Heartland Financial USA, Inc. Reports Second Quarter 2008 Earnings

Quarters Ended Six Months Ended June 30, June 30, ---------------- ------------------ 2008 2007 2008 2007 Net income (in millions) $ 4.7 $ 6.2 $ 11.0 $ 12.0 Income from continuing operations (in millions) 4.7 4.6 11.0 10.3 Diluted earnings per share 0.29 0.37 0.67 0.72 Diluted earnings per share from continuing operations 0.29 0.28 0.67 0.62 Return on average assets 0.56% 0.79% 0.67% 0.77% Return on average equity 8.08 11.72 9.40 11.45 Net interest margin 3.92 4.02 3.90 4.03

"In the most difficult banking environment we've seen in years, Heartland showed year-over-year improvement in income from continuing operations and earnings per share from continuing operations for the second quarter of 2008. Equally significant is the maintenance of our margin at 3.92%, making four straight quarters at or near this level. Nevertheless, nonperforming loans present an obstacle to current and future earnings."-- Lynn B. Fuller, chairman, president and chief executive officer, Heartland Financial USA, Inc.

Heartland Financial USA, Inc. (NASDAQ:HTLF) today reported earnings for the second quarter of 2008. Net income was $4.7 million, or $0.29 per diluted share, for the quarter ended June 30, 2008, compared to $6.2 million, or $0.37 per diluted share, earned during the second quarter of 2007. Return on average equity was 8.08 percent and return on average assets was 0.56 percent for the second quarter of 2008, compared to 11.72 percent and 0.79 percent, respectively, for the same quarter in 2007.

Net income recorded for the first six months of 2008 was $11.0 million, or $0.67 per diluted share, compared to $12.0 million, or $0.72 per diluted share, recorded during the first six months of 2007. Return on average equity was 9.40 percent and return on average assets was 0.67 percent for the first six months of 2008, compared to 11.45 percent and 0.77 percent, respectively, for the same period in 2007.

The 2007 results were impacted by the sale of Rocky Mountain Bank's branch banking office in Broadus, Montana, which was completed on June 22, 2007. Included in the sale were $20.9 million of loans and $30.2 million of deposits. The results of operations of the branch are reflected on the income statement as discontinued operations for the prior periods reported. During the second quarter of 2007, income from discontinued operations included a $2.4 million pre-tax gain recorded as a result of the sale of the Broadus branch.

Lynn B. Fuller, Heartland's chairman, president and chief executive officer stated, "In the most difficult banking environment we've seen in years, Heartland showed year-over-year improvement in income from continuing operations and earnings per share from continuing operations for the second quarter of 2008. Equally significant is the maintenance of our margin at 3.92%, making four straight quarters at or near this level. Nevertheless, nonperforming loans present an obstacle to current and future earnings."

Income from continuing operations was $4.7 million, or $0.29 per diluted share, during the second quarter of 2008 compared to $4.6 million, or $0.28 per diluted share, during the second quarter of 2007. During both years, earnings from continuing operations were significantly impacted by the provision for loan losses, which was $5.4 million during the second quarter of 2008 and $4.3 million during the second quarter of 2007. These increases were due, in large part, to charge-offs of $2.0 million on one credit at Arizona Bank & Trust during 2008 and $1.6 million on one credit at Galena State Bank during 2007. The quarterly performance during 2008 was positively affected by increased net interest income, growth in noninterest income and slower growth in noninterest expense.

For the six months ended June 30, 2008, income from continuing operations was $11.0 million, or $0.67 per diluted share, an increase of $685,000 or 7 percent over the $10.3 million, or $0.62 per diluted share, earned during the same period in 2007. The provision for loan losses for the six-month comparative period was $7.1 million during 2008 compared to $6.2 million during 2007. In addition to the significant charge-offs during the second quarters of both years, the provision for loan losses increased as a result of loan growth, an increase in nonperforming loans and the impact historical losses have on the calculation of the adequacy of Heartland's allowance for loan and lease losses.

Net Interest Margin Sustained; Net Interest Income Grows

Net interest margin, expressed as a percentage of average earning assets, was 3.92 percent during the second quarter of 2008 compared to 4.02 percent for the second quarter of 2007. For the six-month periods ended on June 30, net interest margin, expressed as a percentage of average earning assets, was 3.90 percent during 2008 and 4.03 percent during 2007. Affecting the net interest margin throughout the second half of 2007 and first six months of 2008 was the impact of foregone interest on Heartland's nonperforming loans, which had balances of $42.9 million at June 30, 2008, compared to $31.8 million at year-end 2007 and $19.1 million at June 30, 2007. Additionally, early in the third quarter of 2007, a $20.5 million investment was made in bank owned life insurance upon which interest expense associated with the funding of this investment is reflected in net interest margin while the corresponding earnings on this investment are recorded as noninterest income.

Fuller said, "Net interest margin is up a bit from the first quarter, indicating that our pricing discipline and strategies are producing the desired results. Achievement of our number one priority, a reduction in nonperforming loans, will have a positive effect on our net interest margin."

