HTLF - Earnings call transcript Q3 2019 | Heartland Financial USA, Inc.

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Operator

Greetings, and welcome to the Heartland Financial USA, Inc.

Third Quarter 2019 Conference Call.

This afternoon, Heartland distributed its third quarter press release, and hopefully, you've had a chance to review the results. If there is anyone on this call who did not receive a copy, you may access it at Heartland's website at htlf.com.

With us today from management are Lynn Fuller, Executive Operating Chairman; Bruce Lee, President and CEO; and Bryan McKeag, Executive Vice President and Chief Financial Officer. brief the the call a we and provide open will to will summary quarter of then Management your questions.

the of will Securities and begin everyone forward-looking statements under we presentation, Commission. by like of would Before the defined to the that guidelines some providing the be management Exchange as information today falls I remind

are Company's As forward-looking those of during this made part any that statements predictions results actual these of and projected. and concerning statements, guidelines, hopes, the could out the from expectations I future must point materially beliefs, presentation differ

included Additional time be information on the SEC these factors and or which website time is XX-K the may XX-Q website. Company's filings, from Company's in the on obtained to

mode. recorded. reminder, conference [Operator Instructions] At all this time, As is this listen-only participants being a are a in

this will I Lynn at Heartland. over turn go call Fuller the time, At sir. ahead, Please to Mr. now

Lynn Fuller

everyone conference us third we third you, and our performance for XXXX. quarter Diego. quarter joining everyone to appreciate the of earnings welcome, XXXX today the We Company's afternoon, Good discuss Thank as call.

and and who the cover few to President on turn Lee, I'll CEO, touch the the progress Heartland's for In the Bruce I'll next call quarter. performance minutes, over Company highlights and then will EVP Credit strategic us Heartland's EVP provide results. Drew Officer. on today is and Also on McKeag, Then, Chief initiatives. additional Bryan our our Townsend, joining will CFO, color around the call

excellent had Well, am I an quarter. to we that report pleased

increase was XXXX. same XXXX an the at in income $XX.X increase net with $XXX.X million start million. Let's income QX shareholders a period $XX.X common million, impressive to the available net of million, common XX% of available $XX.X for over to compared to shareholders quarter Year-to-date,

quarter period per XX% share share $X.XX was $X.XX versus earnings for and compared earnings and same XXXX, $X.XX that's in was diluted increase. to Fully for common year-to-date, fully XXXX, diluted a common $X.XX per QX the for the

XX.XX%, respectively. XX.XX% Annualized QX quarter common were respectively. assets Return for the and year-to-date return equity and tangible year-to-date average for X.XX%, on on and were average and X.XX%

interest our fully up Bruce our more the came quarter, McKeag X.XX%, quarter. held areas. margin down tax-equivalent at Bryan these the on and ratio share For will Lee net detail to XX.XX% And for efficiency

to the Now moving sheet. balance on

at compared to QX increase. Assets quarter nearly $XX.X ended an $XX.X billion, the at billion XXXX XX%

our planned, XX% and with As portfolio in our very investment funding. sheet is little non-core in balance extremely nearly liquid the of assets

a tangible quarter We respectively, Lee excellent in deposit and non-time XX%, of growth were XX% quarter this had and over will loan deposit growth. QX loan respectively. book $XX.XX few value for at and Bruce nearly and XXXX value organic book the cover increase and $XX.XX, minutes, and The an

common Our quarter XXXX. at QX ratio equity tangible ended for compared to the X.XX% non-GAAP X.X%

extremely to Now and August went congratulate for conversion want onto a teams The job Blue and Valley completed on it M&A. Once system I M&A done. XX our recognize again, was Bank conversion of well. and well integration

an Bank is we Also Trust estimated Illinois This purchase in value with assumption and acquire & that August, announced Trust the bank approximately Bank Company. all-cash charter, Rockford assets of an Illinois million. transaction of $XX our and will

in in billion Heartland’s share approximately with one in deposit assets bank and Illinois Bank number as community market Rockford premier County. operations community Trust This Winnebago will expand & banking $X.X and the a establish bank

systems at We end XXXX in on XXXX. the of transaction this are November to convert scheduled QX close and

financial of model both a banks have community prospects and M&A We to Heartland's very partner. performance are in looking strong pipeline strong continue a to for banking attractive

