HTLF - Earnings call transcript Q2 2020 | Heartland Financial USA, Inc.

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Operator

Greetings and welcome to the Heartland Financial USA, Inc Second Quarter 2020 Conference Call. This afternoon, Heartland distributed its second quarter press release and hopefully you have 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. Management will provide a brief summary of the quarter and then we will open the call to your questions.

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

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

information XX-Q be from or sir. XX-K the Heartland. Additional call this factors in time-to-time the to included website turn At over on is at filings, Please these Mr. time, go the company’s now Fuller I the company’s obtained ahead, and SEC’s website. may will which on Lynn

Lynn Fuller

Welcome for and as of us second joining to second Ashley appreciate call. performance quarter today XXXX. conference you, good company’s XXXX the We the Heartland’s earnings Thank everyone quarter we discuss afternoon.

very care has and our taking of of communities. these Since profitability Heartland’s in times, employees, I during who Heartland’s touch response. XXXX, the good our President Bryan business over For EVP consistent challenging been then our grounded the our of turn CEO, will will will our has call growth and shareholders and all Well years additional a constituents. CFO, the our on provide performance the and cover our extremely next McKeag, Lee highlights of Bruce quarter. the safety priority customers, to around and the Heartland’s And then I will ongoing support minutes, color COVID-XX been few XX of culture of for results.

things employees, financial Bruce are our our doing to support, many credit liquidity, and and McKeag more protect customers, to the detail performance differentiate communities. shareholders ourselves Brian strong for capital, We provide will care continue we metrics. on Lee through and and

Earnings shareholders to pleased quarter income the to quarter. am XXXX. a very good to was had million for XX.XX% $XX financial second return the the million common to of per highlights tangible was linked I report equity compared X% linked on the $X.XX compared diluted $X.XX quarter. to that the for for linked $XX.X now share Net for quarter common common second we and compared quarter. on to So, average available was

integration results quarter cost second basis strong Our quarters. very the a and four outperforming acquisition, on pre-provision, tax-affected were prior restructuring

Adjusted included for quarter our million compared Now, shareholders using same Bank $XX net achieved which portfolio common the $XX.X the results. at QX in available was XXXX, million gain-on-sale calculation, million Dubuque $XX.X to this we to servicing of following income compared mortgage earnings the and XX.XX% from several diluted XX.XX% the was Adjusted sales. average to was gains QX tangible XXXX. for on same common Trust $X.XX per equity XXXX quarter in and share branch compared return adjusted and common for $X.XX to

Payroll significant driven Protection net crossed interest respectively, XX The detail this and $X.X by Bruce quarter. mark XX% Program The X% on were will X.XX% basis employees the billion the billion decline our at included was Bryan X.XX% an quarter equivalent value balance declined assets The efficiency more quarter X.XX% at and was in to of from loans. a of at substantial company and to the $XX in basis, margin, showed strong acquisitions. sheet, XX.X%. tangible $XX.XX end success which second our equity the ratio and over value of in Book quarter-end the at growth last points share addition net hard for milestone achievement While is company testament work their our tremendous this XXXX of in book a the tangible and growing respectively. our at QX fully organically both and ratio comments. common our improvement increase a through and $XX.XX tax and and

the balances said, and Now booked be the PPP excluding quarter. TCE our X.X% income approximately would that in loans the of

in Now in Phoenix purchase substantially Arizona approximately AimBank agreement transaction assets with entered on $X.X closing assumption a our this and in of of the M&A XX and merged all a Johnson other had front, we franchise certain respect of into assets, market & Arizona West will deposits Trust we West to deposit largest acquire into is announced branch Johnson in Texas, Heartland’s and banking assets Wisconsin. liabilities to quarter $X and and subsidiary, in approximately June, centers. billion that assets $X third assume operations. in Texas, Lubbock. Bank have the With cross When third AimBank, the year, Bank’s in wholly with Bank when subsidiary independent in Heartland’s the with of Lubbock, Bank bank ninth First Texas-based Trust transaction headquartered will billion become & bank owned $X.X December Bank billion Financial asset Heartland’s Racine, Trust, is billion. bank this eight member and in share subsidiary Group, will in largest completed the a $X the banks This billion year. and charter be to bank will of located be be Johnson fifth exceeding largest bank in Currently, the Heartland’s assets. of Arizona

over Lee, common Bruce? on on XXXX approved to of provide company’s am Directors of Heartland’s Board Board $XXX.XX pleased an response payable operating performance, to will also a per a overview report and the dividend President and record credit. Bruce September of August who record XXXX. CEO, XX, the XX, to The payable will of COVID-XX Now X, shareholders August in share I shareholders last October on $X.XX Heartland’s XXXX. XX, call I week turn preferred on dividend closing, now approved to that XXXX