Net interest income on a tax-equivalent basis totaled $29.8 million during the second quarter of 2008, an increase of $1.2 million or 4 percent from the $28.6 million recorded during the second quarter of 2007. For the six-month period during 2008, net interest income on a tax-equivalent basis was $58.5 million, an increase of $2.0 million or 4 percent from the $56.5 million recorded during the first six months of 2007. These increases occurred as Heartland's interest bearing liabilities repriced downward more quickly than its interest bearing assets. Also contributing to these increases was the $199.7 million or 7 percent growth in average earning assets during the second quarter of 2008 compared to the same quarter in 2007 and the $191.9 million or 7 percent growth in average earning assets during the first six months of 2008 compared to the same six months of 2007.

On a tax-equivalent basis, interest income in the second quarter of 2008 totaled $51.1 million compared to $55.4 million in the second quarter of 2007, a decrease of $4.3 million or 8 percent. For the first six months of 2008, interest income on a tax-equivalent basis decreased $5.3 million or 5 percent over the same period in 2007. Nearly half of the loans in Heartland's commercial and agricultural loan portfolios are floating rate loans that reprice immediately upon a change in the national prime interest rate, thus changes in the national prime rate impact interest income more quickly than if there were more fixed rate loans. The national prime interest rate was 8.25% for the first six months of 2007. During the first six months of 2008, the national prime interest rate decreased 225 basis points, ranging from 7.25% on January 1, 2008, to 5.00% on June 30, 2008.

Interest expense for the second quarter of 2008 was $21.3 million compared to $26.7 million in the second quarter of 2007, a decrease of $5.4 million or 20 percent. On a six-month comparative basis, interest expense decreased $7.3 million or 14 percent. Interest rates paid on Heartland's deposits and borrowings were significantly lower during the first six months of 2008 compared to the first six months of 2007. Approximately 51 percent of Heartland's certificate of deposit accounts will mature within the next six months at a weighted average rate of 3.84 percent.

Fuller commented, "We have seen a favorable effect on our deposit costs as higher rate certificates of deposit matured and repriced into lower rates. At this juncture, however, we are beginning to see the opportunity to lock in some longer term maturities in anticipation of higher rates over the next three years."

Noninterest Income Rises; Growth in Noninterest Expense Stabilizes

Noninterest income increased by $225,000 or 3 percent during the second quarter of 2008 compared to the same quarter in 2007. The categories experiencing the largest increases for the comparative quarters were loan servicing income and securities gains. For the first six months of 2008, noninterest income increased $1.1 million or 7 percent over the same period in 2007, primarily from loan servicing income, brokerage and insurance commissions and securities gains. For both comparative periods, the improvements in the aforementioned categories were partially offset by increased losses on trading account securities and reduced gains on sale of loans.

Commenting on noninterest income, Fuller stated, "Most sources of noninterest income are performing well in 2008. We are pleased that income from our Wealth Management Group and brokerage unit continue to make healthy contributions."

For the second quarter of 2008, noninterest expense increased $509,000 or 2 percent from the same period in 2007. The largest component of noninterest expense, salaries and employee benefits, increased $456,000 or 3 percent during the second quarter of 2008 compared to the second quarter of 2007. For the six-month period ended June 30, 2008, noninterest expense increased $1.9 million or 4 percent when compared to the same six-month period in 2007. Again, the largest component of noninterest expense, salaries and employee benefits, grew by $1.1 million or 4 percent during this six-month comparative period. Total full-time equivalent employees were 1,002 at June 30, 2008, compared to 1,004 at June 30, 2007. Occupancy expense increased during the quarter and six-month comparative periods, primarily as a result of the opening of six new banking offices during 2007 and the 2008 opening of Heartland's 10th bank subsidiary, Minnesota Bank & Trust. The other category of noninterest expense that increased significantly during the 2008 quarter and six-month period was outside services, resulting primarily from additional FDIC assessments as a majority of the FDIC credits at Heartland's bank subsidiaries were utilized during 2007.

In reference to Heartland's expansion efforts, Fuller said, "We have purposefully slowed the pace of new office expansion this year, with one new location scheduled to open in Albuquerque in the third quarter. However, given the difficulty many banks are experiencing in the present environment, we are beginning to see attractive acquisition opportunities. In this regard, we will focus our attention on existing Heartland markets where we can achieve efficiencies and grow market share while providing more convenience to our current clients."

Heartland's effective tax rate was 27.03 percent for the first six months of 2008 compared to 31.83 percent for the first six months of 2007. The decrease in Heartland's effective tax rate during the first six months of 2008 resulted primarily from $170,000 in federal rehabilitation tax credits associated with Dubuque Bank and Trust Company's ownership interest in a limited liability company that owns a certified historic structure and also from $225,000 of additional non-taxable income associated with the increase in the cash surrender value on life insurance policies. Heartland's effective tax rate is also affected by the level of tax-exempt interest income which, as a percentage of pre-tax income, was 23.36 percent during the first six months of 2008 compared to 19.57 percent during the same six months of 2007. The tax-equivalent adjustment for this tax-exempt interest income was $1.9 million during the first six months of 2008 compared to $1.8 million during the same six months in 2007.

