HTLF - Earnings call transcript Q4 2020 | Heartland Financial USA, Inc.

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Operator

Greetings, and welcome to the Heartland Financial USA, Inc. Fourth Quarter 2020 Conference Call. This afternoon, Heartland distributed its fourth 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 Web site 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 the 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 Additionally, sir. would time-to-time on information on now over to turn SEC’s ahead, Web Fuller these factors filings, the be or the is XX-Q XX-K the Heartland. obtained call which site. site may Please Lynn go from and Mr. At I company’s time, at Web company’s the in this

Lynn Fuller

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

employees, Lee and regarding the Bruce EVP care are Credit you touch and our customers, who For Officer Then McKeag, Heartland’s the Bruce we to credit. available additional provide Bryan next our results. who share CEO, Heartland’s Chief and President I'll answer Nathan communities. business and over I'll on the protect response. joining minutes, few quarter. and doing highlights us today for to cover will CFO will questions Jones, shareholders Lee, and things our is Also then turn COVID-XX the performance the will call be McKeag for EVP many to support, Bryan with and color will around

rates, income that and on interest dividend the onto for the our highlights net shutdowns report over impact common of shareholders XX.X the Fourth a I'm Well, had now before and good increase million, was So per still very the XX.X continued overall very all challenges a available pandemic, pleased low million preferred to to or state XXXX, was the the fourth of year. quarter income based XXXX we diluted quarter. Net XX/XX/XXXX. financial X% $X.XX common share.

year income per the common $X.XX. shareholders Annualized share was the annualized was average and For on common XX.XX% assets net to million X.XX%. available XXXX, XXX.X equity and common diluted return full average on tangible return earnings was was

a ratios. detail billion a Bryan increase, Our totaling tangible common quarter The result capital ratio equivalent acquisitions assets. equity at basis as on interest the our in margin net ended more at provide will X.X two tax the on X.XX% of McKeag fully the at Bryan to for will the from the margin. continued detail Book value X.XX% in value per was respectively. book $XX.XX comments common and Bruce share quarter. prior and $XX.XX, their And on more tangible share unchanged and year quarter ending

a the balance the and XX/XX/XXXX. to assets of record and our billion over at year. the sheet, was high for that's million respect Also across categories fourth in to billion growth XX.X quarter. during on increase the achieved Well, Bryan XX a for more X% acquired provisioning loss reached expand all with the provision new XX Now million tied X.X assets, will loan McKeag our quarter, of we

we’re Assets up equity X.X focused up were was at million up and and X% down Non-deposit year. efficiency ratio was up Investments loans billion. were the billion. were billion X.X XX.XX% billion. for X.X XXX X.X up Net our on, which maturities,

M&A. to on Moving

mid system's are this Lubbock, & and with February. forecasting Trust closed assumption last two-thirds quarter, is Bank in Texas-based XX% In on assets. X our tax Phoenix, after December, AimBank First over bank, in Arizona our largest the completed discussed we conversion our subsidiary. Bank branches. Heartland’s saves. XXXX, XX is The billion into merged largest acquisition in from we in in transaction acquisition, is after With accretive the now Arizona and with tax and its set for ever, we West early approximately Bank This income Trust AimBank Heartland’s As includes Bank cost million of four purchase XX which approximately of million Johnson transaction to in Aim, EPS. Also Texas. Phoenix

we're Acquisitions synergies million transaction management and our first total banks. in efficient XX is and XX asset XXXX, platform five and trust department. per in our Arizona significantly base. And share Compasses, after Our conversion virtual Bank in to Customer to efficiency create from member took in-market Bank deposits, approximately to these have our size size continue & number & lowering deposit provide scalable market significantly market and transaction member over in X% ratio. dominance million cost Operation to simultaneous market earnings assets acquisitions, Trust of our and EPS. close and adding ever and with accretive have in tax in XX million This in of In-market our we of saves companywide our XXX income larger to The strategy, assets XX Currently, time contributed from of top billion. goals. greater in loans both M&A XX XXX more well, under went million extremely the increased combined Trust’s contribute greater and acquisitions approximately XXX accretive a MSAs. increased Acquisitions forecasting approximately MSA asset acquisitions. to X.X This X.X banks prioritize achieved branches. Well takeouts operating Arizona top for deposit cost Heartland share