Bruce Lee

Thank you, Good Lynn. afternoon.

and other, dedication. take navigate coronavirus of communities. say to reflect to our customers to the moment results am to continues country our and I our pandemic, our recognize commitment strong proud employees passion Heartland’s As wanted I how and their their a each

delivered continues holding health the with our anticipating we of and XX% the our pre-provision increase to Heartland’s improved of These safety and line and delivered associated million up our our core XX.XX%. During XX.XX% ability low operate in also our necessary. one an for revenue, evolve on lowest business a we team The environment, the quarter, the is $XXX has quarter, on responding quarter. focus But to efficiency interest the customers, while Core results and outstanding linked ratio ever of has pandemic been constant employees. operating costs linked-quarter. over ratio slightly been circumstances our the and demonstrate in and Year-to-date, efficiency margin pivoting to challenges our all our X.XX%, extraordinary second from the expenses rate and when situation commitment dynamic to COVID-XX. unwavering discipline to

facing can work from to come and meetings exposure. virtually our are support home, while continue All limit under are communities held bank and continue rotating have been who so, that impacts in-person relief Employees, to to plan, to teams or potential those from into We of management on protecting events pandemic employees, canceled. operate providing do COVID-XX. locations and large who customers and the enabling while continuity challenges business

protect during employees our and bank April, testing certain program to most our footprint gradually and us and in wage safety. We shared back basis, operations Heartland’s healthcare XX% time-off pandemic. We and pull were some geographic customer-facing After our country. in led of bank again are premium. footprint for health in we and the expanded in-person of a close are key cautiously receiving customers. expanding Recent the closing related June. occur safety will and services states COVID-XX place, likely learnings to our in lobbies lobbies our diverse have in been recognize locations this a treatments outbreaks enhanced Our state-by-state optimistic March coverage and to continue about May reopened certain strength and and has across on employees and on

ability confident customers operate the and are this communities service from foreseeable future expect and our for in We environment prepared the to deliver and to level of our continue us. high in

and a our enriching one living are employee of We customer, at time. mission community lives,

have our and We’re putting noticed. customers and employees people first

employee the we’ve received. Our highest ever engagement survey recent generated scores

We donated many In we our our and working billion, are by growth, in earning $XX second organizations are our surpassed affected that linked our programs with of an $XXX $X.X in and preferred Paycheck contributions the of completion relief to continues we offering. million billion to made support headwinds, those and communities. and stock Program, Heartland our COVID-XX. Despite quarter. goodwill total million customers deposit with from our the increase the through $X.X directly by April, Protection assets the quarter, was employees successful driven have of grow, This

and XX Bank deposits Trust This billion. deposits comprised double-digit from to of our saw X percentage XX% was deposits, consumer the million linked quarter, deposits. & billion $X.X Turning non-time of of increased during Minnesota quarter. significant increase the of commercial $XXX increased second and highlights shift or growth end banks non-time non-time by consumer since XXXX. decreased lobby branch closures Valley transactions of XX% quarter increased the the was the the deposits have during XX% but deposits second This by to by accelerated XX%. Bank Premier in pandemic, also Branch digital. behavior $X.X

to digital While deposits We XX the increasing. were points, points average second In XX rates. interest-bearing usage the are Fed transactions the quarter. basis is rate and respond was in-branch the cash interest paid prepared cut basis on declining, down service quarter, from linked when

a and on among our strategies, personalized margin card credit commercial pricing the top growth interest commercial enabled the XXXX, report best-in-class our previously deposit with our that in announced service of Heartland’s providing X floors loans us card Nielsen implemented program to points. to core was purchasing by commitment interest XX rate basis Our for Last technology programs customers. month, increase ranked for along result

revolving maintained which commercial during portfolio, historical commercial portfolio the quarter. have million of by estate growth the would The approximately balances the in in million. quarter. commercial of our XX%, business $XXX If commercial million, PPP levels, lower primary billion driver the $XXX resulting for and lines, real utilization More lending increased excluding grew $XX specifically, XX% million commercial in includes decline been while by to utilization $XXX balances of total $XX been loan lending Turning decline from loan loan million, loans would have $X.X a which decreased credit in line PPP was loans loans. lending at declined to

million $XX residential portfolio to remaining decreased $XX We portfolios, continued by total loans to our see agricultural linked consumer in a quarter. and the million and from the as declined of run-off

