Heartland Financial USA, Inc. Reports Second Quarter 2006 Earnings

Business Wire, July 24, 2006

DUBUQUE, Iowa -- Heartland Financial USA, Inc. (NASDAQ:HTLF):

Second Quarter 2006 Highlights

--Net income increased by 15% over second quarter 2005

--Net interest margin improved by 16 basis points compared to second quarter 2005

--Average earning assets increased 9% over second quarter 2005

--Acquisition of Bank of the Southwest completed

Quarter Ended   Six Months Ended
                                       June 30,          June 30,
                                   ----------------- -----------------
                                     2006     2005     2006     2005
Net income (in millions)              $6.2     $5.4    $10.7    $10.7
Diluted earnings per share            0.37     0.32     0.64     0.64

Return on average assets              0.87%    0.81%    0.76%    0.81%
Return on average equity             13.10    12.12    11.34    12.09
Net interest margin                   4.19     4.03     4.17     4.00

"Heartland's strong second quarter performance is very gratifying. Despite intense competition in every market, our banks collectively widened the company's margin since the first quarter by five basis points to 4.19%. Contributing to this improvement is our continued expansion into the West."-- Lynn B. Fuller, chairman, president and chief executive officer, Heartland Financial USA

Heartland Financial USA, Inc. (NASDAQ:HTLF) today reported increased earnings for the second quarter of 2006. Net income for the quarter ended June 30, 2006, was $6.2 million, or $0.37 per diluted share, compared to net income of $5.4 million, or $0.32 per diluted share, during the second quarter of 2005, an increase of $816,000 or 15 percent. Return on average equity was 13.10 percent and return on average assets was 0.87 percent for the second quarter of 2006, compared to 12.12 percent and 0.81 percent, respectively, for the same quarter in 2005.

Net income for the first six months of 2006 remained consistent with the net income recorded for the first six months of 2005 at $10.7 million, or $0.64 per diluted share. Return on average equity was 11.34 percent and return on average assets was 0.76 percent for the first six months of 2006, compared to 12.09 percent and 0.81 percent, respectively, for the same period in 2005. During the first quarter of 2006, a pre-tax judgment of $2.4 million against Heartland and Wisconsin Community Bank was recorded as noninterest expense, while a $286,000 award under a counterclaim was recorded as a loan loss recovery. The net after tax adjustment to net income for this one-time event was $1.3 million. Exclusive of this expense, Heartland's net income for the first six months of 2006 was $12.0 million, or $0.72 per diluted share, an increase of $1.3 million or 12 percent over the first six months of 2005. Because of the non-recurring nature of this expense, Heartland believes that this pro-forma presentation is important for investors to understand Heartland's financial performance for the first six months of 2006.

Lynn B. Fuller, Heartland's chairman, president and chief executive officer stated, "Heartland's strong second quarter performance is very gratifying. Despite intense competition in every market, our banks collectively widened the company's margin since the first quarter by five basis points to 4.19%. Contributing to this improvement is our continued expansion into the West."

On May 15, 2006, the acquisition of Bank of the Southwest was completed and became a part of Arizona Bank & Trust, Heartland's de novo bank chartered in 2003. As of the acquisition date, total assets at Bank of the Southwest were $63.2 million, total loans were $52.4 million and total deposits were $44.4 million. The purchase price was $18.1 million, all in cash. The resultant acquired customer relationship intangible of $540,000 is being amortized over a period of eight years. The remaining excess purchase price over the fair value of tangible and identifiable intangible assets acquired of $5.1 million was recorded as goodwill.

Net interest margin, expressed as a percentage of average earning assets, was 4.19 percent during the second quarter of 2006 compared to 4.03 percent for the second quarter of 2005 and 4.14 percent for the first quarter of 2006. Net interest income on a tax-equivalent basis totaled $27.0 million during the second quarter of 2006, an increase of $3.1 million or 13 percent from the $23.9 million recorded during the second quarter of 2005. For the six-month period during 2006, net interest income on a tax-equivalent basis was $52.7 million, an increase of $6.0 million or 13 percent from the $46.7 million recorded during the first six months of 2005. Contributing to these increases was the $203.5 million or 9 percent growth in average earning assets during the quarter and the $194.7 million or 8 percent growth in average earning assets during the first six months of 2006 compared to 2005. Also contributing to this improvement was a shift in balances to loans from securities. The percentage of average loans to total average assets increased from 69 percent during the second quarter of 2005 to 71 percent during the second quarter of 2006. For the six month comparative period, the percentage of average loans to total average assets increased from 68 percent in 2005 to 71 percent in 2006.