7,818 or 68.80%. Rental income on operating leases accounted
for 94.19% or $794 of the increase for the quarter and 91.16% or
$7,127 of the increase for the nine month period ended September
30, 1999. The operations at ULTEA were primarily responsible for
these significant changes.
During 1999, the Company recorded mortgage loan servicing rights
of $212 during the first quarter, $186 during the second quarter
and $111 during the third quarter, all of which were included in
gains on sale of loans. As the mortgage loans serviced for
others portfolio continued to grow, the Company determined that
the mortgage servicing rights associated with these loans will
have a material effect on the financial position and operating
results of the Company going forward and, as such, must be
recorded. The mortgage loans serviced for others increased from
$144,557 at June 30, 1998, to $186,848 at September 30, 1999.
There is no valuation allowance on mortgage loan servicing
rights, as the fair value exceeds the recorded book value at
September 30, 1999. The volume of mortgage loans sold into the
secondary market declined during the third quarter of 1999 as
rates moved upward and customers elected to take three- and five-
year adjustable rate mortgage loans, which the Company elected to
retain in its loan portfolio.
NONINTEREST EXPENSE
The strong growth in noninterest income was more than offset by
the $2,704 or 29.72% increase in noninterest expense for the
third quarter of 1999 compared to the same period in 1998. For
the nine month period ended September 30, 1999, noninterest
expense increased $10,332 or 46.57% compared to the same period
in 1998. The largest component of the increase for the nine
month period was also related to the operations of ULTEA, as
depreciation on equipment under operating leases increased
$5,315.
The following expansion efforts were also significant
contributors to the growth in noninterest expense:
- - the establishment of New Mexico Bank and Trust ("NMB"), an
80% owned subsidiary of the Company, in Albuquerque, New
Mexico in May of 1998 and its subsequent opening of three
additional branches during the second and third quarters of
1999
- - the third-quarter 1998 acquisition of LAG by ULTEA
- - Wisconsin Community Bank's ("WCB") opening of offices during
1999 in Sheboygan, Green Bay and Eau Claire, Wisconsin and
its acquisition of Bank One's Monroe branch in July
- - Riverside Community Bank's ("RCB") opening of a branch on
July 1, 1999
Salaries and employee benefits, the largest component of
noninterest expense, increased $956 or 23.60% for the quarters
under comparison. On a year-to-date basis, salaries and employee
benefits grew $2,596 or 22.92%. These increases were primarily
attributable to the Company's expansion efforts and to normal
merit increases. The number of full-time equivalent employees
increased from 383 at September 30, 1998, to 396 at December 31,
1998, and 476 at September 30, 1999.
Fees for outside services increased $216 or 55.10% during the
quarter and $586 or 57.12% during the nine month period ended on
September 30, 1999, when compared to the same period in 1998. In
addition to the Company's expansion efforts, this increase
resulted from consulting fees paid for a net interest margin and
earnings improvement study being conducted by USBA Holdings, Ltd.
This engagement was focused on identifying specific strategies to
increase earnings with an emphasis on reaching and expanding the
Company's core customers more effectively and efficiently. The
study was completed during the third quarter of 1999 and
implementation of the recommendations is anticipated to be
completed by the second quarter of 2000.
Other expenses increased $468 or 35.75% for the quarter under
comparison and $899 or 24.84% for the nine month period under
comparison due primarily to the expansion efforts underway. Some
of the expenses included within this category that experienced
significant growth during 1999 as a result of the expansion
efforts were goodwill and core deposit intangibles amortization,
office supplies, telephone charges and fees relating to the
processing of credit cards for merchants.
INCOME TAX EXPENSE
Income tax expense for the third quarter of 1999 decreased $161
or 18.05% over the same period in 1998. On a nine month
comparative basis, income tax expense decreased $336 or 11.79%.
These decreases were primarily a result of corresponding
decreases in pre-tax earnings. The Company's effective tax rate
was 28.80% and 30.08% for the nine month periods ended September
30, 1999 and 1998, respectively.
FINANCIAL CONDITION
LOANS AND PROVISION FOR LOAN AND LEASE LOSSES
Commercial and commercial real estate loans made up $141,444 or
69.59% of the $203,239 increase in the Company's loan portfolio
during the first nine months of 1999. The acquisition of Monroe
was responsible for $26,420 or 18.68% of this growth. The
remaining $115,024 change in commercial loans outstanding was
primarily the result of aggressive calling efforts and the
Company's expansion into new markets. The other loan category to
experience significant growth, consumer loans outstanding, grew
$25,317 or 34.85%, exclusive of the Monroe acquisition, since
December 31, 1998. Indirect paper, primarily on new automobiles,
at the Company's lead bank, Dubuque Bank and Trust ("DB&T") and
direct consumer loans at Citizens Finance Co., the Company's
consumer finance subsidiary, were responsible for the majority of
this growth.