opportunities. in active of priority and of a current each Currently, said toward in in been goal our continue a our and attractive work where our exceeding assets expand have prospects in to of assets X X deep past, we billion pipeline banks the with to our operate. billion footprint we state XX have has As of I've XX number

in had we've common share XX XX, XX% per XXXX pandemic, the our $X.XX our preferred Recession XX, February approved common payable record Great increased approved on to month's beyond of of also XXXX. of Through many March dividends, quarterly shareholders increase including many dividend or the XX, for this level recessions, and preferred Board Directors our payable Heartland’s a XXXX At record of dividend a dividend. February Board peers. on of record the quarterly Now years April The shareholders of to XXXX. now $XXX consecutive XX, on meeting,

Board. of a comments transition high-caliber of Hartland Chris serve recent a who Directors. experience, want Bruce, and and leadership business I as Board to Board. to an executive on before years depth Now, is more of knowledge than S. addition Hylen the to highlight the Christopher Hartland to With Hartland the a independent director over I brings will technology XX perspective special

his and the will turn level experience to response over using Bruce provide shareholders. benefit enable executive now in will operating COVID-XX delivering technology performance, to leadership, value extraordinary client Heartland’s an I'll experiences on to We vast company's CEO focus his the and clients overview Bruce? laser from of Lee, and his call who and President credit.

Bruce Lee

Lynn. you, afternoon. Thank Good

and how of a once the in year strong across As of as I our results I reminded each proud look at from our Heartland teams the am again whole, banks. I'm fourth member the quarter

resiliency customers XXXX safety positioned while health us the challenges We Heartland that than the that to have us and we're growth our serving in prioritizing I and just have and would employees. endure doing said and our pandemic emerge and demonstrated allowed our for of strength It's communities beyond. commitment to and throughout stronger that. their before,

and and our by increased improved in processes, to through important execution of disciplined Phoenix drive leveraging West further down costs completed initiatives, We strategic continue growth We our that of two and assets markets acquisitions diversified scale. Texas. presence

M&A Southwest we a the in track consolidating record, of the With evolving expense economic prosper see two and are primarily of XX% these fourth assets where growth U.S. the to total uniquely we an billion assets grew from over billion, in $XX.X and West space. X.X the increase In strategic regions are in services quarter, our quarter, acquisitions, positioned discipline, on to acquisitions. geographic Heartland’s With in and now footprint financial rapidly focus greatest growth, Heartland’s proven the

XX.XX, points a and Assets fourth grew the XX% billion quarter ratio than year. the or year lowest ago. basis for quarter for was our the X.X XXX lower for Efficiency ever

efficiency XXX own For XXXX lower and expectations. exceeding points was year, high our than basis the ratio XX.XX,

This experience, to drive ability Our billion, quarter Bank to differentiate X.X quarter just through growth customer acquisitions. includes We X.X billion the and the increase the continues value at deposits while in us. Johnson of delivered quarter. efficiency, another strong the Total in ended linked of fair enriching strategically organically billion investing branch for acquired $XX and below deposit transactions. AimBank, growth from deposit an of

XX% for billion, of year. or the deposits the totaled total Excluding XX% linked and from deposits quarter $X.X billion or $XXX increased an these million billion deposits, quarter. XX.X Non-time increase X.X during acquired the

the X% acquisitions, Excluding non-time from linked or increased quarter. deposits XXX million

