• Net income/(loss) available to common stockholders of ($72.4) million compared to $58.6 million, a decrease of $131.0 million or 223%. Adjusted earnings available to common stockholders⁽¹⁾ of $45.6 million compared to $62.5 million, a decrease of $16.9 million or 27%.

• Earnings/(loss) per diluted common share of ($1.69) compared to $1.37, a decrease of $3.06. Adjusted diluted earnings per common share⁽¹⁾ of $1.06 compared to $1.46, a decrease of $0.40.

• Net interest income of $156.1 million compared to $165.2 million, a decrease of $9.1 million or 5%.

• Return on average assets of (1.42%) compared to 1.21%. Adjusted annualized return on average assets⁽¹⁾ of 0.96% compared to 1.28%.

• Return on average common equity of (16.61%) compared to 15.02%. Adjusted annualized return on average common equity⁽¹⁾ of 10.46% compared to 16.00%.

• Return on average tangible common equity⁽¹⁾ of (24.88%) compared to 25.19%. Adjusted annualized return on average tangible common equity⁽¹⁾ of 16.38% compared to 26.77%.

HTLF reported the following results for the year ended December 31, 2023 compared to the year ended December 31, 2022:

• Net income available to common stockholders of $71.9 million compared to $204.1 million, a decrease of $132.3 million or 65%. Adjusted earnings available to common stockholders⁽¹⁾ of $193.9 million compared to $209.5 million, a decrease of $15.6 million or 7%.

• Earnings per diluted common share of $1.68 compared to $4.79, a decrease of $3.11. Adjusted diluted earnings per common share⁽¹⁾ of $4.53 compared to $4.91, a decrease of $0.38 or 8%.

• Net interest income of $601.2 million compared to $598.2 million, an increase of $3.0 million or 1%.

• Return on average assets of 0.40% compared to 1.08%. Adjusted annualized return on average assets⁽¹⁾ of 1.01% compared to 1.11%.

• Return on average common equity of 4.19% compared to 11.74%. Adjusted annualized return on average common equity⁽¹⁾ of 11.31% compared to 12.06%.

• Return on average tangible common equity (non-GAAP) of 6.91% compared to 18.56%. Adjusted annualized return on average tangible common equity⁽¹⁾ of 17.82% compared to 19.03%.

Commenting on HTLF's 2023 results, Bruce K. Lee, HTLF’s president and chief executive officer, said, “2023 was a year of significant progress and successful execution of HTLF’s strategic plans. With the completion of the charter consolidation initiative in the fourth quarter, we are now able to focus on HTLF 3.0, a set of initiatives that will drive improved efficiency, enhance EPS growth, deliver higher return on assets, and more efficient use of capital. The balance sheet repositioning, retail span of control and facilities optimization initiatives we executed during the quarter represent the beginning of HTLF 3.0.”

Announced and Initiated HTLF 3.0

HTLF’s new strategic plan, HTLF 3.0, was announced and initiated in the fourth quarter of 2023. HTLF 3.0's initiatives include:

• Investing in growth through banker expansion and talent acquisition in the Central Valley of California, Denver, Kansas City, Milwaukee, Minneapolis, and Phoenix.

• Expanding Treasury Management products and capabilities.

• Creation of consumer and small business digital platforms.

• Footprint and facilities optimization, with a focus on efficient return on capital.

In the quarter we took the following actions as part of HTLF 3.0:

• A $865.4 million balance sheet repositioning resulting in a $140.0 million pre-tax loss.

• Centralized retail management span of control with restructuring costs of $944,000.

• Footprint consolidation resulting in $1.1 million in restructuring costs and $2.1 million in losses on sales/valuations of facilities.
  

Charter Consolidation Update

During the fourth quarter of 2023, Dubuque Bank and Trust Company was consolidated into HTLF Bank, which successfully completed the consolidation of all 11 charters. Total consolidation restructuring costs were $17 million, of which $1.3 million were incurred in the fourth quarter of 2023.