The table below presents the composition of the Company's loan
portfolio as of September 30, 1999 and December 31, 1998.
LOAN PORTFOLIO September 30, December 31,
1999 1998
Amount Percent Amount Percent
------ ------- ------ -------
Commercial and commercial
real estate $419,209 52.60% $277,765 46.88%
Residential mortgage 170,923 21.45 156,415 26.40
Agricultural and
agricultural real estate 98,624 12.38 77,211 13.03
Consumer 98,965 12.42 72,642 12.26
Lease financing, net 9,179 1.15 8,508 1.43
-------- ------- -------- -------
Gross loans and leases 796,900 100.00% 592,541 100.00%
======= =======
Unearned discount (3,079) (2,136)
Deferred loan fees (449) (272)
--------- ---------
Total loans and leases 793,372 590,133
Allowance for loan and
lease losses (10,406) (7,945)
--------- ---------
Loans and leases, net $782,966 $582,188
========= =========
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, general economic conditions,
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 Company's loan review
committee included the following: i) a continued increase in
higher-risk consumer and more-complex commercial loans as
compared to relatively lower-risk residential real estate loans;
ii) the entrance into new markets in which the Company had little
or no previous lending experience; iii) recent uncertainties
within the agricultural markets; and iv) the economies of the
Company's primary market areas have been stable for some time and
the allowance is intended to anticipate the cyclical nature of
most economies. 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 September 30, 1999. The allowance for
loan and lease losses increased by $2,461 or 30.98% during the
first nine months of 1999, primarily as a result of the
significant growth experienced in the loan portfolio.
Additionally, the Monroe acquisition accounted for $665 or 27.02%
of the growth in the allowance for loan and lease losses. As a
percentage of total loans and leases, the allowance for loan and
lease losses was 1.31% as of September 30, 1999, and 1.35% as of
December 31, 1998.
During the third quarter of 1999, the Company recorded net charge
offs of $110 compared to $123 for the same period in 1998. The
Company recorded net charge offs of $180 and net recoveries of
$30 for the nine month periods ended September 30, 1999 and 1998,
respectively.
Nonperforming loans, defined as nonaccrual loans, restructured
loans and loans past due ninety days or more, decreased from
$1,750 at December 31, 1998, to $1,605 at September 30, 1999, a
decrease of $145 or 8.29%. As a percentage of total loans and
leases, nonperforming loans were at .20% on September 30, 1999,
and .30% at December 31, 1998.
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 17.97% of total assets at September 30, 1999, as
compared to 25.42% at December 31, 1998. This reduction was
representative of a shift in the asset mix of the Company as
growth in the loan portfolio outpaced deposit growth.
The composition of the portfolio is managed to maximize the
return on the portfolio while considering the impact it has on
the Company's asset/liability position and liquidity needs.
Management elected to replace paydowns received on mortgage-
backed securities with less volatile U.S. government agency
securities, as the spreads on mortgage-backed securities compared
to comparable U.S. treasury securities with the same maturities
narrowed during the first nine months of 1999. The state tax-
exempt nature of selected U.S. government agency securities also
made them attractive purchases for the Company's Illinois bank
subsidiaries.
The table below presents the composition of the securities
portfolio by major category as of September 30, 1999, and
December 31, 1998.
SECURITIES PORTFOLIO
September 30, December 31,
1999 1998
Amount Percent Amount Percent
------ ------- ------ -------
U.S. Treasury securities $ - -% $ 1,709 0.71%
U.S. government agencies 87,099 42.59 77,361 31.90
Mortgage-backed securities 77,177 37.74 128,317 52.92
States and political
subdivisions 21,713 10.62 21,536 8.88
Other securities 18,518 9.05 13,565 5.59
-------- ------- -------- -------
Total securities $204,507 100.00% $242,488 100.00%
======== ======= ======== =======
DEPOSITS AND BORROWED FUNDS
Total deposits experienced an increase of $124,630 or 17.36%
during the first nine months of 1999. The Monroe acquisition
comprised $93,780 or 75.25% of this increase. Of particular
significance was the $13,100 or 18.48% growth in demand deposits,
exclusive of the Monroe branch acquisition. Savings deposits
also experienced growth, up $16,529 or 5.64% from year end,
exclusive of the Monroe acquisition,. Growth in these two
deposit categories was primarily attributable to efforts at DB&T
and the Company's de novo community banks, RCB in Rockford,
Illinois and NMB in Albuquerque, New Mexico. Certificates of
deposit, exclusive of the acquisition, remained stable when
compared to the December 31, 1998, total. Interest in this type
of deposit continues to diminish as customers are drawn to
alternative investment products.