For increased the billion XX%. year, deposits non-time or X.X

non-time or acquisitions, X.X deposits Excluding increased XX%. billion

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

basis quarter deposit basis points quarter, disciplined down XX Our for deposit XX points has points costs to fourth basis total from the pricing the XX year. reduced of in last

in decreased quarter. to linked Non-performing acquired continue credit from AimBank XX of the points credit of basis assets to metrics. quarter, Other the increased XX the in X.X the that loans the total linked decrease report real XX quality. total acquisition. as basis points to I quarter, pleased the quarter. stable XX linked points to X.X to loans percentage Turning million also at basis a due of estate basis primarily assets a to see points slight we in million am end from assets represented in Non-performing from

decreased despite legacy to rated XX% a fourth level. some delinquency third X low a remains in the from acquired increased ratio portfolio. from to quarter, to relatively most of and basis the XX.X% quarter loans total in the non-pass Our points in Substandard XX% remains compared quarter. XX The five-year points. quarter linked the for loans average, loans the of below X.X% Non-pass increase recent combination of basis ratio to downgrades loans previous at the an non-pass

were compared the X point basis an million loan charge-offs for these that quarter We Lastly, XX third XX.X two reinforce basis points charge-offs the believe metrics exception were quarter borrowers large quarter. in net to the commercial the or and that. in from or linked previous $XXX,XXX

steps proactive necessary, positions. take with to We if work help our and continue customers, their closely stabilize them we'll to

pleased XXXX, are overall based cautiously for prospects COVID and and with by vaccines. our continued on portfolios round encouraged additional We the performed stimulus XXXX an are rollout how optimistic of portfolio, government credit in the of remain the in

commercial. Turning to

shifts in XX of million loans, quarter. million, real of up We to growth loan occupied to occupied and creating by strong fourth slightly momentum acquisitions, year Including non-owner due and estate. estate declined was organic X% our and loan saw organic XX $XXX non-owner owner occupied portfolio linked growth commercial PPP-related quarter. from the XXXX. quarter occupied for and commercial Excluding Construction XX% million, owner industrial XX increased from the linked largely million, real the of for

portfolios, from linked critical we first respective lifeline their quarter. opened million, program. to our the In XX. of XXX only second January the and X,XXX first remaining round, draw, for in our second residential businesses more increased communities. of XX customers. Six agriculture lenders the in small applications our in new that on Heartland PPP nearly participating first already member top is We've markets. loans actively extending execution have as banks And received consumer XXX successful accepted draw loans were including today. we banks PPP, PPP reach helped Based in for applications draw during on helping than X,XXX Our million, we're draw are current acquisitions, to obtain mortgage the a the our million the XX increased increased proud provide

opportunity we applications. In prospects, forgiveness quarter, will new and prospective minority addition commercial relationships, owned build the in loans our serve process SBA current high demonstrate the an to PPP and to In PPP to to customers, communities. clients, underserved priority our third capabilities offer began providing

and X,XXX the already employees strategic the to conversion both I in welcome to banking Overall, billion, the in to services loan First the and Encino best-in-class commercial Johnson loans, December, Trust acquisition, and Trust Bank products by PPP The conversion Also acquisition assets Bank bank complete of its the our scheduled improving & thrilled enabled speed employees Arizona applications our growth our seen teams enhancing new In forgiven Compass, multiyear market Bank to Bank CRM XX% Texas and simultaneous to and making First in in funding, acquisitions foundation. Bank’s largest Johnson Trust & and we've Investments market. the am than customers. market. billion Heartland. & borrowers Bank faster We're of submitted funded representing AimBank with Phoenix of January, and acquisitions. February. we've bank in & of largest half $XXX have and decrease AimBank Bank December, About force completed assets applications, close application of million system its scale, process been at Customer provided have and using sales thriving the and have Trust, West Trust more a strong to already & bring loans X.X than talent Johnson our These existing closed billion the As from Heartland’s to SBA. our raised fifth forgiveness made experience. Arizona excluding X Bank markets platforms. teams created AimBank we added time efficiently each in in four customer to centers mid banks X.X Arizona opportunity in to to strategic had to more initiative, in

Small consolidate in the Operation In-branch interact they from based respective their XXX of previous have of rise in deposits in business We Consumer and have changed the We've banking ATMs to XX%. through Compass, year. we digital increased appreciated in customers will to deposit investments transactions existing markets. seen three ATM second more branches options have have installed We Customer AimBank on and can XX% customers early want mobile decreased the a and the capabilities us. half increasing online platforms, steady XX% also with proximity the the behaviors pre-COVID levels. enhanced in use our overall provide than in-person and new quarter. branches

shift branches. will An to serve we ongoing more and to consolidate are additional this month, three continue XX% plus efficiently our of five more branches our XXXX digital, branch under review. customers. rationalize We AimBank consolidated Given to in our branches footprint this three