XXXX dividend of XXXX. on pleased that XX, I am dividend, to $X.XX November will paid common record our Heartland shareholders per last week of very to XX, respect to declared a With The Board the report dividend share. be November

performance Company's initiatives. will who Bruce turn President over of call provide now Lee, Heartland's, CEO, the and Bruce? strategic the an and to I'll overview

Bruce Lee

Thank afternoon. delivered loan am successful deposit quarter report robust organic pleased growth. to teams and you, Lynn. Heartland's Good another with I that

significant Additionally, initiatives, Customer advancements strategic we have in including and our made Operation nCino. Compass, Salesforce,

This third and Bryan turn over Officer, will more performance McKeag, I the afternoon, Heartland's Chief quarter share highlights the details the call key financials. during then will of I our Financial on who provide to will

Let portfolios. very me growth start a growth. We loan quarter by and C&I million sharing of $XXX in strong of organic had the CRE

slight had Ag million. a Our of $X portfolio decrease

current Our mortgage portfolios million on basis, by driven a decreased residential $XX loan refinancing consumer and combined primarily environment. the

in growth loan million. $XXX third quarter totaled the Organic

the We are in million surpassed that for organic pleased to growth quarter. $XXX have forecasted the loan we

relationships winning healthy mix expanding competitors. a from of and from came business growth existing Our

$XX quarter, of lending member nine XX Bank organic new third acquired growth. of positive loan organic the had During million commercial Dubuque Arizona Nine and and XXX & banks Trust growth member banks with Heartland's Bank Trust, Bank – for we of Heartland's relationships, the & Illinois accounting way. loan Trust, of leading

Turning We organic of a quarter to deposits. had deposit growth. stellar

non-time million. organic business delivered growth. organic Nine growth Heartland deposit XX This $XXX new small XXX was totaled million. growth and member deposit commercial relationships. organic non-time non-time of quarter, deposit $XXX growth includes deposit Commercial This banks

new delivered non-time our includes deposit non-time addition franchise. quarter, $XX was We strong relationships. consumer organic have growth Retail the million third in which also similar deposit across of over the growth X,XXX

targeted consumer our efforts high-value deposit relationships. XXXX, acquisition During yielded have

consumer XX,XXX new a year-ago. compared deposit has account to average to increased balance Our X,XXX

account customers new more Consumer also accounted enhanced the opening are of for attracting openings through online channels. XX% our for quarter. digital total We

non-time balances. XX% remains and XX% account non-interest-bearing deposit Our with enviable accounts in mix in

An deposit area quarter this been has of pricing. focus,

As cost our of X non-time deposits release basis the during interest-bearing shows, points increased quarter.

the cuts. steps During to rate to the Fed recent took we proactive quarter, several respond

As at subsequently peaked through has XX almost July mid-October. XX interest-bearing declined a in deposits basis and cost points points non-time result, basis of the

approach our the we interest we strategies maintain a tomorrow will continue Fed pricing navigate as await through disciplined to competitive our and yet we will to forward, announcement rate Going deposit accordingly. ever-changing execute environment. We the

banks Trust we Bank & acquired the in As and functions leaving charter, we banks serving relationships I call & growth. to the efforts experiencing XXXX: to want Lubbock, two the organic back and part and our joined of Heartland’s First on in our that office growth are now on Both performance fully building Signature centers, and information both support Bank They of one. customers Trust are story, impressive their what Minnesota power Bank delivering Texas. share are focusing of the

at XX% non-time During performance. Barry and Bank X% the And third Congratulations deposit quarter, on X% Ken and Bank Brooks annualized and team & growth commercial delivered loan to of organic his growth. deposit exceptional at Trust commercial growth organic his organic ag and growth teams delivered organic non-time Minnesota XX%. both annualized loan team loan First Orr and

from credit lowest to Overall, XX that our points total report to non-performing the continue pleased six past years. second see I XX the the basis a an improvement basis to metrics. to as we in am assets of in third assets key percentage Turning credit quarter, quarter in points quality. in decreased the

the decreased favorably the the the estate $X.X X% increased to past XX over million quarter Non-pass-rated $X.X basis million points quarter to in still to delinquency from compare years. in several quarter. real quarter, Other X.X% basis second the The in points the same from third the however, to in period. improved levels third over XX second slightly to ratio loans

at million, average quarter were for represents third points reported net charge-offs basis XX net which of Lastly, loan $X.X loans. the charge-offs to

we Operation brief on Compass. across Customer $XX million realized that from a gains provide our streamlining activities company. to with like initiatives I starting would the update strategic shared Last quarter, over have of I Next,

profitability, our operations people, strategic that plan our processes, have initiatives our support growth ultimately our and and customer trimmed to with reinvesting into We superior align that no plan, our experiences. focus efficiency, several provide longer enhance growth we improve are technology

We be of third reflected realized most reductions in have That already will our identified million goal expense of ongoing run and of the by quarter. of end the $XX rates.

