Earnings call transcript Q2 2023

Due to licensing restrictions, you must log in to view earnings call transcripts.

Operator

Greetings, and welcome to HTLF's 2023 Second Quarter Conference Call. This afternoon, HTLF announced its second quarter financial results, and hopefully, you've had a chance to review the earnings release that is available on HTLF's website @htlf.com. With us today from management are Bruce Lee, President and CEO; Bryan McKeag, Chief Financial Officer; and Nathan Jones, Chief Credit Officer. Management will provide a summary of the quarter, and then we will open the call to your questions.

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

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

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

to Lee. Mr. Please will Bruce HTLF I call now CEO. Mr. the President go over ahead, turn and Lee,

Bruce Lee

Thank afternoon, to Lee, XXXX us Call. Good into discuss you, and Second President second heading you momentum we appreciate the Conference year. Bruce Abigail. our half is This everyone. and the solid Earnings CEO. joining HTLF's Welcome as I performance today Quarter of

I'll the who Credit more for joining financials. stable portfolios. few credit highlights over us HTLF's quality Nathan call the across today our next and quarter Chief questions turn on Bryan the McKeag, Officer, Financial for to is Also can the our answer performance For minutes, regarding Chief then details Officer, discuss Jones,

$XXX also cash a $X.XXXX of payable a per August quarterly the on XX, Board approved payable XXXX. a October company's $X.XX of Series for on XXXX. stock, of preferred which The HTLF results The share Board common per of Directors stock dividend E dividend dividend XX, on approved in depository share,

stable base us strong loan despite quarter. recent relationships. HTLF This XX and strategies growth second than into and challenges. and growth And years, and second momentum HTLF's the executing increased of the diverse heading dividend delivered strategies has customer give strength reflects in continue our geography half the quarter, or common and each In more We performance. For to our our our us confidence strategies and maintained stock new deposit enabled year. strength our stability industry

were items: a incident a available a single overdraft, numbers to related million negatively These offset pretax charge-off purchased $X.X EPS sale was account items two to net the this high an common result and by $X.X SBA Services. the $X.XX. our processed of retirement These July of $XX.X income to gain previously were and of Together, during component quarter, fraud write-offs and as of Business these partially that by related from We were by level of million EPS administration and quarter. of payoffs loan transfer they the impacted impacting an For million the to recordkeeping business a $X.XX. of million decreased $X.X premium by of view stockholders services unusually the quarter. customer; the $X.X disclosed notable income million, long-time the

HTLF income. are net linked $X.X and strategies results. X,XXX or new X,XXX $XXX the new the ag consumer points million, net accounts. and and million customers, commercial an loans new significantly delivered and of Visa growth annual newly basis From or grew million second added loan million increased delivering or originated loan markets added XX $X.X $X.X including and yields charges solid increased XX%. growth loans. Service In fee and we XX%, increased increased quarter, incentive accounts Our capital fees quarter, than X%, fees on Commercial more

were expenses Customer deposits million were increase $X.X flat including in spending. and advertising slightly elevated, a

of more balance strengthen with our than a million to billion outstanding. continue less than increased by sheet $X.X and $X total We to borrowing million $XXX capacity

ratios. exceeded more including all as go capital Bryan well-capitalized June details. into Our will of regulatory losses all and ratios, gains unrealized XX,

deposits. with start HTLF's banks a base. diverse have and Let's granular deposit

billion, industry the and deposits total concentration diversified portfolios. XX% and customer are are the from deposits were insured also at were flat total Total industry no of XX% our result linked collateralized. diversification, from a by of Overall, the quarter with for $XX.X across our quarter. or flat strategic geography As than deposits higher balances customer both linked our quarter

mix, we transition deposit a While interest-bearing maintain to XX%, accounts reflects to which customer favorable accounts. demand decreased XX% the ongoing from

a customer customer the drove offerings have product enhanced in our outreach commercial and and consumer commercial. The that positive second also deposit accounts business spend small and commercial campaign first deposit and opened, campaign quarter. resulting marketing new launched deposit launched With continued July. We've late quarter, in the in with campaign in continued we've balances trends in additional increased contact

loans, or portfolios. increased owner-occupied X%; X%; second industrial construction decreased $XX $XX commercial X%; estate ag million quarter, or across and $XXX loan the real $XX or we million our in portfolio or estate increased $XX saw increased real continued million increased X%. our or million quarter, the to and million Turning From commercial strength linked non-owner-occupied X%;

owner-occupied across Southwest. In production with and line and in guidance. our an regions, and ag the $XXX million, total, the grew linked West our with in of X% real of delivered We commercial and all estate. from particular loans Mountain quarter and loan strength loan production commercial increase was of industrial West, XX%

quarter, funded an and scores, million and than in structures, deposits. XX% the new On of measured new rate and XX% $XXX loans commercial average, new from quarter. loans the overall of portfolio these credit we as XXX by credit variable risk representing added than first were have $XX In the second quality originations relationships, more increase ratings million higher in

$X at across owner-occupied and Loans and commercial Our distributed estate. over pipeline are commercial industrial billion, regions. real remains XX% all with in strong

increased portfolio linked quarter, X% X%. Our loan the consumer while from $XX decreased million or mortgage residential or $XX million

the to to fund deposit $XXX customer growth. growth loan of through substantially which third quarter, We expect we expect million in million total $XXX

credit quarters. a remains metrics, quality remained slightly Delinquency credit excluding low charge-offs Non-performing basis our been to our X.X% approach Non-pass-rated our have pressure XX million, loans at office portfolio. credit exposure market office applying assets We increased country. were estate linked $X delivering in stable across previously net quarter our from key most overdraft, portfolios. disciplined Market flat points. of And the ratio percentage to conditions been assets is remaining additional commercial had total million real is Turning basis on at feel $X.X of that total points. the XX disclosed the the good X.X%. which as previously prior of across the reserved

targeted to credit reviews our place reviews million. emphasis recently continue office We and $X portfolios on over each of conducted in-depth of

believe well We and granular situated of generally our business districts. portfolio is constructed, central outside

portfolio opportunities management surveillance enhance underwriting. new refine We how screen continue we and to our for ongoing and