We customer our priority. to our with and under operate top continue management pandemic employee plan as health

are open footprint and with those a banks. work from can while to do banks they diverse our during limit from the to our locations value potential bank of business the home Employees offices rotating continues Our level service come high for exposure. teams be strength customers are who and so, we're geographic who on into providing Heartland’s pandemic.

our COVID-XX. money financial October, markets, a April, and created ones, teachers We customer established other to and delivered more schools capabilities, healthy materials invest in our The deepened our improved learn we made future. new of million challenges customers continue In us, donated volunteer by and and enriched Lessons our and These this than We costs, conditions a in for our environment. pivot, year lives difference to act our We’ll and to and as when We speed each began XXXX collaborate customers we responding market will connect year. investments to need local a $XXX,XXX dollars in allowed experience. to XXXX past and ability with digital serving contributed remained and new safe technology, organizations support. meaningful strategic high customers. the our providing in to in existing quickly adapt the many are million us learned in centers in serve and communities. communities on are banking our of hours to the by needed. continue established operate Our meet our In our relationships, $X.X Hartland XXXX lobbies, long to confident to challenges drive-throughs $X.X provided students and supplies appointment. in making communities the were our and to well. purchase in to was help to ways and needs new focused environment in lowered as employees’ we

and growth We XXXX. for positioned are optimistic well in

from are they serve the We emerge our pandemic. to open ready customers as and communities and

Bryan more to over call our on the Officer Heartland’s turn Financial and financials. Chief performance will I Now details McKeag, for

Bryan McKeag

good today reported with Thanks, this was an per quarter. at of begin earnings which $X.XX afternoon. Bruce, and overview I'll share,

items. significant three includes quarter This

recorded losses loan loans of for a deteriorated called commitments XX.X unfunded million AimBank credit Johnson the branch purchased First, non-credit non-PCD acquired provision and transactions. commonly in was and for

costs in integration third, acquisitions. we fee with recorded And incurred the forgiveness and X.X additional to of million acquisition these of balances conjunction million of Second, quarter. X.X were XX% approximately loan related income PPP of during the our

Excluding these items, Heartland’s have would earnings per been higher or $X.XX $X.XX. share

earnings quarter this core So again, were strong.

to IR my that our fourth Web I in go comments, our available site. updated remind detailed want quarter you of the presentation into investor section I is Before

XX.X provision includes million provision credit following the our and my So X.X XX.X on unfunded totaled reflects which and mentioned this bank the legacy remaining losses, provision The to acquisitions. I'll two for start million related non-PCD commitments with loans quarter the of previously and million the in comments components.

balances, million and million loan declined legacy excluding First, declined XX in fourth quarter. PPP, in the unfunded total commitments XX

Second, non-accrual we some in had a loans. legacy loan to reserves and for increase small downgrades continue have

Third, consensus to forecasts improvement. continued economic modest show

as to all the loan to losses million a in build resulted quarter economic credit and mentioned In was just primarily were increase related However, for it for the for lastly, directly purchase changed, outlook acquired assessment the a in factors that that I the end. allowance acquisitions. to charge-offs booked allowance net PCD also reserve quarter as And our deteriorated the Heartland’s used economic million at two $XX.X XX.X remained year items were XXX,XXX. the to this again uncertainty a components at or of not Heartland minimal significant loans. loans referred level is develop of total,

of million these Together, total on points in loan two XX allowance total XXX.X for loans on loans. losses for related was of of unfunded basis allowances or PPP of losses lending total credit was lending loans. balances X.XX% the at loans. excluded, are total loans. XX.X or So the end, or credit When XXX.X million X.XX% the losses at for related credit result a commitments allowance of the X.XX% quarter And for total allowance million stands credit allowance loan losses

PPP. In totaling loans, year addition, sheet basis of amortized at end, XX loan our had points purchase or balance excluding XX.X total million we on valuations