Net Interest Income and Net Interest Margin

Net interest margin was 3.47% (3.52% on a fully tax-equivalent basis, non-GAAP) during the fourth quarter of 2023, compared to 3.61% (3.65% on a fully tax-equivalent basis, non-GAAP) during the fourth quarter of 2022.

Total interest income and average earning asset changes for the fourth quarter of 2023 compared to the fourth quarter of 2022 were:

• Total interest income was $255.9 million compared to $204.7 million, an increase of $51.2 million or 25%, primarily attributable to higher yields and an increase in average loans.

• Total interest income on a tax-equivalent basis was $257.9 million, an increase of $51.1 million or 25%, from $206.9 million.

• Average earning assets decreased $321.9 million or 2% to $17.85 billion compared to $18.17 billion, which was primarily attributable to the balance sheet repositioning completed in the fourth quarter of 2023.

• The average rate on earning assets increased 121 basis points to 5.73% from 4.52%, primarily due to recent interest rate increases.

Total interest expense and average interest-bearing liability changes for the fourth quarter of 2023 compared to the fourth quarter of 2022 were:

• Total interest expense was $99.7 million, an increase of $60.3 million from $39.5 million, due to increases in the average interest rate paid and the average balance of interest-bearing liabilities.

• The average interest rate paid on interest-bearing liabilities increased 180 basis points to 3.11% from 1.31%.

• Average interest-bearing deposits increased $638.2 million or 6% to $11.95 billion from $11.31 billion, primarily due to growth in time deposits. Total average interest-bearing deposits were 72% of total average deposits compared to 65%.

• The average interest rate paid on HTLF's interest-bearing deposits increased 179 basis points to 2.92% from 1.13%.

• Average borrowings increased $103.4 million or 15% to $773.7 million from $670.2 million, and the average interest rate paid on borrowings was 5.99% compared to 4.30%.
  

Net interest income changes for the fourth quarter of 2023 compared to the fourth quarter of 2022 were:

• Net interest income totaled $156.1 million compared to $165.2 million, a decrease of $9.1 million or 5%.

• Net interest income on a tax-equivalent basis (non-GAAP) totaled $158.2 million compared to $167.4 million, a decrease of $9.2 million or 5%.

Noninterest Income and Noninterest Expense

Total noninterest income was ($111.8) million during the fourth quarter of 2023 compared to $30.0 million during the fourth quarter of 2022, a decrease of $141.8 million. Significant changes by noninterest income category for the fourth quarter of 2023 compared to the fourth quarter of 2022 were:

• Service charges and fees increased $1.3 million or 7% to $18.7 million from $17.4 million, which was primarily attributable to an increase in debit interchange volume.

• Net securities losses totaled $140.0 million compared to net securities losses of $153,000, which was an increase of $139.9 million attributable to the balance sheet repositioning strategy executed in the quarter.

• Net gains of sales of loans held for sale decreased $794,000 to $94,000 compared to $888,000, primarily due to a decrease of loans sold to the secondary market as HTLF exits mortgage loan originations through PrimeWest.
  

Total noninterest expense for the fourth quarter of 2023 was $130.3 million compared to $117.2 million for the same quarter of 2022, which was an increase of $13.1 million or 11%. Significant changes within the noninterest expense category for the fourth quarter of 2023 compared to the fourth quarter of 2022 were:

• Salaries and employee benefits totaled $64.8 million compared to $61.6 million, which was an increase of $3.2 million or 5%. The fourth quarter of 2023 included $813,000 higher severance related expenses and the fourth quarter of 2022 included a $1.5 million benefit associated with the employer tax credit. Increases in other components of salary expenses during the fourth quarter of 2023 were largely offset by lower incentive compensation expense.

• FDIC insurance assessment of $10.3 million, which included a one-time special assessment of $8.1 million in the fourth quarter of 2023 compared to $1.9 million in the fourth quarter of 2022, which was an increase of $8.4 million.

• Acquisition, integration and restructuring costs totaled $4.4 million compared to $2.4 million, an increase of $1.9 million or 79% due to the addition of HTLF 3.0 initiatives and the completion of the charter consolidation project.

