HTLF - Earnings call transcript Q1 2021 | Heartland Financial USA, Inc.

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Operator

Greetings, and welcome to the HTLF First Quarter 2021 Conference Call. This afternoon, HTLF distributed its first quarter press release, and hopefully, you 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 HTLF’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 and must out projected. predictions and future forward-looking statements guidelines, of that the Company’s actual I presentation statements, differ those during the the concerning these materially results hopes, of any As point made beliefs, from could expectations are

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

Lynn Fuller

and for first good brand, our under everyone. today as the afternoon, conference HTLF’s we everyone us Welcome XXXX. new earnings XXXX first joining the you, discuss Thank quarter performance Elaine, of quarter call HTLF. appreciate We to Company’s

For CFO joining EVP who Jones, will color our Heartland’s for results. then over available additional then to business Also be will and the and McKeag, call and Chief HTLF’s credit. regarding us on around turn Bruce Nathan the the is quarter. to the Officer, highlights performance, I’ll today few and who will I’ll CEO, Bryan provide Lee, cover next President EVP touch Credit answer minutes, questions

net million, at was to a to you record $XX.X quarter highlights. available our as start off financial shareholders will first Heartland’s for in quarter XXXX. a to compared the common $X $XX.X dividend And XXXX. income of after and the for of $XX for new we on million set million preferred see, great income Now, million, to net We first are

$X.XX greater. the was the our or XX.XX% will was their XX.X%, average or and increase. in to of credit $XX.X Bryan and net comments. metrics year, on on in efficiency our of equivalent Annualized for a increase. respectively. quarter XX.XX%, share, average at return value common quarter the $X.XX, common $XX.XX X.XX% and per share common respectively. of average increase Diluted XXX% tangible compared continued X% The improve. with assets $X.XX a an last and goal an ending was Annualized interest Bruce basis XXX% or increase equity value X.XX%, quarter, per and equity, tax detail for to line ratio and million, fully share to was of first that’s our margin increase $XX.XX, Now, of Book tangible book return continued share common more and on

Now, that’s both a year ago. for from a X% increase

First were now Bank assets Mexico seven and largest subsidiary. of to nearly AimBank in ever, transaction we on West merged had which On AimBank the bank, Heartland’s was into and Trust transferred Bank February, M&A conversion, Texas, Heartland’s a the Subsequent largest New Heartland’s totaling successful systems virtual front, billion. our branches the Texas-based acquisition Trust to with conversion very Lubbock, in is subsidiary $X

footprint, XX As where state the in toward in operate. our I’ve exceeding in expand goal X we our priority to our Currently, achieving assets have each billion current and said of past, in $X billion. been $X assets our has of work banks

also sales footprint as year. on growth of Board at our model XX, explore on we process. acquired shareholders anticipate Also, May a deep as record preferred as XXXX such, dividend, currently active XXXX. a The and May experienced very to XX, And continue pipeline continue be share XXXX, acquisition similar opportunities with dividend shareholders Well, of record XXth, meeting, a have M&A payable on in process, $XXX, month’s July this part to Board we of number June strategy. to approved payable Heartland’s rationalization of of our last a common Directors $X.XX of of approved to to We XX, opportunities across branch our XXXX. part of per to branch what I

annual for p.m. May and at stockholder be XX, again scheduled will X our is XXXX. Now, that’s held meeting it Time, And virtually. once Central

want our highly their them valued for and service directors, their for to years dedicated with two Board. that of adding to continue publicly We add long-term both while I Falb will Mike support. lose year, to unique to skills thank same of report talents, and and guidance, independent the diversity Mark McCoy. this of our sad and we directors time at I’m counsel

report Now, that Chris adding Kathryn pleased Graves Directors, independent new I’m two and to Hylen. be said, that will we Unger,

Lee, Board joined the will will provide Class CEO, HTLF’s, Marty the You annual XXXX. myself. to Schmitz, an Chris and as for standing at that may over operating Bruce credit. this along be Directors who prior Both and turn the year’s meeting, Company’s One Bruce? just performance to call now year-end President overview and recall with Murphy, of stockholder Susan I’ll election