Moving of Borrowings of a to to primarily XX% XX X.XX% comprise or just points our end equivalent sheet. Investments to at a balance million year cash generate average decreased end. of year billion X.X the XXX under quarter this assets. borrowing with end, rest of due billion the approximately flow. network equity basis quarter, of unused acquisitions years yield six to X.XX% million now at XXX monthly million ratio and with and X.X XX grew duration declined assets of At X.X% tangible had common of tax the The capacity. banking

basis over over ratios common Tier equity from just XX points XX ratio XX.X%. have the over basis at Heartland’s our two remained well points regulatory X%. at with and X XX.X% based Excluding risk strong total decline the and acquisitions, remained increased would capital also just

So balance Heartland’s and be positioned. continues strong to growing sheet well

X.X loan net Net the points investment to income X driven margin a drop or by a I this PPP flat points in million basis fees XX to basis increase loan on interest basis in XXX.X The forgiveness, The tax quarter yield decline recognition additional offset yield or on increase quarter compared of was yield was mentioned. an by last XX.X in of than quarter, loan was quarter. statement. point the as and this million in previously as interest basis the costs. XX a totaled X.XX% interest income Moving prior net higher million equivalent

margin accretion, quarter. basis net purchase prior from accounting the unchanged includes of which was quarter, XX This interest points the

quarter. activity, approximately declined addition, million last up X.X our PPP million gains the Net remaining loans exited increased on of million the on interest XX.X security gain X.X million of to as totaled quarter, loan income unamortized XX.X on while quarter, total for the compared million last seasonal lower In year books. with mortgage we fees loan from sale X.X

million well acquisitions. service expenses and new charges reflecting from rate quarter, one up credit integration, $X one acquisitions. part million XX.X last $X million largely non-interest quarter, tax totaling program. increased and Heartland’s million of XX.X optimization run would primarily item In primarily one to restructuring I and addition, our When our and this expense. which costs downs runway as managed, losses XX.X this mention new Non-interest million acquisition, to Shifting Heartland’s core quarter. specific million branches to new relate several losses, higher of X.X of costs on ongoing month expenses is on expense quarter X.X excluding compared this due increase million to gains remained branch were asset our This from write The to assets reflects line month primarily acquisitions. totaled

write we next downs As progress, this additional the over program continues to have may several branch quarters.

we exit we’ll XXXX, ahead strong comments following So well is results XXXX to Hartland to the positioned provide deliver and and believe as next we look year XXXX. regarding

stimulus, back First, ex lower single PPP in be half half growth is determined. rate, of the growth the growth round be more from the growth with with some in new the A the mid is half. in The PPP, yet loan expected deposit digits PPP first second and in low XXXX. happen then The rate expected single of digits growth round to first modest of and to then is robust half. largely remaining will first off run in half forgiveness higher government

we're to ex mentioned. However, Bruce NIM, good as modest a have The off start, pressure. PPP, some will

Wealth XX% for expected losses forgiveness acquisitions first is Core banking to the all quarter expenses over XXXX. digit credit adjusted acquisitions. will slightly to new the from to service and X expected to in and cost is we we $XXX show to first reasonable the realized half $XXX million current increase law TA mid quarter, the XX expect to PPP the in fees believe rate the ratio to quarter basis, exceed changes projected full rate next accounting brokerage costs then run single and not However, integration tax reflecting under expected interest recent on fee range increase Mortgage a to million saves and are poor And efficiency expected conversion conversion are range $XXX fall margin to then rate, the tax $XXX million, due economy the with full are second that million is expected million tax decline growth. settle in of income in full year-over-year. and in assuming income purchase accretion, higher the continuing a second firming a percentage range. for the AimBank be XX% And Deposits to to next range XX% new year. million half be X.X higher be our by next thereafter. to in are QX fees On administration X.X% of to are $XXX the be million net from XXXX. half recovery XX% the expected and no into to a in year all-in and in Provision a and rate, XX% XXXX. is million year DC. assuming year to

as climb our increase about Lastly, to get to expect TCE quarter. we XX of per XX basis above ratio back points X%, we

to round call turn the loans With ratio half PPP on the I'll may over the back first new However, of weigh of the XXXX. during Bruce. that,

Bruce Lee

up you, Valerie, Thank for lines questions now. let's Bryan. the open

Operator

[Operator you. Instructions]. Thank

first Rulis comes Our D.A. question from of Davidson. Jeff

open. Your line is

Jeff Rulis

Thanks. Good afternoon.