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 nine month period ended September 30, 1999, the balance
in this account had increased $59,781 or 78.74%. An increase of
$49,565 or 134.99% in the amount of repurchase agreements
requested by the corporate cash management customers of DB&T, WCB
and NMB accounted for nearly 83% of the growth in short-term
borrowings.
On July 23, 1999, the Company amended its credit agreement with
an unaffiliated bank increasing the Company's unsecured credit
line from $20,000 to $40,000. The additional credit line
provided the $18,000 capital investment required at WCB upon its
acquisition of Monroe. Under the terms of this agreement, the
Company has a term loan of $25,000 and a revolving credit loan of
up to $15,000. At December 31, 1999, the revolving credit loan
is required to be reduced to $5,000. The term loan is payable
quarterly in $1,000 installments beginning March 31, 2000, with
the final payment of $10,000 payable on December 31, 2003.
Other borrowings decreased $1,581 or 2.74% during the first nine
months of 1999. Included in these borrowings are long-term FHLB
advances which decreased during the first nine months of 1999 due
to the transfer of $7,000 to short-term borrowings. Long-term
FHLB advances totaled $19,110 on September 30, 1999, with a
weighted average remaining term of 5 years and a weighted average
rate of 5.99%.
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)
9/30/99 12/31/98
Amount Ratio Amount Ratio
------ ----- ------ -----
Risk-Based Capital Ratios:(1)
Tier 1 capital $ 74,170 8.05% $ 81,149 11.05%
Tier 1 capital minimum
requirement 36,835 4.00% 29,379 4.00%
---------- ------ -------- ------
Excess $ 37,335 4.05% $ 51,770 7.05%
========== ====== ======== ======
Total capital $ 84,575 9.18% $ 89,093 12.13%
Total capital minimum
requirement 73,671 8.00% 58,757 8.00%
---------- ------ -------- ------
Excess $ 10,904 1.18% $ 30,336 4.13%
========== ====== ======== ======
Total risk-adjusted assets $ 920,887 $734,463
========== ========
Leverage Capital Ratios:(2)
Tier 1 capital $ 74,170 6.86% $ 81,149 8.58%
Tier 1 capital minimum
requirement(3) 43,240 4.00% 37,810 4.00%
---------- ------ -------- ------
Excess $ 30,930 2.86% $ 43,339 4.58%
========== ====== ======== ======
Average adjusted assets
(less goodwill) $1,081,009 $945,242
========== ========
(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
WCB in March of 1997, the Company has cash payments remaining of
$594 in 2000 and $584 in 2001, plus interest at rates of 7.00% to
7.50%. The acquisition and merger of LAG into ULTEA in July of
1998 included an agreement to make three equal remaining cash
payments of $643 in 2000 and 2001, plus interest at 7.50%.
In July, WCB completed its acquisition of Bank One Wisconsin's
Monroe location. As part of the transaction, the Company infused
an additional capital investment at WCB of $18,000.
On August 17, 1999, the Company signed a definitive agreement to
acquire National Bancshares, Inc. ("NBI"), the one-bank holding
company of First National Bank of Clovis ("FNB") in New Mexico.
The bank has four locations in the New Mexico communities of
Clovis and Melrose, with $119,316 in assets and $98,731 in
deposits at September 30, 1999. The total purchase price for NBI
will be approximately $23,300, of which up to $5,800 may be paid
in common stock of the Company. The acquisition is expected to
close by the end of 1999 or during the first quarter of 2000,
pending stockholder and regulatory approvals. The Company
expects to merge FNB into NMB after the closing of the
acquisition. As a result of this acquisition, the Company's
ownership in NMB will rise to approximately 86%.
In October of 1999, the Company completed an offering of $25,000
of 9.60% cumulative capital securities representing undivided
beneficial interests in Heartland Financial Capital Trust I
("Trust"), a special purpose trust subsidiary of the Company
formed for the sole purpose of this offering. The proceeds from
the offering were used by the Trust to purchase junior
subordinated debentures from the Company. The proceeds are being
used by the Company for general corporate purposes, including the
repayment of $15,000 of indebtedness on the Company's revolving
credit loan and the financing of acquisitions. The securities
are expected to qualify as Tier 1 capital for regulatory
purposes, thus providing capital to support the Company's
anticipated future asset growth. When adjusted for the capital
cumulative securities, the Company's total capital would have
been approximately $109,575 or 11.90% of total risk-adjusted
assets as of September 30, 1999. When also including the pending
acquisition of NBI, total capital would have been approximately
$101,852 or 10.24% of total risk-adjusted assets as of September
30, 1999. Tier 1 capital for the Company, adjusted for the
capital securities and pending NBI acquisition, would have been
approximately $86,870 or 8.73% of total risk-adjusted assets as
of September 30, 1999.