Our with of operational by and be count quarter, which XX, FTE Valley. the Bank attributed can our During realized acquisition efficiencies synergies Blue declined to of

initiatives, created quarter As same billion third significant operating over of XXXX, to adding us to while period. of third assets we a leverage have has enabled flat from the keep that in of XXXX these expenses $X.X quarter result

operating can improve be to Our company efficiency seen also efforts in processes ratio. in improvement the streamline our and

third Two industry-leading quarter XX platform. the quarters implementation industry-leading The which efficiency initiatives loan the platform, are is linked ratio from and nCino, in system management origination XXXX. strategic points customer Salesforce same down relationship is an quarter significant XXX the points basis other an of in XX.X%, basis and

improve The Salesforce the to projects will improve ongoing will our to sales ability effectiveness of our improve shorten will into teams. the cycle. office in The upgrade nCino two back sales well efficiencies process and be sales underway and nCino mid-XXXX. now significantly These Salesforce are manage and and commercial integration between and our the

for well teams outstanding and in position combined organic believe We the us strategies, our significant investments acquired technology future. these in growth our with

that Before completed I smoothly Blue Bryan Reynolds Regnier, to McKeag, Bank the and turn went the but in team and Wendy grew team would we conversion over it like account is very system well had August, Valley during should a also I of Bob to only conversion. The deposits, for not The proud positioned success. entire minimal attrition. conversion, be Kansas very X.X% they share future that

this grow Rockford to In August, franchise. Illinois we in forward to also Trust to $X welcoming Heartland year. seventh the our When our Rockford Bank the Trust billion acquire completed, assets. and and to Tom team and Illinois look later family & We charter Trust be Bank will exceed intention to announced our Budd Bank

like now Risk banking executive many Lastly, of and I Executive to Heartland comes Tamina Chief years to management welcome to experience leadership risk serves as team. would Heartland the President Vice O'Neill with Officer. Tamina and

Bryan With financial that, over detail to on the turn more quarterly I McKeag for will call our results.

Bryan McKeag

good an write-downs shows couple earnings This press $XXX,XXX, than million, comments $X.XX the and which eventful expense share quarter our a today afternoon. quarters of $XXX,XXX. less of much M&A-related I'll with quarter. costs the per Bruce, of of MSR $X.X this referencing per my valuation reported Thanks, only items in asset including and was past non-core share by begin release,

we quarter, delivered positive aspects. solid trends So to earnings all almost show and this core in continued

strong loan sheet, includes in I'll his this quarter, $XXX mentioned and and comments. and growth, deposit strong which balance grew liquid Bruce million start our with a

result, quarter at ratio assets total common billion under equity tangible and XX%. a X% approximately with approaching the $XX.X loan-to-deposit ended that's As a just ratio the

$XX When just combined month. us million growth this great generating the pursue of with of of shape equivalent assets of position million all capital, X.XX%, five million opportunities well and total quarter in $XXX or years going with XX% assets, liquidity over only flow and comprised grew and of our tax of Investments per strategies remain leverage a and borrowings cash and X.X% duration over to $XXX forward. yield

total to losses basis for points a X.XX%. for allowance quarter increased loans X of The loan percentage as the

billion quarters, valuation recent reserves are loans of previous $XX.X $X.X or in PCI from acquisitions by and mentioned X.X%. totaling As million covered

X%, of last ratio is allowance-to-loans an in result consistent would loans with which total from loans these Excluding quarter.

to of day to million quarter. quarter, income Moving a income this interest balance primarily $XXX.X statement. and up one totaled million The Net Bank this growth. the quarter the increase additional addition prior quarter, the sheet strong to due $X.X Blue full our of Valley for compared is

net this points basis X.XX%, from margin, on quarter last primarily basis equivalent basis and interest due X which to cost tax quarter. points deposits net a was on quarter, X The from interest last which borrowings, declined increased higher

quarter, net compared prior purchase basis points accretion margin This basis includes the points XX in to interest XX the accounting of quarter.