Bruce Lee

Hi, Jeff.

Bryan McKeag

Jeff Hi,

Jeff Rulis

general. in NPAs non-accrual, the on just question A

linked was just legacy, increase what and was out what kind break acquired? quarter in of what the non-accrual could you If OREO

Bruce Lee

first to want that then maybe answer and Nathan, follow Bryan you up.

Nathan Jones

looking Heartland it we actually Largely the we almost at an actually from at $X.X from look Yes, perspective of million. was absolutely. if reduction standpoint, had NPL a non-accruals, a legacy it

overall what seeing we north is increase just take actually to them saw you of closer little today, which really you're a bit when was So that the together, X.

it's some to really, we’re we customers, a with facing our continue positive the given of work especially all story today. headwinds So as overall

additional on cautiously As Bryan, we about the add optimistic like clarity as Bruce numbers remain so to forward. said, to would to you continue or some optimistic some of look we're well? credit and performance very as those

Bryan McKeag

No, on printout out, basically I them my and almost you about up page, there's release least press our table $X I But help would that Jeff. tables on got our say think non-performers pretty million XX acquisitions. just our you of that acquired at XX went we close. shows it can in million a

had down. So saying. not Nathan that's non-performers what would actually was acquisition, our the gone Had we have

Jeff Rulis

Great.

had time Maybe the increase. look to on an the just then, overview hadn't dividend capital at Thanks. table. Just saw

these on got what do You've in comments guess the [indiscernible] thoughts guess capital M&A set types working. looking in run. dividend, from about but pipeline, I M&A I on, look thoughts and deals to you heard in preserve probably I on Thanks. be I got just on your But buyback? that TCE the short for 'XX we any all of should

Bruce Lee

capital through earnings? Bryan, kind back explain you want the build to of walk that, through how we to plan up

Bryan McKeag

Yes.

said, right. We’ll the in year balance have as X.X% you that projected pretty growth grow Jeff, back think, with I next much we through up, earnings just had I for projected. it sheet

of we'll typically Now acquisitions, with that. -- part that And excludes issue we acquisitions. any stock as

PPP. bit will in do So, a round especially first little we I think you year, tighter, the of next half if of this things the be might see

So up relatively in move or right kind last take could the then the really earnings, per ratio of payout our bit. now stay share little $X.XX TCE of flat year. a around at half give and right our Earnings XX% of is --

that And we how the how progress. we whether utilize see now, how need M&A So, don't goes any see as we'll near to we'll things share to buybacks more. how earnings capital. in see increase could see right we We'll to see some that but go horizon,

Jeff Rulis

income. one a last total hear non-interest got Okay. while Bryan, for you, I And one didn't I you.

a quarter all-in for acquired think I non-interest loans but in you with first rate piecemealed it, the of of you’re the there run kind which is looking income?

Bryan McKeag

Yes.

paper I’ll – here. just think a I piece of shuffle

back at the before. of core XX reported it kind out and is what same the think the gains you about look you so the If if I about losses, was really which as course, is million

should Johnson non-interest about more about XX but been add million seasonality. of million, we've of little So probably months income. a see and Two Aim running of bit X

probably quarter, you And -- and say to XX mid coming that in say I'd the XX back probably probably quarters that. like the be up million. some through, fees would to come in or up XX go first you'd million XX better seasonality probably something then with to I or across somewhere down So as XX mortgage

Jeff Rulis

said you in the that year-over-year, XX% Okay, full down just year try that’s but helpful. seasonality. to And mortgage for bake

Bryan McKeag

all kind the above say last and seasonality. would I right year Yes. maybe them get drop about XX, probably of kind of that you’d

Jeff Rulis

back. Thank you. I’ll Great. step

Operator

you. Thank

Our next Liesch Sandler. question Andrew Piper of comes from

Your open. line is

Andrew Liesch

Hi, everyone. Good afternoon.