Loan Growth Picks Up; Growth in Deposits Slows

At June 30, 2008, total assets had increased $114.9 million or 7 percent annualized since year-end 2007. Total loans and leases were nearly $2.30 billion at June 30, 2008, compared to $2.28 billion at year-end 2007, an increase of $15.2 million or 1 percent annualized. Aside from the payoff of one commercial real estate loan totaling $24.3 million, growth in loans totaled $39.5 million or 3 percent annualized since year-end 2007. This growth was distributed among the commercial, agricultural and consumer loan categories at $20.3 million, $14.6 million and $12.7 million, respectively. Loan growth at Summit Bank & Trust comprised $13.7 million of the growth in the commercial and commercial real estate loan category. A majority of the increase in agricultural and agricultural real estate loans occurred at Dubuque Bank and Trust Company. New Mexico Bank & Trust, Rocky Mountain Bank and Citizens Finance Co. were responsible for most of the growth in the consumer loan portfolio.

Total deposits grew to $2.41 billion at June 30, 2008, an increase of $32.6 million or 3 percent annualized since year-end 2007. Growth in deposits was weighted more heavily in Heartland's Western markets. Demand deposits experienced an increase of $1.6 million or 1 percent annualized since year-end 2007. Savings deposit balances experienced an increase of $39.0 million or 9 percent annualized since year-end 2007 and time deposits, exclusive of brokered deposits, experienced a decrease of $18.6 million or 3 percent annualized since year-end 2007. At June 30, 2008, brokered time deposits totaled $79.5 million or 3 percent of total deposits compared to $69.0 million or 3 percent of total deposits at year-end 2007. A large portion of the growth in savings deposits is attributable to the January introduction of a new retail interest-bearing checking account product and the conversion of several retail repurchase agreement sweep accounts to a new money market sweep product rolled out to business depositors during the second quarter of 2008.

Increase in Nonperforming Loans

The allowance for loan and lease losses at June 30, 2008, was 1.52 percent of loans and 81 percent of nonperforming loans, compared to 1.45 percent of loans and 104 percent of nonperforming loans at December 31, 2007. Additions to the allowance for loan and lease losses were primarily driven by the continued softening of the economy and reduced real estate values, particularly in the Phoenix market. Nonperforming loans were $42.9 million or 1.87 percent of total loans and leases at June 30, 2008, compared to $31.8 million or 1.40 percent of total loans and leases at December 31, 2007. The majority of the $11.1 million increase in nonperforming loans from December 31, 2007, resulted from two large credits originated by Arizona Bank & Trust and Rocky Mountain Bank. Approximately 63 percent, or $26.9 million, of Heartland's nonperforming loans are to six borrowers, with $13.2 million originated by Arizona Bank & Trust, $7.5 million originated by Wisconsin Community Bank, $4.8 million originated by Rocky Mountain Bank and $1.4 million originated by Summit Bank & Trust. The portion of Heartland's nonperforming loans covered by government guarantees was $3.4 million at June 30, 2008.

Net charge-offs during the first six months of 2008 were $5.2 million compared to $3.3 million during the first six months of 2007. Net charge-offs at Arizona Bank & Trust comprised $3.4 million or 65 percent of the total net charge-offs for the first six months of 2008. Due to the untimely death of the sole owner of a business in June of 2008 and the filing of Chapter 11 bankruptcy shortly thereafter by the business, the $2.0 million outstanding on a line of credit for working capital was charged-off. Included in the remaining $1.4 million of net charge-offs at Arizona Bank & Trust was $1.2 million on four residential lot loans. Management monitors the loan portfolio of each bank subsidiary and, at this point, does not believe that the increase in nonperforming loans is any indication of a systemic problem but is more likely a result of the continuing shift in the economy in some of Heartland's markets.

Fuller concluded, "Managing nonperforming loans continues to be our highest priority. We have allocated additional resources and focused our energies in those markets that are the most challenged. We are hopeful that an improving trend will be evident by year end."

Conference Call Details

Heartland will host a conference call for investors at 4:00 p.m. EDT today. To participate, dial 800-219-6110 at least five minutes before start time, or log onto www.htlf.com. If you are unable to participate on the call, a replay will be available through August 4, 2008, by dialing 800-405-2236, passcode 11116230, or by logging onto www.htlf.com.

About Heartland Financial USA, Inc.:

Heartland Financial USA, Inc. is a $3.4 billion diversified financial services company providing banking, mortgage, wealth management, insurance and consumer finance services to individuals and businesses. The Company currently has 60 banking locations in 41 communities in Iowa, Illinois, Wisconsin, New Mexico, Arizona, Montana, Colorado and Minnesota. Additional information about Heartland Financial USA, Inc. is available at www.htlf.com.

Safe Harbor Statement

This release, and future oral and written statements of the Company and its management may contain, forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to Heartland's financial condition, results of operations, plans, objectives, future performance and business. Forward-looking statements, which may be based upon beliefs, expectations and assumptions of the Company's management and on information currently available to management, are generally identifiable by the use of words such as believe, expect, anticipate, plan, intend, estimate, may, will, would, could, should or similar expressions. Additionally, all statements in this release, including forward-looking statements, speak only as of the date they are made, and the Company undertakes no obligation to update any statement in light of new information or future events.