of $X million range this over quarter, $X losses last from million of just up quarter's loan and for million million. normal was provision to was expected $X.X slightly the Provision $X.X

million million from compared sale was $XX.X on for and quarter. of on loans $X.X was quarter, sale the totaled of down up last $X.X gain to gain down million. income last quarter, $XXX,XXX, Non-interest When securities

mortgage valuation MSR rates to We $XXX,XXX PrimeWest's reduction also during quarter. adjustment in a reflecting the a recorded further

Loan card level are MSR and driven income due Durbin on experiencing interest higher environment. fees due Visa to quarter by servicing a $XXX,XXX quarter refinances impact and write-offs deposits of our of higher as annual in the incentive million with remaining last the charges to declined decrease revenue. low Service from we rate $XXX,XXX debit last the $X.X decreased amortization included this primarily on

quarter, to this $XX.X last Total Moving expense million quarter. up expense. to million was non-interest non-interest compared $XX

asset However, $XX.X gains quarter compared $XXX,XXX to million losses last of quarter. asset this included of

costs This $X quarter compared M&A million, quarter. totaled and million $X.X system-related to last

compared $X.X fee is, So and excluding credit That decrease on by costs $XX.X $XX.X primarily restructuring last costs, million, those gains to losses, professional were rate a and charges or decrease. quarter a that million basis, tax costs, driven lower was million core M&A asset run costs.

million to specifically, million last benefits and due accruals. due bonus were as and a flat quarter for improvements. were offset More in technology $X.X decreased headcount lower to costs including salaries compared Professional fees $X.X several decrease items, by reductions and to costs higher incentive consulting process

the reserves were FDIC than due FDIC's are costs moratorium above small a required M&A insurance in the costs premium as quarter. And were now $XXX,XXX addition, $X.X levels. bank in higher category to million lower this by last

deposit were increases up from million quarter last as higher in included Core million $XXX,XXX decreased expenses $XXX,XXX costs Other intangible with $XXX to quarter related quarter non-interest tax $X.X costs. credit last branch and attributed the to write-offs $X.X M&A amortization of this sales. million

tax expense tax to rate quarter. going categories flat that XX.XX%, XX.XX% compared quarter. to effective the in is are relatively remaining quarter compared XX% range rate a The for last the We to The forward. normalized effective was last XX% believe reasonable

residential will expected ag for to and the of are the is be continue our digits remain mortgages decline. an in flat, percentage some loans our on basis, to summarize quarter. to projected I'll loans thoughts mid-single Next, growth fourth loan likely consumer Commercial annualized

Non-time single annualized to quarter digits purchase basis accretion range basis. equivalent margin decline the percentage be an next be X.X% to deposit on growth the Net is on low-to-mid we accounting is expect in to lower. interest expected X.XX% as tax into to expected

$X expected are loan rollover range generally continue portfolio and be the and quarter will $X from million for fluctuate based organic per the to to to the acquired million loan Provision on losses loans growth. of in

XXXX. improve half fees and this quarter our next expected deposits charges to growth strong due credit last Service growth card quarters the are in in levels and non-time to good revenue of in from

in about to of quarter. expenses drive and near we next Core the Gain from $XX to declines to to the quarter. on this into show decline rate is expected next the seasonal run are quarter's expected $XX ratio XX% sale efficiency core XX% range next decline million normal of loans million expect lower expenses quarter, these to

to end Trust expect Rockford close November, at XXXX. the of we and Bank the Lastly, on transaction

$XXX held maturity loans will As of a expect increase result, mark net X.X%. to an we loan of by million, estimated

run should deposits increase net is, I’ll the Durbin a $XX you, and should non-interest remind of million. in margin of per Investments $XXX,XXX rate RB&T X.X% net higher and upper of million. has carries a efficiency Total ratio and increase quarter XX%. core $XXX that interest a

paying anticipate million Second, at $XX cash we of closing.

are goodwill of million. intangible finalized. change We values and million $X are core estimating currently $XX once could these Obviously deposit estimates of the fair marks

planned next conversion nearly XX% will Systems expect spread integration we over quarter quarter conversion the to $X for second XXXX, of and of first mid we Lastly, not begin so million quarters. cost the costs see XXXX. the two is currently realized saves until

the for call And with turn Bruce that, back over questions. I'll to

Bruce Lee

open you, Thank now. questions you Diego, for Bryan. if line could up the

Operator

you. Thank

We comes D.A. question-and-answer a Please Jeff with Our conducting first question session. question. be Davidson. [Operator Rulis now will from state your Instructions]

Jeffrey Rulis

afternoon. Good Thanks.