our Heartland an than obtain is helped proud billion have Next, Program. participation I more Paycheck helped total, in will businesses loans. than jobs. processed $X.X PPP small X,XXX to In loans for thousands of the preserve more and we XXX,XXX Protection provide overview of PPP

credit, quality. continued Turning to we stable to credit see

at points the compared linked the end loans small of increase to represented end in the total a is slightly compared basis of as basis which XX the non-performing points at a to X% assets XX loans Our non-performing quarter of percent XX basis second quarter. the in when linked Overall, of total increased second quarter. points the to quarter, assets

assets million period. Excluding million real XX Other estate PPP, non-performing basis points. from over decreased $X to same $X.X the were

basis in The low ratio remains decreased XX rated ratio the linked delinquency loans to quarter, in quarter. X.X% the linked basis PPP, at to from historically Excluding Non-pass the XX points X.X% PPP. levels. points from increased excluding

However, a the shift due pandemic. we to starting are to ratings see risk in the

portfolio. original our XX% as Through primarily billion basis we for the than second basis close $XXX million of for of made have $X previous payment and points. XX points, are the at We’ve with and collaboration principal in reported loan XX of $X.X XX days. or July $X.X consultation XX charge-offs are net lower their the interest-only interest number returned excluding loans That’s quarter customers, these and PPP. quarter or of XX, modifications million structure. deferments million Lastly, on to for days our remainder, were

customers Based balances to for we XX% require loan positions. will of will and support taking regular further customers, with additional We on modifications. XX% of anticipate our end are less future We the conversations proactive the than modifications quarter. remaining the prepare expect in help the that through steps their stabilize third

in a these Investor our have that allowance The credit industries. company details an communication, our Relations sand pandemic. customers that’s than modifications and $XX.X in collaboration have $XX.X more fracking that with fracking COVID-impacted on provides been which of posted not times. further and million, million impacted the exposure We on loans counsel that the additional website on negatively presentation to a loan relates do industry increased We losses operates industry. exposure in by important ever is recognize We any in challenging for

forward. to We have resources a Special tripled them path navigate our Assets the in Group help

Jones scale Nathan Nathan joined recently operations. who We leadership Chief XX as added large years have proven announced Officer, in new managing of credit and also Credit experience and experienced that banking Heartland our brings

seek while our enhanced we Operation to banks new success an capacity proven origination in will close ratio, Bank In more this financials. earlier, Chief solution. modernize will for the announced centers into strategic with than the continue The and targeted of changing banking mentioned AimBank, implementation create to customer expect to our provide to streamlining to digital-first call assets Customer Arizona billion our First geographic the purchase our the of meet implementing other loan allowed opportunities Bank is fraud, our solutions have approximately we that details approximately billion cultural virtually the with authentication the with we commercial are Compass We implement best-in-class allow network, AIM upon ninth low in lock fourth Lynn convenient Heartland’s channels billion and Heartland’s in to in in Heartland’s using our platform complete in four make June, to consolidate and In Salesforce technology, half over online of largest our box all shift XXXX completed implement acquisition have $X.X and operations, digital integration platform protect and banking Trust which increasing Trust operations meet markets. our ATM in measures our CRM more quarter. operations enhanced strategic customers now banking entered bankers Johnson for new on and As build Financial Bryan we bank recently quickly agreement Arizona and assets. customer we entire McKeag, continue in to be fall, in processes, improving customers Officer with combined and quarter December, M&A market. assets. from the made to Based will service & growth a our the across achieving to $X the fits needs. video investments Upon experiences, good early The close programs Customer Bank in & us temporary upgrade customer and system investments now turn Operation experiences. Bank $X targeted and I bank that finish in Phoenix with efficiency Compass. that and we XXXX, third will all-time

Bryan McKeag

quarter. begin Thanks, of of Bruce losses by today shows credit will includes and afternoon. per release, provisions share the and good which referencing $XX.X earnings press I costs acquisition reported This of $X.XX million integration for this $XXX,XXX.