A number of factors, many of which are beyond the ability of the Company to control or predict, could cause actual results to differ materially from those in its forward-looking statements. These factors include, among others, the following: (i) the strength of the local and national economy; (ii) the economic impact of past and any future terrorist threats and attacks and any acts of war, (iii) changes in state and federal laws, regulations and governmental policies concerning the Company's general business; (iv) changes in interest rates and prepayment rates of the Company's assets; (v) increased competition in the financial services sector and the inability to attract new customers; (vi) changes in technology and the ability to develop and maintain secure and reliable electronic systems; (vii) the loss of key executives or employees; (viii) changes in consumer spending; (ix) unexpected results of acquisitions; (x) unexpected outcomes of existing or new litigation involving the Company; and (xi) changes in accounting policies and practices. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Additional information concerning the Company and its business, including other factors that could materially affect the Company's financial results, is included in the Risk Factors section of its Annual Report on Form 10-K and in its other filings with the Securities and Exchange Commission.

HEARTLAND FINANCIAL USA, INC. CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited) DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA ---------------------------------------------------------------------- For the Quarters Ended For the Six Months Ended 6/30/2008 6/30/2007 6/30/2008 6/30/2007 ---------------------------------------------------------------------- Interest Income Interest and fees on loans and leases $ 40,555 $ 47,748 $ 83,454 $ 93,306 Interest on securities and other: Taxable 7,885 5,267 14,500 10,564 Nontaxable 1,679 1,443 3,326 2,901 Interest on federal funds sold 51 - 182 - Interest on deposits in other financial institutions 2 8 7 18 ----------- ----------- ----------- ----------- Total Interest Income 50,172 54,466 101,469 106,789 ----------- ----------- ----------- ----------- Interest Expense Interest on deposits 15,657 19,550 32,753 37,848 Interest on short- term borrowings 1,087 3,970 3,273 7,781 Interest on other borrowings 4,593 3,240 8,870 6,563 ----------- ----------- ----------- ----------- Total Interest Expense 21,337 26,760 44,896 52,192 ----------- ----------- ----------- ----------- Net Interest Income 28,835 27,706 56,573 54,597 Provision for loan and lease losses 5,369 4,268 7,130 6,194 ----------- ----------- ----------- ----------- Net Interest Income After Provision for Loan and Lease Losses 23,466 23,438 49,443 48,403 ----------- ----------- ----------- ----------- Noninterest Income Service charges and fees 2,880 2,855 5,495 5,426 Loan servicing income 1,195 1,040 2,491 2,035 Trust fees 2,068 2,055 4,089 4,176 Brokerage and insurance commissions 883 845 1,775 1,338 Securities gains, net 648 147 1,010 272 Gain (loss) on trading account securities (227) 46 (434) 87 Impairment loss on equity securities (30) - (116) - Gains on sale of loans 480 856 984 1,447 Income on bank owned life insurance 380 317 843 617 Other noninterest income 41 (68) 655 306 ----------- ----------- ----------- ----------- Total Noninterest Income 8,318 8,093 16,792 15,704 ----------- ----------- ----------- ----------- Noninterest Expense Salaries and employee benefits 14,666 14,210 29,459 28,379 Occupancy 2,193 2,010 4,537 3,937 Furniture and equipment 1,771 1,779 3,539 3,455 Outside services 2,648 2,368 5,158 4,637 Advertising 1,046 1,039 1,841 1,808 Other intangibles amortization 236 192 472 411 Other noninterest expenses 2,878 3,331 6,196 6,698 ----------- ----------- ----------- ----------- Total Noninterest Expense 25,438 24,929 51,202 49,325 ----------- ----------- ----------- ----------- Income Before Income Taxes 6,346 6,602 15,033 14,782 Income taxes 1,643 1,965 4,063 4,497 ----------- ----------- ----------- ----------- Income From Continuing Operations 4,703 4,637 10,970 10,285 Discontinued Operations Income from operations of discontinued operations - 2,565 - 2,756 Income taxes - 1,017 - 1,085 ----------- ----------- ----------- ----------- Income From Discontinued Operations - 1,548 - 1,671 ----------- ----------- ----------- ----------- Net Income $ 4,703 $ 6,185 $ 10,970 $ 11,956 =========== =========== =========== =========== Earnings per common share-basic $ 0.29 $ 0.38 $ 0.67 $ 0.72 Earnings per common share-diluted $ 0.29 $ 0.37 $ 0.67 $ 0.72 Earnings per common share from continuing operations-basic $ 0.29 $ 0.28 $ 0.67 $ 0.62 Earnings per common share from continuing operations-diluted $ 0.29 $ 0.28 $ 0.67 $ 0.62 Weighted average shares outstanding-basic 16,316,529 16,451,031 16,347,462 16,496,885 Weighted average shares outstanding- diluted 16,388,885 16,644,286 16,413,396 16,699,895