Bruce Lee

quarter Thank proud our Welcome HTLF. earnings Good first everyone. to you, new introduce I’m afternoon, branding, you call. to Lynn. to our

the HTLF, symbol. our as You’re stock letters ticker with familiar

Now, are those continued of brand letters same We four and refreshed our today. our to name we growth branding are better Company. our the reflect who

as diverse are and regions. southwest our model now are and what Growth, what footprint Insight, west to of XX% to we customers, Strength, bring our and unique our our shareholders, over in brings business assets the tagline, Our

excited the scale employees, investors. customers efficiency are any the The about been at and It’s and has strength. banks with HTLF positions powered by banking response how our And to brand with HTLF Our community level. to us compete technology, excellent. we’re

We quarter. the Bryan discuss to XXXX. very assets build in our earnings Total will had Financial to million delivered increase $X.XX which off share, year. his Officer, of further Chief We we a $XX.X in per clean billion, start comments. $XXX will outlook throughout excellent grew our first upon the an We’re an quarter. McKeag, in

XX% year ago year from Pre-provision and a ago. an $XX.X from XX% net from revenue or increase a record a X% quarter. billion $X.X the up are was Assets linked of million,

Our basis points lower XX.XX%, efficiency ratio was ago. a year XXX than

the and million, experience from quarterly differentiate results strategically growth. increase income enriching Our billion, And from drive XX% XX% quarter. XXX% $XX.X an quarter. and Total XX% for during We’ve was ago net quarter of year bearing record investing $XX.X to a increase of strong non-time $XX.X customer non-interest ability We from increase to linked the or deposits in in are growth billion, balances. a deposit delivered of the maintained and of billion The our XX% in another efficiency, continues totaled growth $XXX a mix. increase while our us. were accounts exceptional deposits delivered a ago. quarter year linked Non-time the or million commercial. deposits primarily X% and an $X.X million account $XXX from of solid deposit

and pricing, from Our X total quarter the of linked costs from basis ago. decrease basis deposit disciplined a to deposit XX reduced a year points points points quarter, basis the XX for

Turning the to than quarter. X% increased less from loans, including PPP, $XX total linked loans million,

loans to linked was were million excluding which PPP, as quarter, $XXX decreased breaks consumer $XX down continues PPP, Agriculture the by or million quarter. affected down million down million. This X%. utilization, decreased the $XX line quarter. from loan Commercial and million seasonally, decreased C&I follows: million down in linked decreased from $XX be Excluding total residential the $XX mortgage was $XX Total commercial,

agricultural next $XXX and The We distribution growth our leading deliver of are manufacturing, quarter. banks loan sectors with and to commercial in million Colorado, the strength expect in Arizona, Iowa. excess way California, wholesale, at healthcare and

in certain competitive disruption talent commercial and taking team adding markets. to our of advantage strategically We’re

We’re loan building momentum and strong considerably our grown new in pipeline. and consumer products have a pipeline six last the introduced has We’ve months.

We and road with optimistic I’m million in been encouraged. and expect and to bankers, ahead half the strong loan of in $XX second growth I’ve the in Commercial clients deliver quarter. on back looking clients to consumer second the growth meeting the are year.

during and raw Rising skilled headwinds. and HTLF impact costs, retaining helped small critical again, our some themes material provide $XXX obtain recovery second common hiring economic disruption, experiencing to of draw in still is growth. a they’re loans, another the of lifeline businesses could helped have X,XXX supply are Once that totaling speed teams proud our labor and PPP. chain million, community. However, the

program. through Local supporting businesses to In Buy small PPPX, addition we’re our

at generate to Our them we growth interest banks funded more have make loans than business and of up Local In are to for important help needed months Buy purchases X,XXX X% XX $X,XXX loans offering within million. XXXX, consumer our communities. $X.X