items, Heartland’s share earnings per costs pre-provision these and and $X.XX. after-tax, integration acquisition, Excluding was

added and significant the quarter, during and quarter, the billion earnings of produced was note which fee income PPP one million $X.X For of additional loans share. originated of interest a $X.XX $X per to item

also positive core quarter, with and So all metrics aspects. again this results were in trends financial solid almost

approximately represents quarter the as economic provision individually Bruce quarter to build attributed $X $X.X net prior loans. the to fracking loans or remaining million our baseline million losses to $XXX.X total unfunded loans. total for the on and million or the of basis end, $XX credit loan allowance of provision, a June basis are XX losses in $XX.X $XXX.X losses balanced credit, in two X.XX% deterioration I from the When In of with credit over balances $XX.X the $X million, charge-offs X.X% scenario. macroeconomic economic points loan continued reserve points was result the As forecast net excluded, forecast this which the the total total likely credit within related of of Provisions Moody’s increases quarter. of quarterly reserves. during provision XX loans, The since loan Together, a in was of million, of on a or to million lending-related the credit increase million quarter At for on to for in loans. credit portfolios. most XX is provision just mentioned. allowance resulted attributed X.XX% from losses losses sand increase for $XX changes impaired total commitments allowance reserves prior consensus million total used and million lending-related total, was downgrades the of for the loans as quarter totaled mentioned, We allowances assessed one these PPP largely allowance the XX%

provisioning adjust As the evolve we develops, for loss economy and will profiles lending, outlook our and losses continues to experience our and pandemic-related accordingly. allowance

portfolio Tangible the XX% with balance ratio declined billion quarter, just the points marks billion of to billion than of last assets. equity ending and on in increase was from the portfolio. from PPP $X.X value bond a as Moving rest impact earnings bond loan-to-deposit ratio sheet, increase That net billion, grew increase addition in the by X.XX% quarter million $XX the in of in were retained $X.X XX fair common assets a basis X.XX% on the assets the total over $XXX a more and increases the offset to loans $X.X by of driven

impact ratio PPP would the loans, XX the increased the X.XX%. basis have points of Excluding to

In June borrowing capital At $XXX ratios of capacity. $XX XX% capital X.XX% also legislation, X.X% Investments will ensure closing a assets, flow. yield after stock, had cash of and approximately monthly at trigger of we XX, average that $XXX network low unused losing of under regulatory of the Amendment million generate billion million Tier $XXX $X.X of a just million million Total of tax will remained with our and addition, of borrowings X banking duration $XXX resulting this in to of that comprised assets. equivalent transaction the June years or will grew our quarter X remain on the million XX, Sarbanes-Oxley AIM treatment. The capital preferred TRUPS strong Collins – issued which

ample So great sheet very Heartland’s of successfully loss turbulent and healthy to Heartland leverage, through capital is strong position the with in economic solid balance ahead. all which puts liquidity times base, reserves, low navigate

on of interest $XX.X X quarter interest Moving income was due of or basis was on fee points loans. lower lower income yields million on by basis and PPP a loan the costs offset yield compared to to than margin interest which balances loans. the results borrowings, quarter tax includes quarter. income and decline statement, X.XX%, by a yield last million which quarter The yield point low of XX $X and fee income basis The on in a loan this than and interest basis decreased on last were quarter higher deposits interest the points average equivalent points. the prior basis loan million or this the margin $XXX.X in higher PPP to net $XXX quarter’s The largely income PPP and this totaled [ph] net much interest net million million $X includes XX of XX of lowered X.XX% which

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

$X.X sale quarter loan million the million and of last security from quarter. gain was PPP margin the and million result, $X.X higher to $XX.X purchase last was X.XX%, higher a the on as compared X than Non-interest loans totaled as excluding total for $X.X income quarter, activity, mortgage increased So points up on accounting which basis quarter. last is gains million up loans

million quarters. at specifically, furniture for account quarter, costs asset been again to and this to non-interest $XX.X $XX.X salary compared costs this level last run million, compared this losses, of million flat core These have $XXX,XXX million this also equipment occupancy, rate continued basis, restructuring $XX.X integration run quarter. well and million quarter, expense, million a totaling $X More quarter. benefits flat which $XX costs, remained and managed, totaling were and the core for costs our gains down core quarter. acquisition, and to approximately Moving to last and past On non-interest decreased to $XX.X two-thirds costs credit nine rate and tax at expenses excludes be categories

by quarter, and quarter X,XXX the XXX also In of flat quarters last or from addition, second over X,XXX peak FTEs nine XXXX. remained XX% a this the have of in FTEs of declined