Bruce Lee

Jeff. Hi,

Bryan McKeag

Jeff. afternoon, Good

Jeffrey Rulis

There is between I in guess write-down. was a versus to difference outlined to Bryan, in asset the item [XX.X expenses there? expenses, trying on the get I’m third the XX The core]. balance costs the you and merger

Bryan McKeag

our detailed those think and I Yes. on The efficiency we our credit costs, ratio. tax reconciliation of

You there. that up number pick can

I it's… think

Jeffrey Rulis

– – million $X Just almost there? million, for $X three the items what

Bryan McKeag

Yes.

Jeffrey Rulis

the yes, that the ad that the line or on XXXX that process how to what outside range do the QX, I growth core Rockford Any the held you that year-over-year. of potential rate, or cost strategic there of intend in you've Got and run hold of the of on flat And thoughts in group? it. strategy perhaps long the guess from

Bryan McKeag

Yes.

can think hop and – into. you I Bruce

areas Operation the are other on, flat maybe that network, et we're We those some Compass the can costs expecting trimming keep on with at relatively and had branch, cetera. year we've going working next that we Customer projects the efficiency

Bruce Lee

Yes.

we above added feel that is costs our what year billion flat say $X another Rockford would keep we already to over probably add and we've that our capacity Bank Trust. and of what I Jeff, and can intention So plus this

Bryan McKeag

is. having Obviously… Without that to add costs, backroom

Jeffrey Rulis

Right. Sure.

Okay. CECL year? guys that you of That's maybe initial any And great. or thrown kind have next then assumptions out early for what

Bryan McKeag

Yes.

for runs components. been quantitative models. the built well We've quarter external parallel – Jeff. got second and our first a on for some We've the this we've We've done We've on year. partner. working haven't, We our over done

fourth working will make coming make to have So the model also just sure got the we'll model on way it's the to that. a validation I is to. supposed up. We've quarter, that refinements

complete we be shape. those we'll think pretty steps, I once good So in

The what to thing how other determine and that on. have see which is we'll looking forecast piece at is, economic and also still working we're

least longer-dated I is are impact seeing think regard, a of assets an in what the little thankfully commercial And we're similar of on less seeing sit the portfolio. kind then that of is bit and I commercial industry portfolios, typically that which to smaller at think the is others in what a in for residential, the us, kind the this on.

of something next But work we like feel be we and So some that kind we're to general the seeing. talk line when quarter. that things we'll with need more we'll to in again in really have disclose

Jeffrey Rulis

Got Okay. you.

Bruce Lee

Hey I when think you consumer? you meant commercial, said Bryan,

Bryan McKeag

consumer smaller portfolios residential I'm are for misspoke. and The they are if longer-dated us. the I and Yes. sorry

Jeffrey Rulis

last One you from, would came in reduction balance, great? clarification. any as color a or what Drew, Good provide if the be nice one it non-accrual that that to was could where Thanks. maybe for

Andrew Townsend

of kind a $X over first We the footprint the it that a kind last over a time million to of look across at I with saw It a backfill the is think space reduction, better the in quarters. about handful really positive the the Sure. I down several the widespread for of much new level accounted deals, other came decrease. had the than or the we for non-performers been lion Jeff. share And was of had

new so accounted improvement. reduction for the nice as we in, and coming that much saw really the actually we So see didn't

Jeffrey Rulis

it me. Thanks. That's for Okay.

Operator

Please question question. comes Piper your from Our Jaffray. with Nathan next state Race

Nathan Race

guys, good evening. Hi

Bryan McKeag

Nathan. Hi,

Nathan Race

of sheet from to the curious outlook Appreciate start guidance impact Fed support on there Trust. anticipate balance XQ we what see we in the how a you obviously Rockford likely should here as the sounds a the to that margin the here. towards and between you maybe responding from margin context $XXX that know I provided, million and October? there should for is help numbers Bank outlook, like some quarter look $XXX million. It on based Bryan, the first guess deleveraging and the margin for XXXX, cut within

Bryan McKeag

Yes.