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. As
evidenced by the recent expansion into New Mexico, the Company is
seeking to operate in high growth areas, even if they are outside
of its traditional Midwest market areas. 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 $58,366
during the first nine months of 1999 compared to the same period
in 1998. The net increase in loans and leases was $159,098
during the first nine months of 1999 compared to $6,218 during
the same period in 1998, a $152,880 change. During the first
nine months of 1999, proceeds from the sale and maturity of
securities increased $2,444 compared to the same period in 1998,
as the purchases of securities decreased $54,418 for the periods
under comparison.
Financing activities provided net cash of $87,640 during the first
nine months of 1999 compared to $44,237 during the same period in
1998. A net increase in deposit accounts provided cash of $33,230
during the first nine months of 1999 compared to $73,298 during the
same period in 1998. The category reflecting the most significant
change was the change in short-term borrowings to a provider of
$48,808 in cash during 1999 compared to a user of $43,080 in cash
during 1998.
Total cash inflows from operating activities decreased $5,910 for
the first nine months of 1999 compared to the same period in
1998. 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 have 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 was amended on July 23,
1999, to increase the Company's unsecured credit line from
$20,000 to $40,000 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. As of the date of this
report, the Company and each of its bank subsidiaries were in
compliance with all the covenants contained in this credit
agreement.
RECENT DEVELOPMENTS
Following this year's annual meeting in May, Lynn B. Fuller was
appointed president and chief executive officer of the Company.
Previously, Mr. Fuller held the positions of president and CEO of
DB&T along with his position as president of the Company. Due to
the continued growth of the Company, the Board felt it necessary
to have Mr. Fuller devote his full time and energies to the
holding company. The search for a new president and CEO at DB&T
has begun and is targeted for completion before year end.
YEAR 2000
The Company began to identify and react to issues related to the
Year 2000 in 1996. A Year 2000 project team, comprised of
individuals from key areas throughout the Company, was formed.
The mission of the Year 2000 project team was, and is, to
identify issues related to the Year 2000, to initiate remedial
measures necessary to eliminate any adverse effects on the
Company's operations, and to continue to monitor Year 2000
related concerns. Following the guidelines established by the
Federal Financial Institutions Examination Council, a Year 2000
Plan was developed for the Company and its subsidiaries. The
project team developed a comprehensive, prioritized inventory of
all hardware, software, and material third-party providers that
may be adversely affected by the Year 2000 date change, and has
contacted these vendors requesting their status as it relates to
the Year 2000. This inventory includes both information
technology ("IT") and non-IT systems, such as heating and cooling
systems, alarms, building access systems and elevators, which
typically contain embedded technology such as microcontrollers.
This inventory is periodically reevaluated to ensure that
previously assigned priorities remain accurate and to monitor the
progress each vendor is making in resolving its Year 2000
problems. The Company relies on software purchased from third-
party vendors rather than internally-generated software. All
mission-critical software has been tested and found to be Year
2000 compliant. Testing was done on a test computer rented
specifically for this purpose, which was connected to the
Company's existing equipment in a manner similar to the
production computer.
The Year 2000 project team has also developed a communication
plan that updates the directors, management and employees on the
Company's Year 2000 status. A customer awareness program was
implemented in late 1998 and continues throughout 1999. In
addition, a separate plan was developed to manage the Year 2000
risks posed by commercial borrowing customers. This plan
identified material loan customers, assessed their preparedness,
evaluated their credit risk to the Company, and implemented
appropriate controls to mitigate the risk. Surveys of customer
preparedness have been used to identify the customer risk and
will be used on all new credits going forward.
In accordance with regulatory guidelines, the project team has
prepared a comprehensive contingency plan in the event that Year
2000 related failures are experienced. The plan lists the
various strategies and resources available to restore core
business processes. Testing of this plan is underway. In
conjunction with the development of this contingency plan, the
team continues to monitor Year 2000 progress by public utility
providers. The Company purchased a few portable generators for
its main facility to operate the critical functions. The
generators will provide an alternative source of power for a
limited time period. Also assessed as part of the contingency
plan was the adequacy of the Company's sources of liquidity to
meet any cash demands the bank subsidiaries' customers may place
on them during the fourth quarter of 1999. The Company has
established additional borrowing privileges in excess of $100,000
at the Federal Reserve Bank's discount window.