Turning credit to key metrics.

outlook. stable see credit quality to and continue We cautiously the about optimistic remain overall

more reserves this We quarters, there clarity quarter. about release not consistent with are until we any economy. and is did the pandemic Therefore, the qualitative maintaining economic factors, previous

X basis to of points a Non-performing of year compared delinquency primarily to loans quarter, loans Non-pass-rated linked loans million XX XX decreased loans, and from the from Our the ratio XX to XX year basis while from quarter nonperforming total linked a basis X%. at than loans points in XX.X% linked assets points in XX the ago. a XX X year in points decreased increase by decrease the ago. percentage first lower from of points The total assets due a the watch $XX points of but basis of to substandard increased significantly as points basis increase basis a basis decreased XX.X% to quarter, for basis end quarter, a slight ago. points represented an

of basis points average year and Lastly, points quarter basis basis XX million loan, ago. a net from from linked than significantly points X X slight loan charge-offs for $X.X the a increase quarter were or of the lower

Operation strategic in our invest to continue We growth multiyear our initiative. Compass, Customer through

will enhance customer enhancements, scheduling, chat document this Later successfully and systems customers. will self converted for We’re implementing applications, commercial developing digital service service consumer and service to delivering technology expanded and appointment we year, online including live our provide In tools, we option. products management AimBank. that we February, the banking begin

AimBank customer has seven Commercial expected. Mexico Heartland’s New than to-date. branches and acquisition and completing consumer stronger transferred also been largest We Trust, Bank in retention

performance pleased the combined first the in entity the of We’re operating with quarter.

have markets strategic products in and scale, growth brought customers. Our acquired new to added talent provided services acquisitions and

consolidated with active a six branches and quarter, were were have continue acquired number attractive We In legacy of branch a recently AimBank deep locations, pipeline opportunities. to three first the branches. of prospects we nine

to rationalize to efficiently our footprint safety top more our serve customers employees continues our and be and The branch to customers. continue of We our priority. health

corporate the the branches country, expanded encouraged level of of are face, customers gradual opening our from and We states by to providing full we’re we’re customers options office more to high restrictions. within HTLF meeting are our a to May. face more expect the our more loosened deliver Across in of service. begin for footprint banks. rollout employees Bankers will vaccines, have the and service return

how connect As to year. a past over in the company, learned we’ve many ways

adapt to to optimistic together to details I turn continue and return their communities communities. Officer local serving we’ll employees, ability be our grateful emerge and stronger person,, pandemic. strengthened even and we’re commitment for to our serve We’ll HTLF’s to I’ll we to financials. over be that call more their in customer adapt has to before. by continue dedication and I’m hard working McKeag, and our customers and Financial well-positioned As our Company. from impressed Bryan But, to now for their our the as than conditions. Chief they performance the on work

Bryan McKeag

Thanks, acquisition million which everyone. in Bruce, of after to quarter share integration and item at begin per $X.X reported was I’ll per share, good the AimBank quarter. related which with system’s of The today $X.XX this costs February. conversion tax, only $X.XX afternoon, earnings significant was integration or and this

core results quarter, again, So, our strong. were this

I my website. presentation the remind comments, is Before first our available would section I investor updated IR go quarter that our in to everybody of like in detailed

for the So, reflects provision this comments the with my losses, I’ll benefit quarter, following credit detailed totaled start $XXX,XXX and to components. which today

Second, to loan continue First, economic to declined small $XXX consensus show moderate total some downgrades Third, loan that excluding balances PPP, in have improvement. in some result increase million; reserves; a we the continue forecast

million economic and net of that were last, quarter loans. used to charge-offs $X.X at points our outlook X allowance reflecting a the level and under this left However, economic develop the average total still again just low were of factors basis uncertainty; or assessment significant components -- unchanged, the is there