HEARTLAND FINANCIAL USA, INC. CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited) DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA ---------------------------------------------------------------------- For the Quarters Ended 6/30/2008 3/31/2008 ---------------------------------------------------------------------- Interest Income Interest and fees on loans and leases $ 40,555 $ 42,899 Interest on securities and other: Taxable 7,885 6,615 Nontaxable 1,679 1,647 Interest on federal funds sold 51 131 Interest on deposits in other financial institutions 2 5 --------------------------- Total Interest Income 50,172 51,297 --------------------------- Interest Expense Interest on deposits 15,657 17,096 Interest on short-term borrowings 1,087 2,186 Interest on other borrowings 4,593 4,277 --------------------------- Total Interest Expense 21,337 23,559 --------------------------- Net Interest Income 28,835 27,738 Provision for loan and lease losses 5,369 1,761 --------------------------- Net Interest Income After Provision for Loan and Lease Losses 23,466 25,977 --------------------------- Noninterest Income Service charges and fees 2,880 2,615 Loan servicing income 1,195 1,296 Trust fees 2,068 2,021 Brokerage and insurance commissions 883 892 Securities gains, net 648 362 Gain (loss) on trading account securities (227) (207) Impairment loss on equity securities (30) (86) Gains on sale of loans 480 504 Income on bank owned life insurance 380 463 Other noninterest income 41 614 --------------------------- Total Noninterest Income 8,318 8,474 --------------------------- Noninterest Expense Salaries and employee benefits 14,666 14,793 Occupancy 2,193 2,344 Furniture and equipment 1,771 1,768 Outside services 2,648 2,510 Advertising 1,046 795 Other intangibles amortization 236 236 Other noninterest expenses 2,878 3,318 --------------------------- Total Noninterest Expense 25,438 25,764 --------------------------- Income Before Income Taxes 6,346 8,687 Income taxes 1,643 2,420 --------------------------- Income From Continuing Operations 4,703 6,267 Discontinued Operations Income from operations of discontinued operations - - Income taxes - - --------------------------- Income From Discontinued Operations - - --------------------------- Net Income $ 4,703 $ 6,267 =========================== Earnings per common share-basic $ 0.29 $ 0.38 Earnings per common share-diluted $ 0.29 $ 0.38 Earnings per common share from continuing operations-basic $ 0.29 $ 0.38 Earnings per common share from continuing operations-diluted $ 0.29 $ 0.38 Weighted average shares outstanding-basic 16,316,529 16,378,394 Weighted average shares outstanding- diluted 16,388,885 16,465,985 For the Quarters Ended 12/31/2007 9/30/2007 6/30/2007 ---------------------------------------------------------------------- Interest Income Interest and fees on loans and leases $ 46,083 $ 47,406 $ 47,748 Interest on securities and other: Taxable 5,927 5,446 5,267 Nontaxable 1,665 1,513 1,443 Interest on federal funds sold 77 310 - Interest on deposits in other financial institutions 13 2 8 --------------------------------------- Total Interest Income 53,765 54,677 54,466 --------------------------------------- Interest Expense Interest on deposits 19,540 20,477 19,550 Interest on short-term borrowings 2,748 2,764 3,970 Interest on other borrowings 3,971 4,199 3,240 --------------------------------------- Total Interest Expense 26,259 27,440 26,760 --------------------------------------- Net Interest Income 27,506 27,237 27,706 Provision for loan and lease losses 3,304 575 4,268 --------------------------------------- Net Interest Income After Provision for Loan and Lease Losses 24,202 26,662 23,438 --------------------------------------- Noninterest Income Service charges and fees 2,821 2,861 2,855 Loan servicing income 1,273 1,068 1,040 Trust fees 1,788 2,089 2,055 Brokerage and insurance commissions 939 820 845 Securities gains, net 38 31 147 Gain (loss) on trading account securities (185) (7) 46 Impairment loss on equity securities - - - Gains on sale of loans 1,527 604 856 Income on bank owned life insurance 565 595 317 Other noninterest income (676) (145) (68) --------------------------------------- Total Noninterest Income 8,090 7,916 8,093 --------------------------------------- Noninterest Expense Salaries and employee benefits 11,888 14,301 14,210 Occupancy 1,961 2,004 2,010 Furniture and equipment 1,848 1,669 1,779 Outside services 2,544 2,374 2,368 Advertising 948 886 1,039 Other intangibles amortization 240 241 192 Other noninterest expenses 4,105 3,272 3,331 --------------------------------------- Total Noninterest Expense 23,534 24,747 24,929 --------------------------------------- Income Before Income Taxes 8,758 9,831 6,602 Income taxes 2,006 2,906 1,965 --------------------------------------- Income From Continuing Operations 6,752 6,925 4,637 Discontinued Operations Income from operations of discontinued operations - - 2,565 Income taxes - - 1,017 --------------------------------------- Income From Discontinued Operations - - 1,548 --------------------------------------- Net Income $ 6,752 $ 6,925 $ 6,185 ======================================= Earnings per common share- basic $ 0.41 $ 0.42 $ 0.38 Earnings per common share- diluted $ 0.41 $ 0.42 $ 0.37 Earnings per common share from continuing operations-basic $ 0.41 $ 0.42 $ 0.28 Earnings per common share from continuing operations-diluted $ 0.41 $ 0.42 $ 0.28 Weighted average shares outstanding-basic 16,481,854 16,447,270 16,451,031 Weighted average shares outstanding-diluted 16,574,540 16,543,635 16,644,286

