BASIS OF PRESENTATION

6 Months Ended

Jun. 30, 2024

Organization, Consolidation and Presentation of Financial Statements [Abstract]

The interim unaudited consolidated financial statements contained herein should be read in conjunction with the audited consolidated financial statements and accompanying notes to the consolidated financial statements for the fiscal year ended December 31, 2023, included in the Annual Report on Form 10-K of Heartland Financial USA, Inc. ("HTLF") filed with the Securities and Exchange Commission ("SEC") on February 23, 2024. Footnote disclosures to the interim unaudited consolidated financial statements which would substantially duplicate the disclosure contained in the footnotes to the audited consolidated financial statements have been omitted.

The financial information included herein has been prepared in accordance with U.S. generally accepted accounting principles for interim financial reporting and has been prepared pursuant to the rules and regulations for reporting on Form 10-Q and Rule 10-01 of Regulation S-X. Such information reflects all adjustments (consisting of normal recurring adjustments), that are, in the opinion of management, necessary for a fair presentation of the financial position and results of operations for the periods presented. The results of the interim period ended June 30, 2024, are not necessarily indicative of the results expected for the year ending December 31, 2024.

On April 28, 2024 (the “Signing Date”), HTLF entered into an Agreement and Plan of Merger (the “Merger Agreement”) with UMB Financial Corporation, a Missouri corporation (“UMB”) and Blue Sky Merger Sub Inc., a Delaware corporation and wholly owned subsidiary of UMB (“Blue Sky Merger Sub”). The Merger Agreement provides that, upon the terms and subject to the conditions set forth therein, (i) Blue Sky Merger Sub will merge with and into HTLF (the “Merger”), with HTLF surviving the Merger as a wholly owned subsidiary of UMB (the “Surviving Entity”) and (ii) immediately following the effective time of the Merger (the “Effective Time”) and as part of a single, integrated transaction, the Surviving Entity will merge with and into UMB (the “Second Merger”, and together with the Merger, the “Mergers”), with UMB surviving the Second Merger (the “Surviving Corporation”). On the day immediately following the closing date of the Mergers, UMB will cause HTLF’s wholly owned banking subsidiary, HTLF Bank, to merge with and into UMB’s wholly owned banking subsidiary, UMB Bank, National Association (the “Bank Merger”), with UMB Bank, National Association continuing as the surviving bank in the Bank Merger. The Merger Agreement was unanimously approved by the Board of Directors of each of HTLF and UMB.

Upon the terms and subject to the conditions set forth in the Merger Agreement, at the Effective Time, each share of common stock, par value $1.00 per share, of HTLF (“HTLF Common Stock”) issued and outstanding immediately prior to the Effective Time, other than certain shares held by UMB or HTLF, will be converted into the right to receive 0.55 shares (the “Exchange Ratio,” and such shares, the “Merger Consideration”) of common stock, $1.00 par value, of UMB (“UMB Common Stock”) and cash in lieu of fractional shares. At the Effective Time, each share of 7.00% Fixed-Rate Non-Cumulative Perpetual Preferred Stock, Series E, par value $1.00 per share of HTLF (the “HTLF Preferred Stock”), issued and outstanding immediately before the Effective Time will be converted into the right to receive one share of a newly created series of preferred stock of UMB (“UMB Preferred Stock”) with such rights, preferences, privileges and powers (including voting powers) as set forth in the Certificate of Designations attached as an exhibit to the Merger Agreement.

Earnings Per Share

Basic earnings per share is determined using net income available to common stockholders and weighted average common shares outstanding. Diluted earnings per share is computed by dividing net income available to common stockholders 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 six- months ended June 30, 2024 and 2023, are shown in the table below, dollars and number of shares in thousands, except per share data:


	Three Months Ended June 30,
	2024		2023
Net income attributable to HTLF	$	39,742	$	49,416
Preferred dividends	(2,012)		(2,012)


Net income available to common stockholders	$	37,730	$	47,404

Weighted average common shares outstanding for basic earnings per share	42,918		42,696
Assumed incremental common shares issued upon vesting of outstanding restricted stock units	142		62
Weighted average common shares for diluted earnings per share	43,060		42,758
Earnings per common share — basic	$	0.88	$	1.11
Earnings per common share — diluted	$	0.88	$	1.11
Number of antidilutive common stock equivalents excluded from diluted earnings per share computation	88		59
Number of antidilutive stock options excluded from diluted earnings per share computation	53		221

	Six Months Ended June 30,
	2024		2023
Net income	$	91,449	$	102,192
Preferred dividends	(4,025)		(4,025)

Net income available to stockholders	$	87,424	$	98,167

Weighted average common shares outstanding for basic earnings per share	42,862		42,655
Assumed incremental common shares issued upon vesting of outstanding restricted stock units	139		98
Weighted average common shares for diluted earnings per share	43,001		42,753
Earnings per common share — basic	$	2.03	$	2.30
Earnings per common share — diluted	$	2.03	$	2.30
Number of antidilutive common stock equivalents excluded from diluted earnings per share computation	6		95
Number of antidilutive stock options excluded from diluted earnings per share computation	53		62

Subsequent Events - HTLF has evaluated subsequent events that may require recognition or disclosure through the filing date of this Quarterly Report on Form 10-Q with the SEC.

Subsequent to June 30, 2024, in July 2024, HTLF Bank closed on the sale of all nine Rocky Mountain Bank branches in Montana, including loans of $343.8 million and deposits of $531.8 million. The expected gain of $30 million will be realized in the third quarter of 2024.