to of maybe guess paid basis X, extra get with way off. things. kind of that, quarter had and that of we loans purchase PCI that just a had loan couple of X the think a that I to top an accounting I XXX my end the moved, So points some the of one this we

So you're down XXX, the a going if that at grind to is you I XXX, just think take off, and core bit.

after kind rate we get adjust cut, of adjust. to then to XXX. seeing we have And we cost – deposit our gets that get basis X typically you our to if another of been – points X So

that's range I'm of so up XXX the where And last to coming here. quarter XXX of kind for that with

see cut, of more think points. basis – could then and in get X another one another if we X, get kind basis you X as wind I could another cut there points if we be

Fed So it really the depends does. on what

so may it's not it overall. have our XXX a slight point. that coming margin impact, think accounting, but margin with better get small the think whole drag going in, some purchase have even but boat, We a probably point pretty they're start though to that But huge. that and or with start can basis I two Rockford on we will kind compared component get we'll also remember, of to total a lower

Nathan Race

Got it.

third – the in So your to XQ at in X maybe to that next XXX quarter X core probably year? low to point a maybe for over XXX NIM maybe little the and of lower first bps then if we’re the grinds range quarter

Bryan McKeag

you I accounting then think sounds on pretty that, that close, put yes. top back yes. And purchase of

Nathan Race

to we can pipeline quarter for I of and heading was And stands guess fourth Got how the kind context, strong margin expect quarter this to if loan in into deposits and it. quarter, into outlook here well? excess kind growth as the well third of kind pretty the the curious within XQ of that be liquidity were deployed to as support into XXXX the some and of that gathered

Bryan McKeag

to talk pipeline. Bruce can Yes. probably the

Bruce Lee

loans if happening. what currently is we I Yes. probably the would fund our continue we Nathan, have say grow, to the cannot growth to that our level deposits deposit

quarter. our growth. here loan that quarter, you to the in kind believe that think will fourth trying with did in but grow As quarter, what of the do third to growth deposit the not they third balance I is in And here do we we're the saw the level loans the

on deposits go-forward our basis, think a So fund will loans. that we our

Bryan McKeag

Nate. Yes. liquidity, have do of And we a lot

just a out a few our So you the investment to portfolio dollars more see earnings little might into put us get liquidity. more of

Nathan Race

also of guess increase I Curious X the two XQ? in point inflection in on costs of your in deposit what here is deposit rate kind follow-up today? around any And the the questions curious Helpful. basis costs, maybe relative point average reinvestment along deal in we perhaps lines. kind just saw an securities total fourth Okay. those versus quarter And to thoughts

Bryan McKeag

Yes.

I of And hard. were under like the XX on that peaked. out now of kind I where been those I've interest-bearing What in And I'm points XX it from think deposits. down just about looks think peaked at or working Those costs, it basis we've we in non-time is deposit talking we've seen X%. July. kind peaked gotten almost October, pretty

Fed cuts, So work on we'll hopefully, certainly we we continue to And more see if come so that I to down. you're get on going that. anyway, think those harder work

Nathan Race

Got then curious things, rates the And are of securities just reinvestment the Helpful. where just it. today? side on

Bryan McKeag

think probably top have of slightly don't Nate. that I Yes. XXX. you those head, I the under today. top, I my they're just But the a number our portfolio mean total for at Don't have off is but off

Nathan Race

all Okay. No you. Thank color. I appreciate the worries.

Operator

Please comes state question next Terry question. McEvoy Stephens Our Inc. with from your

Terence McEvoy

Hey. Good afternoon, everyone.

Bryan McKeag

Hi, Terry.

Terence McEvoy

last How And you what last is $XX the might technology to of in Bruce XXX about relationships talking you much on the from new organic how be rate the guess been Hi. couple call? the upgrades with came a Maybe getting quarters. a tough this Can for improvement improvements process the quarter? the and you it of quantify cited but that up run I question I'm coming that you've that? growth million much how earlier are and of you, the one,

Bruce Lee

Yes.

that would majority first of sales vast from been the came organic where really beginning growth came from transactions. and evenly year-ago. say we've it of That's really, commercial So growth XX% process of occupied the out the prospecting loan owner with – was I more that the C&I came about strategic real spread, with C&I and talking those was a XX% associated estate and

it was real focus not So our really estate. investment operating companies, in in

over would So put forth the improved cost be well that that quarters save we new reductions, using in the place. from three put that FTE to primarily million four as And that and we've comes stopped again, the effort as $XX our last quarters. processes technology the of as that we technology some we've