HEARTLAND FINANCIAL USA, INC. CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited) DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA ---------------------------------------------------------------------- As Of 6/30/2008 3/31/2008 ---------------------------------------------------------------------- Assets Cash and cash equivalents $ 41,292 $ 50,141 Securities 795,624 734,690 Loans held for sale 11,437 11,222 Loans and leases: Held to maturity 2,295,406 2,271,663 Allowance for loan and lease losses (34,931) (33,695) --------------------------- Loans and leases, net 2,260,475 2,237,968 Premises, furniture and equipment, net 118,063 119,542 Goodwill 40,207 40,207 Other intangible assets, net 8,434 8,416 Cash surrender value on life insurance 56,430 56,018 Other assets 47,109 42,276 --------------------------- Total Assets $ 3,379,071 $ 3,300,480 =========================== Liabilities and Stockholders' Equity Liabilities Deposits: Demand $ 383,136 $ 377,709 Savings 894,074 863,067 Brokered time deposits 79,515 89,439 Other time deposits 1,052,160 1,090,724 --------------------------- Total deposits 2,408,885 2,420,939 Short-term borrowings 263,137 226,106 Other borrowings 444,006 380,479 Accrued expenses and other liabilities 35,345 37,103 --------------------------- Total Liabilities 3,151,373 3,064,627 Stockholders' Equity 227,698 235,853 --------------------------- Total Liabilities and Stockholders' Equity $ 3,379,071 $ 3,300,480 =========================== Common Share Data Book value per common share $ 13.99 $ 14.46 FAS 115 effect on book value per common share $ (0.07) $ 0.52 Common shares outstanding, net of treasury stock 16,270,872 16,312,384 Tangible Capital Ratio(1) 5.50% 5.88% As Of 12/31/2007 9/30/2007 6/30/2007 ---------------------------------------------------------------------- Assets Cash and cash equivalents $ 46,832 $ 31,591 $ 35,721 Securities 689,949 648,337 590,194 Loans held for sale 12,679 16,267 22,346 Loans and leases: Held to maturity 2,280,167 2,274,119 2,298,256 Allowance for loan and lease losses (32,993) (31,438) (32,738) --------------------------------------- Loans and leases, net 2,247,174 2,242,681 2,265,518 Premises, furniture and equipment, net 120,285 119,461 115,885 Goodwill 40,207 40,207 40,207 Other intangible assets, net 8,369 8,378 8,530 Cash surrender value on life insurance 55,532 54,936 33,810 Other assets 43,099 40,597 42,205 --------------------------------------- Total Assets $ 3,264,126 $ 3,202,455 $ 3,154,416 ======================================= Liabilities and Stockholders' Equity Liabilities Deposits: Demand $ 381,499 $ 367,617 $ 368,234 Savings 855,036 850,845 804,949 Brokered time deposits 68,984 116,082 119,958 Other time deposits 1,070,780 1,086,732 1,075,024 --------------------------------------- Total deposits 2,376,299 2,421,276 2,368,165 Short-term borrowings 354,146 256,822 274,141 Other borrowings 263,607 268,716 268,758 Accrued expenses and other liabilities 39,474 33,366 31,709 --------------------------------------- Total Liabilities 3,033,526 2,980,180 2,942,773 Stockholders' Equity 230,600 222,275 211,643 --------------------------------------- Total Liabilities and Stockholders' Equity $ 3,264,126 $ 3,202,455 $ 3,154,416 ======================================= Common Share Data Book value per common share $ 14.04 $ 13.48 $ 12.88 FAS 115 effect on book value per common share $ 0.37 $ 0.13 $ (0.15) Common shares outstanding, net of treasury stock 16,427,016 16,492,245 16,437,459 Tangible Capital Ratio(1) 5.78% 5.62% 5.35%

(1) Total stockholders' equity less goodwill and intangible assets (excluding mortgage servicing rights) divided by total assets less intangible assets (excluding mortgage servicing rights).

HEARTLAND FINANCIAL USA, INC. CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited) DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA ---------------------------------------------------------------------- For the Quarters Ended For the Six Months Ended 6/30/2008 6/30/2007 6/30/2008 6/30/2007 ---------------------------------------------------------------------- Average Balances Assets $3,354,880 $3,158,088 $3,312,207 $3,115,713 Loans and leases 2,286,392 2,302,037 2,285,513 2,258,445 Deposits 2,396,963 2,348,386 2,367,799 2,309,532 Earning assets 3,057,505 2,857,840 3,015,860 2,823,964 Interest bearing liabilities 2,712,487 2,524,956 2,675,224 2,491,376 Stockholders' equity 234,005 211,639 234,574 210,489 Tangible stockholders' equity 193,950 169,641 194,274 168,605 Earnings Performance Ratios Annualized return on average assets 0.56% 0.79% 0.67% 0.77% Annualized return on average equity 8.08 11.72 9.40 11.45 Annualized return on average tangible equity 9.75 14.62 11.36 14.30 Annualized net interest margin(1) 3.92 4.02 3.90 4.03 Efficiency ratio(2) 67.92 68.39 68.96 68.62

(1) Tax equivalent basis is calculated using an effective tax rate of 35%

(2) Noninterest expense divided by the sum of net interest income and noninterest income less net security gains