Productivity trimmed the same leverage we implemented all have that These XX%. the many billion During demonstrate period, the while our the achieved to increased the have past we and assets improvements years, results or identified company, restructure worked as significant we Customer branch company’s over continuing growth. and productivity X increased network $X.X Compass

this a to over the at As an and as in Lynn last XX.XX% efficiency improvement is the over for better effective XXX XX.XX% significantly than to result, ratio, quarter quarter, The same quarter. last the XXX primarily the last from points Bruce points credits compared recognized coming basis improved which with and tax quarter, mentioned, rate was this basis the being due decline quarter year. quarter for tax quarter, XX.XX% higher

upcoming following Now the in M&A due which QX was to with AimBank impacts. close the acquisition regard will activities, to have

of held cost million range, and increase First, AIM saves approximately to mark of of maturity of accounts. net million should non-interest rate interest in X.X% will range, will run as deposits net expense with $XX X% of approximately million bearing a core to X% non-interest million to per income loans $X.X the loan increase the about rate before $XX – billion, about an $XXX in non-interest quarter $XXX run billion Total net million. million quarter. Durbin X% $X.X – the per increase $X nearly and in carries estimated investments margin

Second, at shares closing, Heartland we will million stock. of common approximately X.X issue

million could the $XX primarily million $XX finalized intangible million. $XX fair change and Heartland’s depend to will million of to the goodwill estimating the once stock all marks currently are of on price deposit are We closing date. estimates core $XX value at and These

XXXX. near will begin costs quarters, of estimated conversion full and saves over cost for currently $X.X spread Third, quarter the benefit be the the realize we two to will planned XX% conversion the we until system expect with not of quarter, next million integration first and mid-fourth

Arizona, and $XXX Finally, four convert by million to $XXX to Bank close currently acquisition will to increase Johnson $XXX systems million with loans December, are in XX% estimating by expected our that being the early branches with million to accounts. bearing in will XX% and is $XXX we non-interest deposits in million to the regards increase which of to

to We quarter deposit $XXX the $XXX,XXX of to costs expected is conversion and of rates million $XX between booked income $X $X.X over Integration should million are are Non-interest million be of $X be and to month. month fourth million currently back And estimating million, with in million to per and non-interest to rate per $XXX,XXX will million XXXX. expense goodwill tangibles million. questions. the $XX run run and $X be largely and and that, for turn Bruce call I to will $XXX

Bruce Lee

We questions. will now take

Operator

D.A. you. first from the Jeff question comes of line Our from Rulis Thank [Operator Instructions] Davidson.

open. is line Your

Jeff Rulis

Thanks. Good afternoon.

Bruce Lee

Hi, Jeff.

Bryan McKeag

afternoon, Good Jeff.

Jeff Rulis

Hi.

think, through just on confirm one? things. rattled thanks closing the more wanted of I early, the you kind AIM for it, couple that quarter, mid, there, specifically of of Bryan, late in at is detail end to The looking I it kind a the

Bryan McKeag

quarter. month, might probably for would see. put month, would guys. might – you get a we we It AIM I a a this half say much we I will get not for in get might

a you from that financial impact are Does helps? So your quarter I think looking really at model. to a fourth

Jeff Rulis

on think expense, and missed then on the Sure. Arizona I non-interest income monthly you That was that the have – does. basis? branch through rattled And contribution I a non-interest

Bryan McKeag

basis did closing are I on that since a December. in we Yes. monthly early

and to expense was and month. to $XXX,XXX month that So, per want pickup could $XXX,XXX per month $XXX,XXX is non-interest if $XXX,XXX for you income, non-interest you a to

Jeff Rulis

Great.

and in lowering – I funds just because sort anything to good the other core deposits? there of in what that it in If – there, And to wanted impressive. one-time big pretty level cost I in just or of other decline kind a continued circle thanks. you think on speak effort Okay, on it maybe borrowings back that that the the quarter? was success and was of decline could really guess, I was the was pretty

Bruce Lee

Fed Yes, we were say very went quickly. the acted thing – that amounts deposits. are on We we that basically second cut, were banks now the ready interest of the we Jeff, zero, for I certificates to paying And had right so after our prepared. are really, of cut, significant we would only

Bryan McKeag

So over as rates we offering our come down lower well, will much so… are offering are now as new time – we

Bruce Lee

nothing one-time action at get in hitting which when So quick we cuts have the the talking there loans our benefit was helped there did we floors. preparation of over and for That It the Fed occurred just all. a about year. by also banks been was and that

Jeff Rulis

have some And just here? the AIM, higher. outlook is I there. I then core And a Yes. is – thanks margin, basis little what you just a core do on AIM for think guess had think a on you basis, got flexibility But you on from