• Partnership investment in tax credit projects increased $326,000 or 10% to $3.6 million compared to $3.2 million. The expense is dependent upon the number and timing of tax credit projects placed into service.

HTLF's effective tax rate was 27.97% for the fourth quarter of 2023 compared to 18.67% for the fourth quarter of 2022. The following items impacted HTLF's fourth quarter 2023 and 2022 tax calculations:

• Various tax credits of $3.8 million compared to $3.6 million.

• Tax expense of $1.3 million compared to $561,000 resulting from disallowed interest expense related to tax-exempt loans and securities, aligning with the increases in total interest expense.

• Tax-exempt interest income as a percentage of pre-tax income of (7.93%) compared to 10.85%.
  

For the years ended December 31, 2023 and 2022, HTLF's effective tax rate was 17.42% and 20.76%, respectively.

Total Assets, Total Loans and Total Deposits

Total assets were $19.41 billion at December 31, 2023, a decrease of $832.5 million or 4% from $20.24 billion at year-end 2022. Securities represented 29% and 35% of total assets at December 31, 2023, and December 31, 2022, respectively, primarily due to the balance sheet repositioning.

Total loans held to maturity were $12.07 billion at December 31, 2023, compared to $11.87 billion at September 30, 2023 and $11.43 billion at December 31, 2022. Loans increased $196.2 million or 2% during the fourth quarter of 2023 and $640.3 million or 6% since year-end 2022.

Significant changes by loan category at December 31, 2023 compared to September 30, 2023 included:

• Commercial and business lending, which includes commercial and industrial, PPP, and owner occupied commercial real estate loans, increased $267.8 million or 4% to $6.29 billion at December 31, 2023, compared to $6.03 billion at September 30, 2023.

• Commercial real estate lending, which includes non-owner occupied commercial real estate and construction loans, decreased $120.5 million or 3% to $3.57 billion from $3.69 billion.

• Agricultural and agricultural real estate loans totaled $919.2 million compared to $842.1 million, an increase of $77.1 million or 9%.

• Residential loans totaled $797.8 million compared to $813.8 million, a decrease of $16.0 million or 2%.

• Consumer loans decreased $12.2 million or 2% to $493.2 million from $505.4 million.
  

Significant changes by loan category at December 31, 2023 compared to December 31, 2022 included:

• Commercial and business lending, which includes commercial and industrial, PPP, and owner occupied commercial real estate loans, increased $552.3 million or 10% to $6.29 billion at December 31, 2023, compared to $5.74 billion at December 31, 2022.

• Commercial real estate lending, which includes non-owner occupied commercial real estate and construction loans, increased $158.4 million or 5% to $3.57 billion from $3.41 billion.

• Agricultural and agricultural real estate loans totaled $919.2 million, a decrease of $1.3 million or less than 1% from $920.5 million.

• Residential loans totaled $797.8 million compared to $853.4 million, a decrease of $55.5 million or 7%.

• Consumer loans decreased $13.5 million or 3% to $493.2 million from $506.7 million.
  

Total deposits were $16.20 billion as of December 31, 2023, compared to $17.10 billion at September 30, 2023, which was a decrease of $899.3 million or 5%. Total deposits were $16.2 billion as of December 31, 2023, compared to $17.51 billion at December 31, 2022, a decrease of $1.31 billion or 7%.

Total customer deposits were $14.86 billion as of December 31, 2023, compared to $14.80 billion at September 30, 2023, which was an increase of $58.8 million or less than 1%. Significant customer deposit changes by category at December 31, 2023, compared to September 30, 2023, included:

• Customer demand deposits decreased $292.5 million or 6% to $4.50 billion compared to $4.79 billion.

• Customer savings deposits increased $220.8 million or 3% to $8.41 billion compared to $8.19 billion.

• Customer time deposits increased $130.5 million or 7% to $1.94 billion compared to $1.81 billion.
  