---------------------------------------------------------------------- For the Quarters Ended 6/30/2008 3/31/2008 ---------------------------------------------------------------------- Average Balances Assets $3,354,880 $3,269,534 Loans and leases, net of unearned 2,286,392 2,284,634 Deposits 2,396,963 2,338,634 Earning assets 3,057,505 2,974,215 Interest bearing liabilities 2,712,487 2,637,962 Stockholders' equity 234,005 235,144 Tangible stockholders' equity 193,950 194,600 Earnings Performance Ratios Annualized return on average assets 0.56% 0.77% Annualized return on average equity 8.08 10.72 Annualized return on average tangible equity 9.75 12.95 Annualized net interest margin(1) 3.92 3.88 Efficiency ratio(2) 67.92 70.02 ---------------------------------------------------------------------- For the Quarters Ended 12/31/2007 9/30/2007 6/30/2007 ---------------------------------------------------------------------- Average Balances Assets $ 3,211,155 $3,176,715 $3,158,088 Loans and leases, net of unearned 2,283,591 2,287,264 2,302,037 Deposits 2,409,315 2,415,158 2,348,386 Earning assets 2,910,942 2,890,761 2,857,840 Interest bearing liabilities 2,571,327 2,558,460 2,524,956 Stockholders' equity 225,945 216,038 211,639 Tangible stockholders' equity 184,871 174,637 169,641 Earnings Performance Ratios Annualized return on average assets 0.83% 0.86% 0.79% Annualized return on average equity 11.86 12.72 11.72 Annualized return on average tangible equity 14.49 15.91 14.62 Annualized net interest margin(1) 3.87 3.87 4.02 Efficiency ratio(2) 64.54 68.58 68.39

(1) Tax equivalent basis is calculated using an effective tax rate of 35%

(2) Noninterest expense divided by the sum of net interest income and noninterest income less net security gains

HEARTLAND FINANCIAL USA, INC. CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited) DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA ---------------------------------------------------------------------- As of and For As of and For The Six Months the Year Ended Ended 6/30/2008 12/31/2007 ---------------------------------------------------------------------- Loan and Lease Data Commercial and commercial real estate $1,628,589 $1,632,597 Residential mortgage 210,670 217,044 Agricultural and agricultural real estate 240,300 225,663 Consumer 212,238 199,518 Direct financing leases, net 7,489 9,158 Unearned discount and deferred loan fees (3,880) (3,813) ----------------------------- Total loans and leases $2,295,406 $2,280,167 ============================= Asset Quality Nonaccrual loans $ 42,857 $ 30,694 Loans and leases past due ninety days or more as to interest or principal payments 51 1,134 Other real estate owned 4,196 2,195 Other repossessed assets 419 438 ----------------------------- Total nonperforming assets $ 47,523 $ 34,461 ============================= Allowance for Loan and Lease Losses Balance, beginning of period $ 32,993 $ 29,981 Provision for loan and lease losses from continuing operations 7,130 10,073 Provision for loan and lease losses from discontinued operations - - Loans charged off (5,876) (8,564) Recoveries 684 1,641 Additions related to acquired bank - - Reductions related to discontinued operations - (138) ----------------------------- Balance, end of period $ 34,931 $ 32,993 ============================= Asset Quality Ratios Ratio of nonperforming loans and leases to total loans and leases 1.87% 1.40% Ratio of nonperforming assets to total assets 1.41 1.06 Ratio of net loan chargeoffs to average loans and leases 0.23 0.30 Allowance for loan and lease losses as a percent of loans and leases 1.52 1.45 Allowance for loan and lease losses as a percent of nonperforming loans and leases 81.41 103.66 As of and For As of and For The Six Months the Year Ended Ended 6/30/2007 12/31/2006 ---------------------------------------------------------------------- Loan and Lease Data Commercial and commercial real estate $1,638,076 $1,483,738 Residential mortgage 224,851 225,343 Agricultural and agricultural real estate 228,968 233,748 Consumer 198,496 194,652 Direct financing leases, net 11,983 14,359 Unearned discount and deferred loan fees (4,118) (3,995) ---------------------------- Total loans and leases $2,298,256 $2,147,845 ============================ Asset Quality Nonaccrual loans $ 18,834 $ 8,104 Loans and leases past due ninety days or more as to interest or principal payments 225 315 Other real estate owned 1,941 1,575 Other repossessed assets 367 349 ---------------------------- Total nonperforming assets $ 21,367 $ 10,343 ============================ Allowance for Loan and Lease Losses Balance, beginning of period $ 29,981 $ 27,791 Provision for loan and lease losses from continuing operations 6,194 3,883 Provision for loan and lease losses from discontinued operations - (5) Loans charged off (4,404) (3,989) Recoveries 1,105 1,733 Additions related to acquired bank - 591 Reductions related to discontinued operations (138) (23) ---------------------------- Balance, end of period $ 32,738 $ 29,981 ============================ Asset Quality Ratios Ratio of nonperforming loans and leases to total loans and leases 0.83% 0.39% Ratio of nonperforming assets to total assets 0.68 0.34 Ratio of net loan chargeoffs to average loans and leases 0.14 0.11 Allowance for loan and lease losses as a percent of loans and leases 1.42 1.40 Allowance for loan and lease losses as a percent of nonperforming loans and leases 171.77 356.11