Bryan McKeag

be – think we should able I it X.XX%. Yes, to is the on keep core, to somewhere where it to down maybe

down the somewhat. loans bond X things re-price grind down go are and point, as continue to get as going and we that going cash as basis flow X portfolio, it grind forward basis to is to reinvested see might you point So has to

in saw I X.XX% at help be bit had altogether. might you a X.XX% a the quarter, So that or but core will fourth come two I think or reported quarter and you NIM. – It AIM PPP size. purchase the then might it next to back little for might relative help given you its you had for help a if haven’t and in And tick sure. the so accounting, quarter then funded

Jeff Rulis

of the triggered modeling the internal are Okay. PPP, or I you you on any what projections? forgiveness, balance you last end timing question, year, I the I guess, do it guess what at for, guess And carry just the think one in the

Bryan McKeag

Yes, project. really it’s hard to

can the of quarter XXXX all largely in then jump a event. some – them before get think fourth it’s forgiven. first largely see XX% should thoughts into be that’s to Bruce you maybe going to a some be and I probably get we are done. I think to and third going the quarter, XX% few but our fourth – here, I the in first quarter think And quarter, we might into We be fourth quarter

now. So think most we right that’s know the I

Jeff Rulis

Okay, thanks for the detail. all

Operator

Your comes McEvoy from Stephens. next Terry from question

is line open. Your

Terry McEvoy

everybody. afternoon, Good

Bruce Lee

Terry. Hi,

Bryan McKeag

Hi, Terry.

Terry McEvoy

you you I markets was was about in noticed a some any prepared just differences talk just level, from regional remarks, regional high if closing talked specific the certain franchise, could and wondering to in kind a your differences? COVID-XX about opening portfolio. your you I then wondering have and if an Bruce, across of

Bruce Lee

would where opening consumer from I all, regional the difference saw are our certainly and really are Yes, Texas, it behaviors all closing, lobbies also open and it loan we where seeing that. portfolio, with in much great our we not in question we kind and definitely operating lobbies at of there. Terry. say no we in a closed we We of saw of Arizona, but saw

We really some the in of XX branches side. transaction loan the I are operating branches on the in are really on still with, although lobbies open. also also are our open. But We it they seeing have seen believe, we there, more Colorado, lobbies closed it not which are

Terry McEvoy

from follow-up, and ratio quarter, Thank right you. as then non-performing loans. press in charge-offs again the release said, the commentary expect higher reserve the increased the second And a higher

quarter? captured third or suggest that So here the and does in I additional in quarter fourth second assumption, was guess was that that the reserve the that – with build

Bruce Lee

hopefully, that build bit, reserve covering to I so what in Yes. – that of really again, but it charge-offs we see on see reserve of the results, the to we us bit we may that after and we are able is to to if up expected, economic to going we gauge. if have see in some that bit come economy and quarters, lag pick certainly, see maintain as more to the it’s in think losses little should our poor a should, could I but continuing it actually way lengthens depends third the they charge-offs starting reserve. the come, think reserve the things is would if be But go even provisions. reserve. had little that maybe flat we first won’t say of dealt and quarter, of slow use out, charge-offs to against use going do the obviously have to we to will and we up size I that down I going be have – But the going don’t hard some probably a we you’re down a two builds

Terry McEvoy

your to taking Great. didn’t there. by lowering earlier. the to so deposit and questions, cost impressive sure detail, job pretty just question wanted that Thanks you. for my come Thank I’m Jeff’s guys know

Bruce Lee

Thanks, Terry.

Bryan McKeag

Terry. Thanks,

Operator

Piper Your from next comes Liesch Sandler. question Andrew from

open. is line Your

Andrew Liesch

Good afternoon, everyone.

Bruce Lee

Hi, Andrew.

Andrew Liesch

Hi.

On or on on by sale driver gain the driven the it the that volume? the was improvement premium was mortgage What that? behind sale, side, was in gain

Bryan McKeag

Yes.

of both. think volumes probably because push a I we able did have bit probably little it and great the We to more. little margins great volumes of were was a our

And we think both. so did I get

did the quarter to number. job a mean at this I great PrimeWest really getting guys So that

will you if We and quarter, we it that And we everybody think rolling. like continue drop the as off are says – then that will if get. I appears keep hoping is is would see to the as strong normally for be, the they can another going we economy market get housing seasonal will like it hope

Bruce Lee

strong their – to are They and very seeing have margins. really to they locks margins, be able Yes. been rate increase their continue

quarter. are feel the in pretty here they we strong quarter have So another that third going to

Andrew Liesch

did then, that Got that you. about issued million, correctly hear AimBank shares $X.X And for I the you correct? is

Bryan McKeag

out. that, pointed it’s misread million. Janet Yes, I $X.X

Andrew Liesch

Okay.