Total customer deposits were $14.86 billion at December 31, 2023 compared to $15.22 billion at December 31, 2022, which was a decrease of $367.3 million or 2%. Significant customer deposit changes by category at December 31, 2023 compared to December 31, 2022, included:

• Customer demand deposits decreased $1.20 billion or 21% to $4.50 billion compared to $5.70 billion.

• Customer savings deposits decreased $259.7 million or 3% to $8.41 billion compared to $8.67 billion.

• Customer time deposits increased $1.09 billion to $1.94 billion compared to $851.5 million.
  

Total wholesale and institutional deposits were $1.35 billion as of December 31, 2023, which was a decrease of $958.1 million or 42% from $2.30 billion at September 30, 2023. Significant wholesale and institutional deposit changes by category at December 31, 2023, compared to September 30, 2023, included:

• Wholesale and institutional savings deposits decreased $170.1 million or 30% to $394.4 million compared to $564.5 million.

• Wholesale time deposits decreased $788.0 million or 45% to $950.9 million compared to $1.74 billion.

Total wholesale and institutional deposits were $1.35 billion as of December 31, 2023, which was a decrease of $943.9 million or 41% from $2.29 billion at December 31, 2022. Significant wholesale and institutional deposit changes by category at December 31, 2023 compared to December 31, 2022 included:

• Wholesale and institutional savings deposits decreased $929.1 million or 70% to $394.4 million compared to $1.32 billion.

• Wholesale time deposits decreased $14.8 million or 2% to $950.9 million compared to $965.7 million.

Provision and Allowance

Provision and Allowance for Credit Losses for Loans
Provision for credit losses for loans for the fourth quarter of 2023 was $12.8 million, which was an increase of $10.7 million from $2.1 million of provision benefit recorded in the fourth quarter of 2022. The provision expense for the fourth quarter of 2023 was primarily impacted by a customer that moved to non accrual due to its abrupt decision to discontinue business operations.

HTLF's allowance for credit losses for loans totaled $122.6 million at December 31, 2023, compared to $109.5 million at December 31, 2022, respectively. The following items impacted HTLF's allowance for credit losses for loans for the year ended December 31, 2023:

• Provision expense for the year ended December 31, 2023, totaled $25.4 million.

• Net charge-offs of $12.4 million were recorded for the year or 0.11% of average loans. Net charge-offs of $392,000 were recorded in the fourth quarter of 2022 or 0.01% of average loans.

Provision and Allowance for Credit Losses for Unfunded Commitments
HTLF's allowance for unfunded commitments totaled $16.5 million and $20.2 million at December 31, 2023 and December 31, 2022, respectively. The following impacted HTLF's allowance for credit losses for unfunded commitments during 2023:

• Provision benefit for the year ended December 31, 2023, totaled $3.7 million.

• Unfunded commitments decreased $103.9 million or 2% to $4.63 billion at December 31, 2023 compared to $4.73 billion at December 31, 2022.

Total Provision and Allowance for Lending Related Credit Losses
The total provision expense for lending related credit losses was $11.7 million for the fourth quarter of 2023 compared to $3.4 million for the fourth quarter of 2022. The total allowance for lending related credit losses was $139.0 million at December 31, 2023, which was 1.15% of total loans as of December 31, 2023, compared to $129.7 million or 1.13% of total loans as of December 31, 2022.

Nonperforming Assets

Nonperforming assets increased $43.6 million or 65% to $110.5 million, which was 0.57% of total assets at December 31, 2023, compared to $66.9 million or 0.33% of total assets at December 31, 2022. The increase was primarily driven by a well-collateralized long-term manufacturing customer who is experiencing cash flow challenges due to a recent acquisition. Nonperforming loans were $97.9 million or 0.81% of total loans at December 31, 2023, compared to $58.5 million or 0.51% of total loans at December 31, 2022. At December 31, 2023, loans delinquent 30-89 days were 0.09% of total loans compared to 0.04% of total loans at December 31, 2022.