Bruce Lee

Andrew. Hi,

Andrew Liesch

I just growing challenging. years know bit loan forecasts. been organically touch little a in recent the to growth has want on base I

Some What of you getting digit now confidence, design confidence that though. right you your of hit will by growth mid borrowers this gives are that's year? telling single been you what

Bruce Lee

Yes, Bruce. that I'll one. take This is

significantly the that growth in organic reflecting are pipelines Our there's fourth the quarter get activity. increased in commercial We portfolio. did

the We portfolio. also and are on focusing consumer running

portfolio. we to growth would headwinds. run consumer in first think during don't organic quarter So that the our we're the going into applications And reflect those

XX markets, leaders pipeline have activity. So in we of also pipelines our we new our between months, boosting that frankly some hired think six and four last the in in what quite of is commercial and we've the

COVID of world, additions for between learning are pipelines from filling getting to or the in call away So up. talent our

Andrew Liesch

a I to wildcard what's sheet seeing That’s a it. outlook, large margin be looking of can should of asset good for earning guess are Got just there? what liquidity how we're driver What be types the average does that balance on guess your and And a right guys it. deposit flows? using? assume at? hear. That I such you for we Bryan,

Bryan McKeag

there's come the But think PPP will go will will I up bit. little there be off paying remember, and back in some then on. sheet a that Yes, balance

say, the I up got budget that would we're really, million grow sheet. But rather right, turn balance we've it's XXX,XXX, growing just than portfolio coming XXX,XXX, to assets. loans, there's the real probably but would of we're XXX lots into of overall again, churning, like flow going to because be on investment going we'd So quick, to be a I I slightly up just say -- net here just think of for off

I but of kind going have know you're mix assets than hopefully help a don't balance that have -- hugely a the to earning of we sheet today, deploy better to So larger

Andrew Liesch

Got it.

Thanks. Okay, back. that's step helpful. I'll

Operator

Thank you.

question next Terry Stephens. McEvoy comes of from Our

open. is Your line

Terry McEvoy

Good evening, everyone.

Bruce Lee

Hi, Terry.

Bryan McKeag

Terry. Hi,

Terry McEvoy

If is, of with And expectations that that Have just bank end of publicly at are exactly stocks? criteria? banks traded my fit $X expectations are up pricing billion what almost since the XX% question billion pricing of stock, corresponded kind that of look kind Heartland’s for September. assets $X I it's to

Bruce Lee

I do times people they or at say are tough something range starting say, that was Terry, at can't going earnings trading lows. then up. there were I times when and better? would moved you're believe But expect It pretty X tangible in if to we we our have X book,

Terry McEvoy

And, incorporates round remaining Bryan, Thank of in XXX, you. accretion from that one the to PPP just the well want guidance step The fees closed in that margin fourth as a from quarter? clarify. deals as up the anticipated

Bryan McKeag

yet. is not I'm have Correct. too, what that any sure Yes. It PPP wouldn't because

correct. that's So

Terry McEvoy

quarter. say be release then don't And could fourth the to the given eye read on press were but the just here thoughts me, the Okay. I that about charge-offs? question your I point here. Any the want X they Bryan, just elevated it my last caught that basis it you talked know, scared as charge-offs in but elevated I provisions, In release.

Bruce Lee

comment on that? to want you Nathan,

Nathan Jones

Yes.

a has customers in work for that. and of approach. the really word range. But at of it very the look cycle coming, what's over to and if account of the at with our maintained from continue elevated we thinking and I kind next been realize where certainly our do here. we know stay at looking to it more conservative going is And We've As don't a elevate to being in probably really term it's been. perspective has just looking year that right We're the probably just used allowance

I Bryan around the at $XX guidance earlier gave really was think million.

you'd this next as from as like that quarter Bryan, as there color anything you as add as as elevated appropriate it seeing far it's range. last far think think I I additional again to there gave guidance? as what So probably far is year, look to

Bryan McKeag

Yes.