Bryan McKeag

and reading got was transposed. through numbers the fast I

that. about Sorry

Andrew Liesch

missed start loans is and you are but it criticized I period, telling and later deferrals be I to look in guys that think maybe but okay. remain a increase, need that over this charge-offs these or gone had them that months, – when on deferral, just your of you, some borrowers more on and have going see portion types? had downgrades right something point year more small last will of trigger then, sounds And or really at – loan few thought to the to you you making you would what deferral do is at like started the if – what what Alright.

Bruce Lee

are for downgrades the some of are as making asking we support. additional Yes, borrowers

probably downgrades, days. would into when charge-offs start next if that would but be non-accruals additional after XX even to modification, we you they So make XX-day that an will probably move or see either

on think or lot we the the on how question build a bit that is curves. reserve will little anticipate what build that we really the related to that than depend to the It it those a to whether So asked. it’s probably whether that Terry XX% and reserve it’s that better as happens modifications

Bryan McKeag

that and how the then economy re-close as big is play – going and And to things you will guess programs. a open or a up the government have – to play would and big

Bruce Lee

really the it there talking who Washington on and depends that package they is supports. that stimulus about – Yes, in are

Andrew Liesch

Great. right. much. my That Thanks Right, all questions. so covers

Bryan McKeag

Thanks.

Operator

from from DelMonte comes KBW. next Your question Damon

Your line is open.

Damon DelMonte

guys. everybody How doing is afternoon today? good Hi,

Bryan McKeag

Good, Damon.

Bruce Lee

Damon. Great,

Damon DelMonte

to hear. Good

for size on a So total credit, for bit, What was fracking-related a of was question $XX.X million credit? provision the the part just the little a you said of credit. so

Bruce Lee

About $XX.X million.

Damon DelMonte

you Can located? disclose that Okay. where was

Bryan McKeag

sand, the it’s where in white upper Yes, come Midwest, it’s from. the the sands

Damon DelMonte

okay. you, Got

provided million toward million. $XX.X $XX.X you So the

probably favorable be are healthy on resolution of charged-off you guys you that pretty and kind there, to So going reserve this, it’s expect thinking quarter? next

Bryan McKeag

probably. it in two I next think resolve quarters the will

Bruce Lee

the Yes. very, It the negotiations, are quickly at prepared was in turned begin last very The and and market quickly are necessary. if current end happened of liquidating we quarter. but to loan

exactly end why So resolve itself think definitely it took significant to will is hate the I before the we of quarter. would I the And say year. which reserve. that

Bryan McKeag

But a I be think well will fairly sizable it charge-off.

Bruce Lee

Right.

Damon DelMonte

process went little the thought And you alright. Okay, a securities quarter, amount just this then there? perspective a up decent can on by give

Bryan McKeag

we way million – mean I the an PPP much grew then the deposits did Yes. liquidity, primarily, $XXX and over were liquid already. grew past and million, additional $XXX so the have to deposits money they and we we that. we came with growing And Damon, moved just

of of work lot to a money had Zack company. put yes, the as to So Treasurer

And so the could yet the get because still other quickly money flow liquid upon how stay we depending to tried fairly economy goes. that, way

really just really deposit We a great had quarter. was that. it So

Bruce Lee

get that a generated know paid down sheets, is to Yes. there our bunch businesses rates back. cash, cash we We couple all things burn And there, don’t going are process cash what balance there all get about if starts balance whole on – plus thinking companies, to shrank is one that their corporations, we is were of this sheet. are forgiven, Damon, PPP through other the lines and then

estimates trying normally right now. are be. More to we So we very in liquid than would be our conservative

Damon DelMonte

Got you.

And with of closing Okay. core going Bryan, you just for on run lastly with obviously guess, expenses, thinking but on AIM then, are forward deal expense Arizona, from then have about I you what and couple rate parts of kind the here? moving later

Bryan McKeag

I say, to $XX our is were core million today. I at If think Yes.

might million, I is sorry. I $XX that AIM, little a stay – think another they then you the added September, it for October million might that if close month $X is of – on million, next going flat to with get to may come add to probably most you be to so one the get or $X Heartland and going be million bit quarter, in core going Then think but to $XX are still AIM. at relatively at

so branches. $X.X be could with you be $XXX million of of of the at month or may So there million then addition one Johnson and core

could you million So million. to be $XXX $XXX

pretty is right but say so – maybe that, I that would reasonable is can we do I think better for is that think what now. I than

Bruce Lee

the cost forget saves. Don’t

Bryan McKeag

that Yes. in saves. And we’ll get cost

Bruce Lee

XXXX. in will be They

Bryan McKeag

the number cost I saves. on that quoted Johnson net of the In Yes. XXXX, is Banks’ the

going any to right starting we kick in saves one, that to convert on so because Just are cost day get we should away.