HEARTLAND FINANCIAL USA, INC. CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited) DOLLARS IN THOUSANDS ---------------------------------------------------------------------- For the Quarters Ended 6/30/2008 ---------------------------------------------------------------------- Average Balance Interest Rate ---------------------------------------------------------------------- Earning Assets Securities: Taxable $ 642,011 $ 7,885 4.94% Nontaxable(1) 152,470 2,468 6.51 ---------- --------- ---- Total securities 794,481 10,353 5.24 Interest bearing deposits 395 2 2.04 Federal funds sold 9,313 51 2.20 Loans and leases: Commercial and commercial real estate(1) 1,614,240 26,626 6.63 Residential mortgage 218,908 3,508 6.45 Agricultural and agricultural real estate(1) 239,105 4,340 7.30 Consumer 206,227 4,897 9.55 Direct financing leases, net 7,912 115 5.85 Fees on loans - 1,228 - Less: allowance for loan and lease losses (33,076) - - ---------- --------- ---- Net loans and leases 2,253,316 40,714 7.27 ---------- --------- ---- Total earning assets 3,057,505 $ 51,120 6.72% ========= ==== Nonearning Assets 297,375 ---------- Total Assets $3,354,880 ========== Interest Bearing Liabilities Interest bearing deposits Savings $ 876,075 $ 3,763 1.73% Time, $100,000 and over 295,184 3,017 4.11 Other time deposits 860,375 8,877 4.15 Short-term borrowings 253,789 1,087 1.72 Other borrowings 427,064 4,593 4.33 ---------- --------- ---- Total interest bearing liabilities 2,712,487 21,337 3.16 ---------- --------- ---- Noninterest Bearing Liabilities Noninterest bearing deposits 365,329 Accrued interest and other liabilities 43,059 ---------- Total noninterest bearing liabilities 408,388 Stockholders' Equity 234,005 ---------- Total Liabilities and Stockholders' Equity $3,354,880 ========== Net interest income(1) $ 29,783 ========= Net interest spread(1) 3.56% ==== Net interest income to total earning assets(1) 3.92% ==== Interest bearing liabilities to earning assets 88.72% ========= (1) Tax equivalent basis is calculated using an effective tax rate of 35%. For the Quarters Ended 6/30/2007 ---------------------------------------------------------------------- Average Balance Interest Rate ---------------------------------------------------------------------- Earning Assets Securities: Taxable $ 457,093 $ 5,267 4.62% Nontaxable(1) 130,592 2,191 6.73 ----------- --------- ----- Total securities 587,685 7,458 5.09 Interest bearing deposits 804 8 3.99 Federal funds sold - - - Loans and leases: Commercial and commercial real estate(1) 1,619,230 32,244 7.99 Residential mortgage 247,491 4,208 6.82 Agricultural and agricultural real estate(1) 227,382 4,648 8.20 Consumer 195,322 5,146 10.57 Direct financing leases, net 12,612 189 6.01 Fees on loans - 1,484 - Less: allowance for loan and lease losses (32,686) - - ----------- --------- ----- Net loans and leases 2,269,351 47,919 8.47 ----------- --------- ----- Total earning assets 2,857,840 $ 55,385 7.77% ========= ===== Nonearning Assets 300,248 ----------- Total Assets $3,158,088 =========== Interest Bearing Liabilities Interest bearing deposits Savings $ 822,832 $ 5,678 2.77% Time, $100,000 and over 290,014 3,556 4.92 Other time deposits 879,375 10,316 4.71 Short-term borrowings 319,584 3,970 4.98 Other borrowings 213,151 3,240 6.10 ----------- --------- ----- Total interest bearing liabilities 2,524,956 26,760 4.25 ----------- --------- ----- Noninterest Bearing Liabilities Noninterest bearing deposits 356,165 Accrued interest and other liabilities 65,328 ----------- Total noninterest bearing liabilities 421,493 Stockholders' Equity 211,639 ----------- Total Liabilities and Stockholders' Equity $3,158,088 =========== Net interest income(1) $ 28,625 ========= Net interest spread(1) 3.52% ===== Net interest income to total earning assets(1) 4.02% ===== Interest bearing liabilities to earning assets 88.35% ========= (1) Tax equivalent basis is calculated using an effective tax rate of 35%.

HEARTLAND FINANCIAL USA, INC. CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited) DOLLARS IN THOUSANDS ---------------------------------------------------------------------- For the Six Months Ended ---------------------------------------------------------------------- 6/30/2008 ---------------------------------------------------------------------- Average Balance Interest Rate ---------------------------------------------------------------------- Earning Assets Securities: Taxable $ 599,435 $ 14,500 4.86% Nontaxable(1) 149,206 4,889 6.59 ---------- --------- ---- Total securities 748,641 19,389 5.21 Interest bearing deposits 414 7 3.40 Federal funds sold 14,159 182 2.58 Loans and leases: Commercial and commercial real estate(1) 1,618,875 55,223 6.86 Residential mortgage 221,905 7,209 6.53 Agricultural and agricultural real estate(1) 234,035 8,664 7.44 Consumer 202,348 9,828 9.77 Direct financing leases, net 8,350 248 5.97 Fees on loans - 2,610 - Less: allowance for loan and lease losses (32,867) - - ---------- --------- ---- Net loans and leases 2,252,646 83,782 7.48