Non-GAAP Financial Measures

This earnings release contains references to financial measures which are not defined by generally accepted accounting principles ("GAAP"). Management believes the non-GAAP measures are helpful for investors to analyze and evaluate the company's financial condition and operating results. However, these non-GAAP measures have inherent limitations and should not be considered a substitute for operating results determined in accordance with GAAP. Additionally, because non-GAAP measures are not standardized, it may not be possible to compare the non-GAAP measures in this earnings release with other companies' non-GAAP measures. Reconciliations of each non-GAAP measure to the most directly comparable GAAP measure may be found in the financial tables in this earnings release.

Below are the non-GAAP measures included in this earnings release, management's reason for including each measure and the method of calculating each measure:

• Adjusted earnings available to common stockholders, adjusts net income for the loss from sale of securities, and other non-operating expenses as well as the tax effect of those transactions. Management believes this measure enhances the comparability net income available to common stockholders as it reflects adjustments commonly made by management, investors and analysts to evaluate the ongoing operations and enhance comparability with the results of prior periods.

• Adjusted annualized return on average assets, adjusts net income for the loss from sale of securities, and other non-operating expenses as well as the tax effect of those transactions. Management believes this measure enhances the comparability of annualized return on average assets as it reflects adjustments commonly made by management, investors and analysts to evaluate the ongoing operations and enhance comparability with the results of prior periods.

• Annualized net interest margin, fully tax-equivalent, adjusts net interest income for the tax-favored status of certain loans and securities. Management believes this measure enhances the comparability of net interest income arising from taxable and tax-exempt sources.

• Adjusted efficiency ratio, fully tax equivalent, expresses noninterest expenses as a percentage of fully tax-equivalent net interest income and noninterest income. This efficiency ratio is presented on a tax-equivalent basis which adjusts net interest income and noninterest expenses for the tax favored status of certain loans, securities, and tax credit projects. Management believes the presentation of this non-GAAP measure provides supplemental useful information for proper understanding of the financial results as it enhances the comparability of income and expenses arising from taxable and nontaxable sources and excludes specific items as noted in reconciliation contained in this earnings release.

• Net interest income, fully tax equivalent, is net income adjusted for the tax-favored status of certain loans and securities. Management believes this measure enhances the comparability of net interest income arising from taxable and tax-exempt sources. Net interest margin, fully tax equivalent, is net interest income adjusted for the tax-favored status of certain loans and securities divided by average earning assets.

• Tangible book value per common share is total common equity less goodwill and core deposit and customer relationship intangibles, net, divided by common shares outstanding, net of treasury. This measure is included as it is considered to be a critical metric to analyze and evaluate use of equity, financial condition and capital strength.

• Tangible common equity ratio is total common equity less goodwill and core deposit and customer relationship intangibles, net, divided by total assets less goodwill and core deposit and customer relationship intangibles, net. This measure is included as it is considered to be a critical metric to analyze and evaluate financial condition and capital strength.

• Adjusted annualized return on average common equity, adjusts net income for the loss from sale of securities, and other non-operating expenses as well as the tax effect of those transactions. Management believes this measure enhances the comparability of annualized return on average assets as it reflects adjustments commonly made by management, investors and analysts to evaluate the ongoing operations and enhance comparability with the results of prior periods.

• Annualized return on average tangible common equity is net income excluding intangible amortization calculated as (1) net income excluding tax-effected core deposit and customer relationship intangibles amortization, divided by (2) average common equity less goodwill and core deposit and customer relationship intangibles, net. This measure is included as it is considered to be a critical metric to analyze and evaluate use of equity, financial condition and capital strength.

• Adjusted annualized return on average tangible common equity, adjusts net income available to common stockholders for the loss from sale of securities, and other non-operating expenses as well as the tax effect of those transactions. Management believes this measure enhances the comparability of annualized return on average assets as it reflects adjustments commonly made by management, investors and analysts to evaluate the ongoing operations and enhance comparability with the results of prior periods.

• Annualized ratio of core expenses to average assets adjusts noninterest expenses to exclude specific items noted in the reconciliation. Management includes this measure as it is considered to be a critical metric to analyze and evaluate controllable expenses related to primary business operations.
  

