Heartland PAYMENT SYSTEMS A n n u a l R e p o r t Building for Growth

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1 Heartland PAYMENT SYSTEMS THE HIGHEST STANDARDS TM A n n u a l R e p o r t Building for Growth

2 Heartland PAYMENT SYSTEMS THE HIGHEST STANDARDS TM Heartland Payment Systems, Inc. (NYSE: HPY) has grown to become the 6th largest credit card processor in the U.S. and 15th in the world. By offering best-in-class credit/debit card processing and payroll solutions tailored to meet the diverse payment needs of small to mid-sized merchants, we create real value for the more than 140,000 merchants we serve nationwide Financial Highlights n Processing volume rose 28% to $43.3 billion. n Gross revenues increased 31% to $1.1 billion. n operating income was $44.8 million for the year, a 38% increase from n net income was $28.5 million, or $0.71 per diluted share, a 49% and 42% increase respectively from n We instituted our first-ever share repurchase program to minimize dilution associated with our employee equity incentive programs. n We announced our first-ever quarterly dividend to provide a means to return capital to shareholders. n We processed more than 1 billion credit and debit card transactions in one year for the first time Growth Platforms Sales and service Brand-new home Small business advocacy Powering Heartland

3 2006 Financial Results (in thousands, except per share data) Total revenues $ 1,097,041 $ 834,824 $ 602,851 Costs of services $ 1,004,436 $ 764,605 $ 555,138 General and administrative expenses $ 47,787 $ 37,761 $ 31,501 Total expenses $ 1,052,223 $ 802,366 $ 586,639 Income from operations $ 44,818 $ 32,458 $ 16,212 Net income $ 28,544 $ 19,093 $ 8,855 Earnings per common share: Basic $ 0.78 $ 0.62 $ 0.28 Diluted $ 0.71 $ 0.50 $ 0.26 Weighted average number of common shares outstanding: Basic 36,394 23,069 16,408 Diluted 39,943 37,879 33,786 Revenues Operating Income Capital Growth Processing Volume (in millions) (in millions) (in millions) (in billions) HPS Exchange Transactions Total Merchant Count Card Merchant Count (percentage of total processing transactions) 43% 53% 64% 91, , ,400 88, , , ,010 1,379 $603 $835 $1,097 $15.2 $33.8 $44.6 $47.4 $74.0 $59.2 $25.0 $33.7 $ Sales Professionals

4 To Our Shareholders 2006 was an excellent year for Heartland Payment Systems. We achieved new milestones for every metric by which we measure our business. We grew our merchant portfolio and sales organization significantly. We proved we can sell multiple financial service products with the same sales organization. We converted 97% of our merchants to our proprietary back-end platform, Passport. By accomplishing these difficult goals, we strengthened our competitive position and set the stage to continue our strong growth into 2007 and beyond. We also initiated our first-ever share repurchase program and quarterly cash dividend. From a financial standpoint, all of these metrics represent new records for the company. Moreover, we set these records in a year when consumer spending was muted in the face of higher gas prices and general uncertainty in the economy a factor that depressed same-store sales growth with existing customers in several key vertical markets. This truly demonstrates the strength and earnings power of our business model. From an operational perspective, we completed the development of our back-end processing system, Passport, and converted virtually all of our customers from a third-party system. The long-term cost savings of this conversion are significant, as it moves us to a primarily fixed-cost platform that allows us to achieve significant cost savings now. These savings will grow as we increase our transaction count. More importantly, from a strategic standpoint, the successful development of Passport makes Heartland the only end-to-end processor of debit and credit card transactions with software platforms developed in the 21st century with 21st century architecture and tools. Passport is more than simply the industry s most technologically advanced processing system. It also provides the infrastructure to develop service enhancements that will further differentiate Heartland in the industry, giving our sales force a unique product to offer to their markets. We continued to refine our sales and service model during the year as well. Heartland has long enjoyed a competitive advantage because of our direct sales model, which gives us maximum control over the customer experience. In 2006, we developed a new compensation structure with a salaried track for service representatives who install and service merchants in the field. This enables us to focus our employees talents on what they do best: those who like to sell and enjoy the earnings upside that our 100% commission-based compensation model provides can build a portfolio that delivers residual income for years to come. Those who prefer to be a part of our world-class customer service organization can pursue a full-time, salaried career track as a service representative. Based on year-end results, we believe this sales/service model will help moderate turnover in our sales force, especially among those new recruits who may not be best suited to a sales role. We exited the year with 1,379 full-time sales and service professionals on staff, an increase of nearly 36% from In the second quarter, we broke ground on our new operations center in Jeffersonville, Indiana. The first phase will provide Heartland with a Heartland Payment Systems: 2006 Annual Report