Management anticipates that the total out-of-pocket expenditures
required for bringing the systems into compliance for the Year
2000 will be approximately $360, of which $10 remains to be
expended during the last three months of 1999. Management
believes that these required expenditures will not have a
material adverse impact on operations, cash flow, or financial
condition. This amount, including costs for upgrading equipment
specifically for the purpose of Year 2000 compliance, staff
expense for testing and contingency development, and certain
administrative expenditures, has been provided for in the
Company's Year 2000 budget. Although management feels confident
that all necessary upgrades have been identified, and budgeted
accordingly, no assurance can be made that Year 2000 compliance
can be achieved without additional unanticipated expenditures.
It is not possible at this time to quantify the estimated future
costs due to possible business disruption caused by vendors,
suppliers, customers or even the possible loss of electric power
or phone service; however, such costs could be substantial. As a
result of the Year 2000 project, the Company has not had any
material delay regarding its information systems projects.
RECENT REGULATORY DEVELOPMENTS
On November 4, 1999, the United States Congress approved
legislation that would allow bank holding companies to engage in
a wider range of nonbanking activities, including greater
authority to engage in securities and insurance activities. Under
the Gramm-Leach-Bliley Act (the "Act"), a bank holding company
that elects to become a financial holding company may engage in
any activity that the Board of Governors of the Federal Reserve,
in consultation with the Secretary of the Treasury, determines by
regulation or order is (i) financial in nature, (ii) incidental
to any such financial activity, or (iii) complementary to any
such financial activity and does not pose a substantial risk to
the safety or soundness of depository institutions or the
financial system generally. The Act specifies certain activities
that are deemed to be financial in nature, including lending,
exchanging, transferring, investing for others, or safeguarding
money or securities; underwriting and selling insurance;
providing financial, investment, or economic advisory services;
underwriting, dealing in or making a market in, securities; and
any activity currently permitted for bank holding companies by
the Federal Reserve under section 4(c)(8) of the Bank Holding
Company Act. A bank holding company may elect to be treated as a
financial holding company only if all depository institution
subsidiaries of the holding company are well-capitalized, well-
managed and have at least a satisfactory rating under the
Community Reinvestment Act.
National banks are also authorized by the Act to engage, through
"financial subsidiaries," in any activity that is permissible for
a financial holding company (as described above) and any activity
that the Secretary of the Treasury, in consultation with the
Federal Reserve, determines is financial in nature or incidental
to any such financial activity, except (i) insurance
underwriting, (ii) real estate development or real estate
investment activities (unless otherwise permitted by law), (iii)
insurance company portfolio investments and (iv) merchant
banking. The authority of a national bank to invest in a
financial subsidiary is subject to a number of conditions,
including, among other things, requirements that the bank must be
well-managed and well-capitalized (after deducting from capital
the bank's outstanding investments in financial subsidiaries).
The Act provides that state banks may invest in financial
subsidiaries (assuming they have the requisite investment
authority under applicable state law) subject to the same
conditions that apply to national bank investments in financial
subsidiaries.
The Act must be signed by the President before it will take
effect. At this time, the Company is unable to predict the impact
the Act may have on the Company and its subsidiaries.
QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
(Dollars in thousands)
Market risk is the risk of loss arising from adverse changes in
market prices and rates. The Company's market risk is comprised
primarily of interest rate risk resulting from its core banking
activities of lending and deposit gathering. Interest rate risk
measures the impact on earnings from changes in interest rates
and the effect on current fair market values of the Company's
assets, liabilities and off-balance sheet contracts. The
objective is to measure this risk and manage the balance sheet to
avoid unacceptable potential for economic loss. Management
continually develops and applies strategies to mitigate market
risk. Exposure to market risk is reviewed on a regular basis by
the asset/liability committees at the banks and, on a
consolidated basis, by the Heartland Board of Directors.
Management does not believe that the Company's primary market
risk exposures and how those exposures have been managed to-date
in 1999 changed significantly when compared to 1998.
<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
On August 26, 1999, the Company filed a Form 8-K under Item 5
regarding the pending acquisition of National Bancshares, Inc., a
New Mexico corporation.
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)
Principal Executive Officer
/s/ Lynn B. Fuller
-----------------------
By: Lynn B. Fuller
President
Principal Financial and
Accounting Officer
/s/ John K. Schmidt
-----------------------
By: John K. Schmidt
Executive Vice President
and Chief Financial Officer
Dated: November 15, 1999