Terence McEvoy

Great.

is purely not expense million side, synergies? $XX the new So the the

Bruce Lee

on XXX% as side. Correct. also Blue it acquired year. Bank additional include and capacity a add over we It's that we've Rockford above expense That's already $X Valley billion as the we right. And call what the well banks this the of where could does not

Terence McEvoy

$XX core And in million on quarter? not million that $XX million expenses GAAP Bryan. million a to to deposit of the so then intangible include the amortization, a The basis, follow-up is that fourth of does for core $XX kind $XX

Bryan McKeag

in got I'm The Well, the make let sure backing – thing number, let's to I only this include out amortization Terry. doesn't that read I me right. see. just It –

and don't So and we any, any often. we then I asset if listing that our I losses restructuring credit take out – And gains there. M&A out hit haven't have take the costs, had the costs and in those tax in are very

I So it leave amortization there. in of along just chugs it's always the and because kind

Terence McEvoy

Okay.

down the at? – if So getting step step credit tax the out for you're $X what that back the another fourth I down from quarter. the there's in projects, down, million step Is I mean, that

Bryan McKeag

least there's I'm another little – right, Yes. million. We me $X If should could which it's thinking think million but a million, plus. be see $XX break bit the gets I $X at things to more, a

Terence McEvoy

apologize and the just it's then more when FDIC in And what What was get look back it like? normal in expense, quarter? level and have kind that The remaining Do of third and Okay. to I if credits question. would the that do the last release. you expense you a

Bryan McKeag

going in I got this the think coming and nine, accrued. I We this. $XXX,XXX so on and I'm had $XXX,XXX a a quarter. other at to third rate we we've going looked say about read run had think to in because almost happen, I've quarter But comments quarter, we was what's the our to some people's credits and also

So the up kind a picked of and we reversals. the by getting quarter credits

negative – So as $XXX,XXX think of it $XXX,XXX.

the that's quarter. delta million So $X.X this for

right? we'll have I I start then as we go QX. hope Next quarter, XXXX, in I to of for expense in will way. And accruing because get is QX, which QX, first probably is be I zero, which would into the which think or kind be bill $XXX,XXX that we'll other the – think said

Terence McEvoy

perfect. did. Bryan. I You you understood Thanks correctly. Yes,

Bryan McKeag

Yes.

Operator

question. Our O'Neill. your state Liesch question from Andrew comes with Please Sandler next

Andrew Liesch

everyone. Hey,

Bryan McKeag

Andrew. Hi,

Andrew Liesch

do follow-up CDs, the what talking non-maturity Just XX% I those the the on there now? peak? about on rates just versus right do you of And the you know are on – pricing you deposit but sort me for what's off the funding, renewal are think have one only rolling of but just when accounts,

Bryan McKeag

because is for didn't time ready and only the I getting think we about what about, call, it talked of talking that XX%. this lot a spend we

rates to early-to-mid those. those levels. And higher won't think to XXXX. of I one-year kind It off XX where of takes are rolling see at think down I those mid-XXXX, they from till, don't dropping because that happen probably while for to of our were But the we off now XX points. a CDs basis that's start timing going

Andrew Liesch

Got you. And then…

Bruce Lee

Andrew, Bruce. it's

is would we're – we're The see want extend. so consumers low, seeing say thing because are I rates other to starting to of our some

those out six-month a XX-month we're an actually CD. moving into from new ones where So CD they're on

the as old starting are we costs to CDs off. to one-year So roll starting are see increased there some

Andrew Liesch

accounts could lower you. savings pricings made But on that Got be elsewhere, some up and... probably

Bruce Lee

That's correct.

Andrew Liesch

you're liquidity bringing in. Great. to due Just

You've Thanks. covered all questions. other my

Operator

Thank you.

Our your with state next question comes KBW. from Damon question. DelMonte Please

Damon DelMonte

Hey. Good afternoon, guys.

and most So questions agricultural my it the that anecdotally be hearing might concerns have customers war pretty kind are whether the over having perspective, on, about of your trade just answered. you asked ongoing manufacturing from from But a and sector any anything or been impact much sector? be higher of level

Bruce Lee

Yes. Bruce. Damon, this is

they're about manufacturers all talking a this the that. first for starting being the talk for little trade Midwestern about reason are it time So to as really bit almost war slowdown our primary a and quarter, the of

in seeing are much out and the slowdown quarters. hasn't markets the last also couple here in Midwest. little West over really of too our a changed bit We couple housing in of Ag of a a

Damon DelMonte

it. Got

Okay.