Damon DelMonte

it. Got

Okay.

it then said for kind so comes $X quarter. million – third in And as like it on you $X you if million $XXX $XXX up, million of that the So to fourth of it’s the kind million, stepped is to quarter. in September, AIM

alright. Okay,

had. all Thank very much taking that’s you think for I I questions. that my

Bruce Lee

Damon. Thanks, Sure.

Operator

Your Long next Raymond question James. from comes from David

open. is Your line

David Long

Thank Good you. afternoon, everyone.

Bruce Lee

Hi, David.

Bryan McKeag

Hi.

David Long

Hi.

industries bars, may X% at the time. of see – be COVID-XX industries over Just for by I and of restaurant, an loans, lodging that extended affected looking period little impacted at your affected

is talking you out things get you there, got going, have and my XX-day playing to So question do about deferrals you the when how out you got have you days? are deferrals XXX XX-day foresee after another

Bryan McKeag

not July Well, business breakeven. it’s are any that is just in And we they it will have – lodging, in if the of through little mean kind And these here And and the through depends, it’s travel, struggling. a differently. first a recreational way mean, unknown, get for XX-days, in still come it the really very where above off this. of them to thing because the through located, the honestly it’s that and all are bit of first downtown all it are in is of we there first that seeing are I off borrowers sort of coming which their many August more all depends it’s going occupancies of we they XX-days. a was where If area, I we a type center and are facility is is responding

So on the that have. also a different depends everyone is and liquidity the it little sponsor and they

can guidance as So there. not you I give a really I group sure am

Bruce Lee

having to we discussion I I troubled needs would I end get of XX into make get be comments, our we third restructuring will think the in be is a David to we And then days. modifications, as, what for may you left when be mean, things. that other XX-day and do kind territory a said see going still if because another hard we of have to a second to think that then anybody of fairly lot debt reupped

thought of you year, that’s will kind then not support out see right showing So economy now. are get forecasts dwindling different a what now, on and move of we to the last I our whole half as of now a the just Kind of we does the of based not think improvement kind whatever, you think got going number better happen work ballgame. economic general does an

David Long

Okay.

be Assuming that, follow-up, days? that have pass thinking As had you of be with the discussions an or you worst on how go is the would that had just this those after XXX from to some case to had discussions you you have for, accounted be determined? how scenario, at perspective a would treating about point that still regulators if and accounting

Bryan McKeag

we going perspective. think our talked to get for know we to of XXX from KPMG, not We to TDRs a are assessment when accountants, to past GAAP days, we I kind we have have regulators. have an talked when do the

the days, XXX modified haven’t purposes, it’s are think have I through regulatory, have us from anything Now to we a treatment being – I going different. to different But, anything TDR review. regulators whether going any after will go give still to for that’s accounting heard to

David Long

for Thanks color. it. the Got Appreciate it.

Operator

Thank you.

there Fuller this Mr. As for questions to would at back no like to closing are time, floor turn I comments. over further this

Lynn Fuller

for second In we our were closing, the financial pleased performance quarter. with very Ashley. Thanks, once again,

margin PPP than showed staff providing Our doing a X.XX%. in pleased XX.XX% while just job, with substantial processing same at customers great We of the by and business ever growth at net small for did interest our time, quarter in non-time at maintaining a lowest X,XXX more $X.X billion We very billion job, a deposits, XX.XX% the to were efficiency loans. ratio great our $X.X lifeline year-to-date.

capital partners capital restructuring integration the Bank or financial pre-provision, perpetual Our new cost time, other tax-affected relatively strong. remaining preferred Arizona bolster with Phoenix, metrics Tier better losses, as merger for at balance CECL, to benign. this good loan in in early while December. to remain And in four performance the significantly same most last issues branches on quarter $XXX sheet is extremely of our than a and last, and we Texas and credit continue liquid X of AimBank And issued year. of reserves million build third to are We we our excited ratios are our all the quarter our acquisition, West basis, very Johnson under welcome

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

Operator

Thank Ladies concludes you call. participating. today’s this conference and for gentlemen,

You may now disconnect.

Heartland Financial USA (HTLF) 28 Jul 202020 Q2 Earnings call transcript