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

loan excluding purchase on XX In basis had we loans, $XX.X million the valuations at PPP. quarter balance end, unamortized addition, of totaling or points sheet total

assets sheet. comprised $XX Investments to the Tier the years and regulatory retained tax under with strong Heartland’s the Common the XX% capital monthly ratios ratio just just XX risk-based at of Borrowings or XX rest and declines of million value remained from million equivalent and Tangible duration of ratio under this X.XX%, decrease assets. the Ratio basis quarter basis partially points million the points balance quarter total market cash from six $XXX increase equity of million ratio earnings. million XX Equity a XX.X%. decreased quarter-end. -- $XX of to just yield XX of of XX.X% to due grew basis-point offset Equity $XXX also a at Moving flow. $XXX Common at investments balance common the and generate over points average to X at sheet X.XX% of declined ratio to in by X.XX% or a end basis larger were with

balance be the strong and well-positioned. to So, continues very sheet

Moving reduced quarter forgiveness reduction $X just to than basis-point as interest margin tax recognized remaining million this down on totaled on basis basis X.XX%, Net net basis-point quarter, fees amortization, decline to higher margin $XX loan our X net interest quarter. which basis-point decrease was points yields income compared impacted exited decrease fees the X yields was X We X or the quarter $X.X a prior by was margin books. unamortized with offset in partially The basis investment in points costs. income compared also the by a $XXX.X a million and PPP quarter. of interest the the loan million statement. this equivalent to last by drop The quarter in for million XX a in PPP loan under and in last interest

is This the all XX flat, and interest compared points X for $X Noninterest up last quarter, net were mortgage points security from $XX.X quarter, totaled banking includes combined quarter. as which the basis $X.X down to margin of income million gains quarter, from purchase of quarter. million basis income the last accounting accretion, prior decreased million components

quarter, quarter, In $XXX.X to primarily service full acquisitions. addition, were $X $X.X charges new expense. well-managed, million. run totaling this million a million for Shifting remain reflecting our from noninterest higher the up rate quarter Expenses

gains million costs credit last a integration, to as acquisition, noncore Excluding costs, full tax quarter our to $XX.X losses, our restructuring core and compared rate $XX.X run $X.X expenses asset quarter. well million new acquisitions. increased as and from reflects million This of increase

to leading the So, our new by, to improving believe an strengthen. growth grow below deferred to as the the next and expected quarter rate, deliver loan PPP forgiveness fees next the ahead ended continue pipelines, is the quarter we likely we at look HTLF will XXXX, to XXXX loan results of in first, but $XXX of ex strong the to round to Remaining rates in range improving PPP expected over million. highlighted continues X% quarters, X.X% rest growth round half largely back two of economy which happen net to the is million $XXX stay will as of X with PPP,

will non-time flatten is runoff of the and Net continue and Our to could some modest interest the deposit margin some see in then show year. modest even growth next be pressure. half back expected quarter to

quarter expected QX million normal are to the rate, to TCE and get to thereafter. is then X.X% from and Core for or range assuming the expected decline to increase grow back forward. stabilized. return to rate $XX over next expected and QX points about low quarter back Noninterest to However, Provision increase be net more XX% negative $XXX X% tax increase interest by losses remain or to are levels picks in investment law is levels income the could two, and per and credit X% a expected as believe retained flatten to quarter growth And going is in QX losses basis year excluding has the million income, million, into by total reasonable year-end the we above quarter. in $XXX range about gains as economy then loan fourth up the ratio full somewhat into expenses We to quarter. lastly, run XX the $XXX per changes. climb expect settle million a we tax in then slightly to no earnings just X.XX% next

on to the over with could for rates that, continue long-term questions. I’ll And higher to weigh turn ratio. call the Bruce However, back

Bruce Lee

the open if line questions to from up could Elaine, you analysts?

Operator

of question Jeff comes Davidson. our the from from first Instructions] Rulis line And [Operator D.A.

Jeff Rulis

Good afternoon. Thank you.