5 We believe the groundwork we laid in 2006 will position us to continue our growth and success in 2007 and beyond. We ended the year with the industry s strongest and most productive sales force, an extensive technology advantage as a result of our proprietary front-end and back-end platforms, and a more clearly articulated commitment to our core small and mid-sized merchants with our stewardship of The Merchant Bill of Rights. Robert O. Carr Chairman & Chief Executive Officer custom-built home for our business, providing the infrastructure to support our growth now and for years to come. We expect construction to be completed in Of all the initiatives we launched in 2006, none is as personally important to me as The Merchant Bill of Rights which takes Heartland s activism on behalf of small and mid-sized business owners to a new level. Small and mid-sized merchants often face a competitive disadvantage compared to large national retailers and chains. The nationals have experts devoted to analyzing, researching and negotiating merchant processing costs. As a result, they enjoy extremely low costs for these critical services. By comparison, momand-pop retailers do not have these resources and generally pay more than necessary for these services. Since our inception in 1997, we ve worked hard to bridge the gap, providing a fair deal, fully disclosed, transparent pricing structure for all customers. But, we can do more. So, in September, we partnered with state trade associations, providers of merchant processing equipment and retailers to propose The Merchant Bill of Rights. These ten fundamental rights that every retailer large or small should enjoy will level the playing field over time. I invite all of our shareholders to visit to learn more and register their support for this important initiative. Our business model is based on these rights, and we will continue to thrive because we have become the low-cost provider to small and mid-sized merchants and can achieve our long-term growth and profit goals with this model. We believe the groundwork we laid in 2006 will position us to continue our growth and success in 2007 and beyond. We ended the year with the industry s strongest and most productive sales force, an extensive technology advantage as a result of our proprietary frontend and back-end platforms, and a more clearly articulated commitment to our core small and mid-sized merchants with our stewardship of The Merchant Bill of Rights. In short, we successfully balanced the need to deliver outstanding financial performance in the near-term while strengthening the foundation on which we will continue our Million Merchant March. This was driven by the hard work and tireless dedication of our 2,026 employees, whose commitment to making Heartland the premier merchant acquirer for small and mid-sized business owners makes our success possible. Sincerely, Robert O. Carr Chairman & Chief Executive Officer