I think I the Terry, probably real is basis XX year, had but it choppy. points this what full was year say, think we for would I

range our if to that hopefully, correctly some better -- how reserving our And got done of in done I for up going to happening. components continue will again. pop have but we've we've be it there. I we that reserved and economic CECL, think up the under have been lot already lot see see a if already choppiness. of picking we've been think We've as downgrades into those could it you you're A that though

up we've end So we charge-offs, in increasing reserve if the been go. do those as

elevated. So we some could see

this wouldn't to yet I pandemic we're point the had say out X given hard the that of quarter. think only they it's basis go we not and that up last

Bruce Lee

to from And, in Clearly, basis range. point we're that maybe Terry, be we it, sort fourth in to it's you basis probably levels, to forward quarter. for had how was specific going lot points very pleased I the be XX elevated the from it's frame XX elevated point that But and historical to outstanding we guidance. X going going think levels of with would a XX the if basis give historical closer year to

Terry McEvoy

appreciate Thank you. I Great. that.

Bryan McKeag

Terry, I for key already there, it. think that provided we've the is

So net in not have for even It's providing that we're it. historic bit reserves. elevated already have we levels, to the over to be though are charge-offs the going a

Terry McEvoy

Thanks.

Operator

Instructions]. Thank you. [Operator

We have DelMonte from a question KBW. Damon of

open. is Your line

Damon DelMonte

announced do Hi. feel But A in the days. could questions Good XXXX? been broadly two one has for to here you deals potential on reasonable everybody's outlook maybe doing targets expect maybe Hope been it just the M&A, that answered. have afternoon, with these of And is well be lot dialogue increasing? my asked and like guys. or speaking

Bruce Lee

conversion, to would have expect quarter announcement the you Aim I XXXX. probably is which be we might announced mid two would else two going then maybe would probably February, could we'd that of announcements, quarter. that but Damon, out in push the anything we'd have place take -- into third and next the think Yes, only the first deals converted We

projects Tier Tier get we to number We a that of X need X, have done.

So I and now. may prospects right would maybe still expect additional group only two we're a conversions about one, hear announced. but of this year. another working with conversion There’s that The pretty opportunity you AimBank active one

you get opportunities that active are we're there you're working them never to if going now. some But not. know So, on or right

acquisition we advanced thought some year, the the would first have in of advancing this year now. second of them And around coming and time. half of be in maybe it very into One half nice seems be this to

Damon DelMonte

more Got others? it. opportunities better to footprint these with one the present days than is focus, of And area respect and attractive geographic

Bruce Lee

well dominance of have give But as past, focused They are us I've our Well, markets the provide and more we're market transactions. in as the all markets. relationships we new in-market as greater actually markets across really in. we in said on they synergies

that and working talking So one right would two or on I the we're the other other one be West. about Midwest was is now out

Damon DelMonte

very Great. Very helpful. Thank much. you

Operator

further Thank no Mr. will [Operator at showing the Instructions]. turn I’m back this call over I closing you. his to Lee for questions remarks. time.

Bruce Lee

margin year. deposit range for interest Thank is in the previous In sheet thanks Hartland It with XXXX begin X.X pricing. closing, strong billion you, Valerie. balance our is the a well disciplined Net grew momentum. growth. We positioned X.X% has to in that

deliver our is profile to We've services. credit consistently stable. and costs products credit lowered Our our

Compass. Customer benefits ongoing expect from We Operation

our We continue and in technology customer to the processes enhance experience. to invest improve

in that leaders commercial growth four will invest at continue new of talent member to drive recently banks. We our and added

will generate mid XX. below an ratio digit in efficiency loan single maintain We growth organic XXXX. We’ll

active second closed two XX.X to a and of of deep of moving forward income relationships XXXX. We're net have prospects customer a December. draw acquisitions attractive We the expect we M&A continue in revenue the And we million pipeline of in XXXX We with additional number in opportunities. anticipate from from PPP.

joining We for we us are we're more you stronger, Heartland. nimble together, Thank and are today.

Monday, great for a Our next Have quarterly conference evening. XX. call is April scheduled

Operator

Thank today's participating. gentlemen, does and for this conference. Ladies you conclude

disconnect. Have a day. great You now may

Heartland Financial USA (HTLF) 26 Jan 212020 Q4 Earnings call transcript