Conference Call Details

HTLF will host a conference call for shareholders, analysts and other interested parties at 5:00 p.m. EDT today. To join via webcast, please visit https://ir.htlf.com/news-and-events/event-calendar/default.aspx 10 minutes prior to the call. A replay will be available until January 28, 2025, by logging on to www.htlf.com.

About HTLF

Heartland Financial USA, Inc., operating under the brand name HTLF, is a bank holding company with assets of $19.41 billion. HTLF has banks serving communities in Arizona, California, Colorado, Illinois, Iowa, Kansas, Minnesota, Missouri, Montana, New Mexico, Texas and Wisconsin. HTLF is committed to its core commercial business, supported by a strong retail operation, and provides a diversified line of financial services including treasury management, wealth management, investments and residential mortgage. Additional information is available at www.htlf.com.

Safe Harbor Statement

This release (including any information incorporated herein by reference), and future oral and written statements of the company and its management, may contain 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, with respect to the business, financial condition, results of operations, plans, objectives and future performance of HTLF.

Any statements about the company's expectations, beliefs, plans, objectives, assumptions or future events or performance are not historical facts and may be forward-looking. Forward-looking statements may include information about possible or assumed future results of the company's operations or performance. These forward-looking statements are generally identified by the use of the words such as "believe", "expect", "intent", "anticipate", "plan", "intend", "estimate", "project", "may", "will", "would", "could", "should", "may", "view", "opportunity", "potential", or similar or negative expressions of these words or phrases that are used in this release, and future oral and written statements of the company and its management. Although the company may make these statements based on management’s experience, beliefs, expectations, assumptions and best estimate of future events, the ability of the company to predict results or the actual effect or outcomes of plans or strategies is inherently uncertain, and there may be events or factors that management has not anticipated. Therefore, the accuracy and achievement of such forward-looking statements and estimates are subject to a number of risks, many of which are beyond the ability of management to control or predict, that could cause actual results to differ materially from those in its forward-looking statements. These factors, which the company currently believes could have a material effect on its operations and future prospects, are detailed below and in the risk factors in HTLF's reports filed with the Securities and Exchange Commission ("SEC"), including the "Risk Factors" section under Item 1A of Part I of the company’s Annual Report on Form 10-K for the year ended December 31, 2022, include, among others:

• Economic and Market Conditions Risks, including risks related to the deterioration of the U.S. economy in general and in the local economies in which HTLF conducts its operations and future civil unrest, natural disasters, pandemics and governmental measures addressing them, climate change and climate-related regulations, persistent inflation, higher interest rates, supply chain issues, labor shortages, terrorist threats or acts of war;

• Credit Risks, including risks of increasing credit losses due to deterioration in the financial condition of HTLF's borrowers, changes in asset and collateral values due to climate and other borrower industry risks, which may impact the provision for credit losses and net charge-offs;

• Liquidity and Interest Rate Risks, including the impact of capital market conditions, rising interest rates and changes in monetary policy on our borrowings and net interest income;

• Operational Risks, including processing, information systems, cybersecurity, vendor, business interruption, and fraud risks;

• Strategic and External Risks, including economic, political, and competitive forces impacting our business;

• Legal, Compliance and Reputational Risks, including regulatory and litigation risks; and

• Risks of Owning Stock in HTLF, including stock price volatility and dilution as a result of future equity offerings and acquisitions.
  

There can be no assurance that other factors not currently anticipated by HTLF will not materially and adversely affect HTLF's business, financial condition and results of operations. Additionally, all statements in this release, including forward-looking statements speak only as of the date they are made. HTLF does not undertake and specifically disclaims any obligation to publicly release the results of any revisions which may be made to or correct or update any forward-looking statement to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events or to otherwise update any statement in light of new information or future events. Further information concerning HTLF and its business, including additional factors that could materially affect HTLF's financial results, is included in HTLF’s filings with the SEC.

-FINANCIAL TABLES FOLLOW-

CONTACT:
Kevin L. Thompson
Executive Vice President
Chief Financial Officer
(563) 589-1994
kthompson@htlf.com