So, guess, expense the on side. Bryan, there, a I lot to impact

a continued So, on year? that’s for back. -- just the what in take -- but completed horizon more the rationalization expectation step this I’ll recently, there -- is maybe The you branch some

Bryan McKeag

I two I talked lot more. not numbers the think there that’s might or about, be one a but built into

continuing We’re at those. look to

So, I those yet. haven’t in put

Bruce Lee

Yes.

So is this Bruce. Jeff,

couple our And that last of the been of occurred branches review. quarters, vast of XX% last sort indicated have we’ve of quarter. about majority those changes So, under the

branch would going be benefit Bryan would still at. a benefit, I to it’s really echo get closures. going said. but it’s reductions we’re what from material going looking some any just not handful There’s But, I cost So, probably forward that we’re to -- say, associated a with

Jeff Rulis

Okay.

away, So, that -- a what have kind go XXX. that us, assume, you to the gets costs if would I with conversion and I of merger the lot right we behind and of

if a rather savings see expense from equation more net decline. it’s efficiency So, I there, I suppose a mean, improvement, than revenue of cost we more it’s --

Bryan McKeag

Yes.

just only of -- you’ve up. up There things first efficiencies in this might quarter. full that Aim think salary then, after I the bit increases the our the little got some as of kind I little quarter, after you’d flat. up conversion. cleaned are we’ve got Like relatively go get that because a a expenses a will said, that we they And come quarter hold in bit

all pretty then flat down going those close and kind net settle forward. So, it maybe things should to uptick, really of slight and be to

Jeff Rulis

Okay. And -- maybe the to then, confirm X.XX relative that one margin. figure adjustments? PPP excludes last have you is Do accounting to core and the with just a the

Bryan McKeag

Yes.

around or basis take, I think, a X.XX, it’s point. give

Jeff Rulis

Okay. And fourth quarter? how match with the does that

Bryan McKeag

points. we there basis were down -- that’s points. think, down I I X We about X basis is down were get

the You way had X so, and a Positive X, that negative to X I’m sorry, right -- it. gets X around around negative from a other X but positive PPP, it basis-point you range.

Jeff Rulis

compression. it. Core Got

step I’ll you. Thank back. Okay.

Bruce Lee

Jeff. Thanks,

Operator

And your Terry next question McEvoy from comes Stephens. from

Terry McEvoy

Bryan, maybe net The the just second does second want quarter? just a the I incorporate appreciate sure quick the as the for and I PPP, interest quarter all commentary. your out correctly for either or there. income question forward-looking how quarter, outlook understand to I into guide you, that make first

Bryan McKeag

just put quarter. I say, quarter. this at a would little the really peak of of And really, bit end since first the I Yes. it down forgiveness was down additional slowed

flat bit, same. purchase that think just amortization of accounting, number the up to little P&A, could the be kind left I a

about the use it’s probably talked to the balance off We is do increase And use sheet of what investment loan the cash kind securities won’t really, to and flow So, the we would growth mix. just grow probably that that Bruce about. that.

So, the day we next and that’ll NIM, an also quarter. help extra get

and between in, it X% when that, X.X% somewhere get put I to all you increase. So,

Bruce Lee

was said, around it As PPP. Bryan

as we We’re in of much see the as working in were quarter. we first the the didn’t see originations quarter to on because going second PPPX a pickup

Terry McEvoy

remarks, discussed? to what integration be your a of build like in I you, need to the question. preference just would -- a are take you the larger really larger as similar of in Thanks for did ‘XX. anything Bruce. with and and the experience an amount you your know deal, acquire market sounds gives transaction, one scale or to you’d order would open that And Aim the your And preference to then, prepared love you M&A you in after assets ‘XX that, it In be

Lynn Fuller

Western never are addressed all in case, a larger equal, being a the obviously, we but would which that transaction. the take that would pipe equal, past. market assuming Midwest in is We Yes. versus all have And always transaction favor things Terry, I’ve smaller this things in market. in And that be an markets. the versus current always acquisition new our both are our markets and would the active we in deals a

see being of lot we an deals. XX in states, awful So,

And returns. so, sure to is make accretive give the just now the balancing most we’ve that acquisitions best that got the us