So you're overall XXXX? go seeing, what based overly not you're on as concerned through impact and what about any you're hearing on growth you

Bruce Lee

are that plan plan say kind those not. would have A if making questions, our do asking a we of are customers, to We're sure extra things and a our slowdown. just that managers I relationship making that B sure of continue couple and

Damon DelMonte

it. Got

XXXX? it that Rockford. the growth Okay. just mid reasonable at acquired from And perspective, a to from single-digit then think call getting X% for a net X% you still portfolio range, is something outlook Do in excluding you're active

Bruce Lee

I would say for XXXX, yes.

after in XXXX, as the good that think that we about quite pretty feel the off, the don't number. still it I basis in quarter I residential think think – fourth will portfolio runs quarter. that I fourth net and strong But consumer a some on be have we

Damon DelMonte

Thank had. Okay. That's all I you. that

Operator

Thank you.

question Cardenas from next state James. Our Please your with question. Raymond comes Daniel

Daniel Cardenas

afternoon, Good guys.

Bruce Lee

Hi, Dan.

Bryan McKeag

Hi, Dan.

Daniel Cardenas

bit drove come and if the increase increase where this quarter, of maybe as the you were in could what ratio maybe you just So from? color to geographically, non-pass categorically and little seeing a the provide

Andrew Townsend

Dan, has is up. little $XX Yes. this bit – it's Then another say space. rating I We $X think a on to that watch more spotty. in a would tick that Ag I million to Drew. saw a continued moved million

and manufacturing in of watch. think Midwest little a I it proactive taken stance upper is low that of a on a a C&I we've there pass the to bit conservative that moved a from aware I'm

the areas a bit. are believe two top that of off probably little the I the I those head, drove think number my up

is to so the watch-rated too, would Blue have understanding into it for in numbers. happened flowed our conversion of deals piece and just August full Valley everybody's So the other those

And posture say, bit diligence. would would as our do a standard on we take, I practice, conservative due of say kind a I a

And of over at more in so may have portfolio a time information. market those diligence, Kansas current the lack City that rolled we did for due the – financial

up. Oftentimes, of for way a we in them that other and have the ratings current brought back come period as are will financials the and trend back time we see

a it's that a three those uptick. think I of things of bit an drove combination probably So

Daniel Cardenas

uptick of the was minor in much And provision, growth the how and Okay. provision non-pass terms then much to related how here of it in of the was related loans?

Andrew Townsend

Bryan, have the top do of your off you head? those numbers

Bryan McKeag

I for. that top off Dan. have the the little got I and moving It my the main provide top growth Yes. from sorry. to we've we head. don't head, our got of my portfolio items remember growth tricky because the I'm is don't gets of portfolio a we've off purchase

Daniel Cardenas

All right. problem. No

Andrew Townsend

I loan valuation in million to coming do meeting, – allocated the stated allowance. the purchase regular think from And related of the just organic growth. what about deals allowance transition new the think into we $X our we that I had Bryan

I from think, transition and the growth, the say, came loan Dan. So XX%

Daniel Cardenas

All guys. my answered. Thanks been Perfect. other All have Okay. right. questions

Operator

you. at Fuller gentlemen, floor questions back are would further time. I you. the Ladies no comments. there to over Thank to turn closing this like Mr. for and Thank

Lynn Fuller

organic with great had quarter non-time you, a deposit Thank and Diego. closing, In loan growth. we outstanding

job and extremely of high as Our an acquired teams, I as said, do M&A great loans. are retaining deposits and integration percentage we a to conversion continue

strong. And very pipeline candidates remains merger quality additionally, our of

above continues our net improve. and up to held ratio efficiency margin Our equivalent fully X% tax interest

capital sheet balance our are liquid extremely remains Our and ratios very strong.

As result, are the we end a a towards of as work year. the lot with well we of positioned momentum

you I'd like us joining join evening us call and our can conference for everyone thank everyone. Have again today XXXX. late quarterly January a for next to hope great in

Operator

teleconference. today's concludes This you. Thank

lines disconnect you time. this at your may all participation. Thank You your for

Heartland Financial USA (HTLF) 28 Oct 192019 Q3 Earnings call transcript