6 2006 Highlights Heartland s new service center in Jeffersonville, Indiana will accommodate up to 1,000 employees. Making the Best Sales and Service Infrastructure in the Industry Even Better In 2006, we realigned our sales and service organizations, forming 16 teams that focus exclusively on the customer base within their geographic regions. This ensures consistency of service and a relationship-based approach to resolving issues. Service teams are incented to take supreme care of their customers and work together to deliver best-in-class service. We also instituted a new career track for professionals in the field who want to specialize in installing, servicing and retaining relationships. We believe this best aligns the talented individuals within our sales and service infrastructure with the needs of our customers. Powering Heartland with a Proprietary End-to-End Card Processing Platform We completed development of Passport, our state-of-the-art processing and servicing platform which, to our knowledge, is the industry s first completely new brick-and-mortar merchant processing IT platform built in the past 15 years. While Passport will allow us to achieve significant cost savings, the critical benefits we look forward to are a flexible platform that enables us to continue introducing service enhancements and new products that further differentiate Heartland in the marketplace. Taking Small Business Advocacy to a Higher Level Heartland took its support of small and mid-sized merchants to a new level by founding The Merchant Bill of Rights, a public advocacy initiative designed to drive industry change. The Merchant Bill of Rights proposes 10 fundamental rights to ensure reasonable credit/debit card processing costs, cutting-edge security and fair treatment for small and mid-sized business owners. The centerpiece of this initiative is an interactive website where business owners can learn about the mechanics of card processing, receive industry tips, share best practices, ask questions and stay abreast of industry news. The singular objective of The Merchant Bill of Rights is establishing a level playing field where owners of small and mid-sized businesses have access to the same card processing resources and cost structures as large national retailers. Building a New Home Heartland broke ground on its new service center in Jeffersonville, Indiana. When completed, the service center will have the capacity to house up to 1,000 specialists dedicated to contact center and help desk support, risk/fraud management, merchant credit card terminal technology, finance, credit underwriting and merchant processing sales support. This facility along with our growing staff of experts provides the infrastructure to march toward our goal of being the industry s leading payment processor for small and mid-sized organizations. Settlement Process for HANDLING Merchant TRANSACTIONS on HPS Exchange and passport HPS TRANSACTION The development of our proprietary technology platform provides Heartland with control of its own destiny from point of sale to transaction settlement and enables the introduction of differentiated new products and services. EXCHANGE Front-End Processor Back-End Processor Bank Deposits Heartland Payment Systems: 2006 Annual Report

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104 Corporate Information Company Officers Robert O. Carr Chairman & Chief Executive Officer Robert H. B. Baldwin, Jr. Chief Financial Officer Brooks L. Terrell Chief Technology Officer Thomas M. Sheridan Chief Portfolio Officer Sanford C. Brown Chief Sales Officer Charles Kallenbach General Counsel & Chief Legal Officer Board of Directors Scott L. Bok Co-President Greenhill & Co., Inc. Robert O. Carr Chairman & Chief Executive Officer Heartland Payment Systems Mitchell L. Hollin Partner LLR Partners Robert H. Niehaus Chairman Greenhill Capital Partners Marc J. Ostro, Ph.D. Managing Director TL Ventures Office Locations The following are the major Heartland operational and administrative offices throughout the country. Corporate Headquarters, Finance, Sales & Marketing 90 Nassau Street Princeton, NJ T: (888) Payroll & Human Resources Country Club Boulevard North Olmsted, OH T: (877) Information Technology 2595 Dallas Parkway, Suite 310 Frisco, TX T: (877) Heartland Service Center 1437 Highway 62 Youngstown Center Jeffersonville, IN T: (888) Regulatory Certifications Heartland Payment Systems, Inc. filed Section 302 CEO and CFO certifications with the U.S. Securities and Exchange Commission as exhibits to its Annual Report on the Form 10-K for the year ended December 31, Independent Registered Public Accounting Firm Deloitte & Touche, LLP 750 College Road East, 3rd Floor Princeton, NJ Annual Shareholders Meeting Heartland Payment Systems Annual Shareholders Meeting will be held on Thursday, May 3, 2007 at 9:30 AM (ET) at: Nassau Inn Ten Palmer Square Princeton, NJ T: (609) F: (609) Transfer Agent & Registrar Registrar and Transfer Company 10 Commerce Drive Cranford, NJ T: (800) F: (908) Design: Creative Strategy Group csg-design.com Jonathan J. Palmer President & CEO FSV Payment Systems George F. Raymond President Buckhead Corporation Heartland PAYMENT SYSTEMS THE HIGHEST STANDARDS TM

105 Heartland PAYMENT SYSTEMS THE HIGHEST STANDARDS TM 90 Nassau Street Princeton, NJ T: (888)