Operator

the And Sandler. Liesch Andrew from from is next Piper question

Andrew Liesch

securities securities flows book ongoing increased funds last Just it cash do should more decline you use you it’s peak as to fund like other build it, you well credit we should as several the off And the it of here? loan book? think the sounds growth. how to add going want look from the quarters. the size I and But, at Are cash has reached mean or a in to and to

Bryan McKeag

deposits Really we’d perfect depends on bit like and the Andrew. as much even scenario. can we little be inflows that loans. that probably shift from But, investments that -- keep size, to the our That would asset would and if generate down to I be down, anything, say, about can we of sort loans, as the would a maybe slow the

go start XX% to right wanting the all. to rates would for wait at up that It’s grow it’s thing we think of before I assets. portfolio that

us. pretty big it’s for So,

we’d and XX%. that think love XX% to I XX% normal be between -- more times, like

So, a if to go we’ve can. ways down that got of we kind hold to

Andrew Liesch

I’m in were then, the what were like, quarter the curious And just curious it. that first Just purchasing? yields were. Got you added securities with being

Bryan McKeag

Yes.

lower to probably agency the paper, side on stay of I duration. trying of in -- think we’ve been terms doing

about, but points excited basis couple zero, better so. mid-Xs just So, get something we’re it’s talking of low in sitting or Not to cash, to a probably. than too

Operator

from And DelMonte the last KBW. question comes from Damon

Damon DelMonte

questions asked just up have follow but wanted been and So, the to margin. most on answered, of my

somewhere with like yield, think the around Bryan, I basis accretable $X So, points that’s of XX or million. so

least three million we for in the or at So, per two quarters? going quarter forward next be $X should like modeling

Bryan McKeag

how plus that basis -- It’s really I surprised to which depends number, project. minus loans few a get -- don’t would I that. on hard really by goes I it think points. It always and Yes, or way

I of I be consistent Damon. So, think kind do, would would what

Damon DelMonte

And of kind right, that Is little core margin is couple just for bit next you then, trend what Okay. still before? directionally, expected quarters. said lower, a the the to of

Bryan McKeag

a on say, to that bit. I loan could really lot put loans, it Like flat. or it on the hold any we more the if depends I it basis how we happen down If think of should that, growth. do more liquidity think a can can’t well think that Yes. can down X the Went we we it I into replace would to some it loan but flatter. try doesn’t points. get be would investments, come pretty wouldn’t If can we down than I go get

Damon DelMonte

Are loan on Bruce, you give with deals the at that progressing the things and on of and giving these Is looking confidence? comfortable you hitting like what’s to loan you closing how of expected feeling that your like of then, the that And you some bit kind growth. be and are kind you’re commentary pretty expectations? and more commercial imminently? of ag pipelines just Can expect a some little steadily color books,

Bruce Lee

lot a commercial at confidence growth of quarter, numbers, today, you ag that’s I as Damon, -- growth, what well. we should XXX it. me and look look a of the as dates the basically and way we’re exactly in through closing has you well the of already closed as the Yes. mean, have consumer some When at gives third and

Operator

Thank you.

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

Bruce Lee

of record delivered quarter. record quarter. XXXX for converted completing total In a deposits, revenue low well-positioned grew pre-provision us our remainder excellent to total billion; a $XX.X and a in million; first has beyond. record, billion; and And closing, of another million; momentum, for we’re also joining HTLF ratio to-date. the had an continued net everyone assets growth for systems AimBank, was Elaine. like income you, $XX.X Thank efficiency today. was for XX.XX, the our thank net HTLF We quarterly $XX.X acquisition largest record, and I’d successfully to $XX.X we

in good Our earnings late Have next July. will a call quarterly be evening.

Operator

This concludes today’s call. conference

disconnect. may You now

Heartland Financial USA (HTLF) 26 Apr 212021 Q1 Earnings call transcript