Effect of New Financial Accounting Standards

ASU 2023-02

In March 2023, the FASB issued ASU 2023-02 "Investments-Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method (a consensus of the Emerging Issues Task Force)." ASU 2023-02 expands the permitted use of the proportional amortization method, which is currently only available to low-income housing tax credit investments, to other tax equity investments if certain conditions are met. Under the proportional amortization method, the initial cost of an investment is amortized in proportion to the income tax benefits received and both the amortization of the investment and the income tax benefits received are recognized as a component of income tax expense. This ASU was effective on January 1, 2024. HTLF has elected to use the proportional amortization method for investments in

low-income housing projects. The amendments in this ASU do not have a material impact on the results of operations or financial position.

ASU 2023-06

In October 2023, the FASB issued ASU 2023-06, "Disclosure Improvements: Codification Amendments in Response to the SEC's Disclosure Update and Simplification Initiative." The amendments in this Update modify the disclosure or presentation requirements of a variety of Topics in the Codification. Certain of the amendments represent clarifications to, or technical corrections of, the current requirements. Each amendment in the ASU will only become effective if the SEC removes the related disclosure or presentation requirement from its existing regulations by June 30, 2027. The amendments in this ASU are not expected to have a material impact on the results of operations or financial position.

ASU 2023-07

In November 2023, the FASB issued ASU 2023-07, "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures" to improve disclosure requirements, primarily through enhanced disclosures about significant segment expenses. This update does not change how a public entity identifies its operating segments; however, it does require that an entity that has single reportable segment provide all the disclosures required by the amendments in this update. The amendments in this update are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. A public entity should apply the amendments in this update retrospectively to all prior periods presented in the consolidated financial statements. Early adoption is permitted. We currently have one reportable operating segment. This ASU will not impact our consolidated financial statements and will have minimal impact to our disclosures, requiring identification of the chief operating decision maker and the information used to make operating decisions and to allocate resources.

ASU 2023-09

In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures” that require public business entities to annually disclose (1) specific categories in their rate reconciliation; (2) additional information for reconciling items that meet a quantitative threshold; (3) the amount of income taxes paid (net of refunds received) disaggregated by federal, state, and foreign taxes; (4) the amount of income taxes paid (net of refunds received) disaggregated by individual jurisdictions in which the income taxes paid that meet a quantitative threshold; (5) income (or loss) from continuing operations before income tax expense (or benefit) disaggregated between domestic and foreign; and (6) income tax expense (or benefit) from continuing operations disaggregated by federal, state, and foreign. The ASU eliminates the requirement to disclose the nature and estimate of the range of the reasonably possible change in the unrecognized tax benefits balance in the next 12 months and to disclose the cumulative amount of each type of temporary difference when a deferred tax liability is not recognized because of the exceptions to comprehensive recognition of deferred taxes related to subsidiaries and corporate joint ventures. For public business entities, the amendments are effective for annual periods beginning after December 15, 2024. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. The amendments should be applied on a prospective basis, but retrospective application is permitted. HTLF is currently evaluating the impact of the standard and does not anticipate it will have a significant impact on the results of operations, financial position, or liquidity.

Qualified Affordable Housing Investments

HTLF uses the proportional amortization method for investments in low-income housing projects. HTLF’s net investments in low-income housing projects were $5.5 million and $5.9 million as of June 30, 2024, and December 31, 2023, respectively, and are included in other assets in the consolidated balance sheet.

With respect to HTLF’s investment in low-income housing projects for the quarter ended June 30, 2024, we recognized income tax credits and other income tax benefits of $257,000 and $33,000, respectively. The total income tax benefits of $290,000 are partially offset in the “income taxes” item in the consolidated statements of income by $235,000 of investment amortization recognized, for a net income tax benefit of $55,000. The cash flows related to the total income tax benefits are presented in the following line items in the statement of cash flows:

•$55,000 Net Income Tax Benefit, in the "Net income" line item in operating activities;

•$235,000 Investment Amortization, in the "Other, net" line item, which is an adjustment to reconcile net income to cash from operating activities;

•$257,000 Tax Credits, in the "Other, net" line item, which is also an adjustment to reconcile net income to cash from operating activities; and

•$33,000 Other Tax Benefits Recognized, in the "Other, net" line item, which is also an adjustment to reconcile net income to cash from operating activities.

There was no non-income-tax-related activity or impairment losses related to the low-income housing investments this reporting period.

With respect to HTLF’s investment in low-income housing projects for the six months ended June 30, 2024, we recognized income tax credits and other income tax benefits of $513,000 and $66,000, respectively. The total income tax benefits of $579,000 are partially offset in the “income taxes” item in the consolidated statements of income by $470,000 of investment amortization recognized, for a net income tax benefit of $109,000. The cash flows related to the total income tax benefits are presented in the following line items in the statement of cash flows:

•$109,000 Net Income Tax Benefit, in the "Net income" line item in operating activities;

•$470,000 Investment Amortization, in the "Other, net" line item, which is an adjustment to reconcile net income to cash from operating activities;

•$513,000 Tax Credits, in the "Other, net" line item, which is also an adjustment to reconcile net income to cash from operating activities; and

•$66,000 Other Tax Benefits Recognized, in the "Other, net" line item, which is also an adjustment to reconcile net income to cash from operating activities.

There was no non-income-tax-related activity or impairment losses related to the low-income housing investments this reporting period.