For investor deck. office more XX please Page on see the CRE exposure, our in

growth, our expect XX relationships, beginning driving finish can stable schedule. the budget HTLF the today, of We've is X fourth executing Bank to our in growth. consolidation XXXX, to loan charters strategies and consolidate drive consolidated we increased strong credit external continues internal efficiency. on on income, new demonstrating successfully started banks customers, early at charter new efficiency greater delivering and deposit we we're We and quarter. fee and while of long-term delivering quality,

We technology recordkeeping through was retained management in July support and stronger The as firms also enhances Services. Plan are July's customer services and partnership the transaction quarter. business. Both Services the transitioned oversight Business participant HTLF experience. offered investment and second in were with Retirement business together to recordkeeping education enhanced the the completed, products by and administration sold our services and July business our services

in nationally. report card credit strategies top row. year the Nielsen ranked U.S. issuers HTLF Our commercial the among accomplishments and locally recognized eighth continue for and a to be

of as demonstrate in volume commercial commercial XX% as the continue strength one credit We a annual fastest-growing $X space purchase year, issuers. payments volume be continue to a consistent commercial HTLF in XXXX. purchase increase in billion Last the saw Visa issuer, in we card surpassed card and growth HTLF to

HTLF each challenging and consistently serving during deliver year shareholders strength, insight Together, our employees' growth we times. HTLF. good through earns each are communities, other. and to this our dedication and commitment recognition and We customers,

Financial our more the to turn Bryan performance financials. Chief for on McKeag, over now and I'll Officer, call details

Bryan McKeag

afternoon. Thanks, Bruce, good and

Bruce to challenging reporting forward more a albeit of loan $XXX move million share costly earnings environment per deposit As and we over stable, $X.XX, continue this growth quarter, in base. of described, a

items his consolidation to addition Bruce of and $XXX,XXX this sale in restructuring on In mention loss million of of charter items the cost quarter: the two securities. mentioned comments, $X.X would other I the

earnings remind section quarter HTLF's presentation Before in IR of want our available that I investor the go are to both into more second detail, website. everyone and release I

I'll provision start losses, which last quarter. comments $X.X than higher for million the credit with $X.X my totaled million, or

of the the provision, consistent the anticipates that incorporates with overdraft quarter, last XX next related increased mentioned million customer and is the an this This impacted to over charge-offs which economic outlook $X.X developing $X.X directly provision. quarter, moderate million, Net recession quarter to previously months. a

credit lending-related losses At the $X of prior the Most and for million quarters loans previously allowance quarter, unfunded for of had remaining the losses, credit quarter. compared to the $XXX.X the not or and which reserved impact loans been of end provision. decreased allowance in last total million total includes commitments, both as for such, did to X.XX% on million X.X% $X

a Moving next the equivalent $X.X AFS the million quarter generate XX% to and billion, $XXX assets with billion loss already $XXX representing over declined approximately next flows this XX to on with loans balance with Bruce to -- so I'll tax almost million deposits, discussed a total sheet, investments. Investments of yield start with X.XX% and $XX $X.X months, portfolio million. by cash The of $XXX the nearly quarter. will unrealized million of worsened

fair million loan or value investments quarter to has of XX% the pay $XX utilized HTM $XXX portfolio million. investment unrecorded small $XXX Our from nearly mark cash borrowings. growth relatively and million down an negative portfolio We of flow this of of fund

quarter over quarter. of summarize -- with less in coming or $X.X and at securities borrowings $XXX declined we X.X% off sorry. million next Moving repos, borrowings, $X of have profile million our cash than our million the was million flow on total Fed reduction end, loans to next liquidity end. had advances quarter total total customer portfolio at outstanding we billion or $XXX to assets, XX $XX primarily The of To months

borrowings have and the We outstanding Fed of capacity $X.X low at FHLB. a billion of and level available

and Fed open available. several We and have lines sources broker that deposit remain borrowing fund

secured of granular collateralized. deposit base customer over balances diversified with or Our is and well XX% either

was ratio wholesale remains loan-to-deposit XX%, when XX%. it removing deposits, low Our at and

cash securities dividend current $XXX totaling $X.X stands annualized totaled billion, interest our million over X.Xx and have the cash We position unpledged or at and -- available payments. lastly, holding company and

relatively In addition, current EPS. of at rate payout is our dividend XX% low

at of a other decrease net basis increased of value investments The end. was to in swaps accumulated from in ratio remained offset resulting on at basis increase capital X.XX% regulatory X remain by Tier-X partially decline in risk-based income quarter fair points an ratios common XX%. market level our quarter, XX values or XX%. this comprehensive capital tangible AOCI. Adjusted common over capital, at equity for equity unrealized ratios investments, to and of regards just total nearly strong above XX.X% X.X% well-capitalized With and the approximately with The losses points

SBA three reduced on basis during income were by and this drivers margin, and time related level the Moving net to $X.X which a net with The five and was points. higher to which statement, nearly of lower by decreased $X.X this the of prior were income tax shift deposits quarter, basis basis to interest quarter, million net continued purchased processed of income $X.X reduced costing margin revenue, loan the net decrease by deposits and starting XX interest quarter, margin the deposit the a higher lower million received costing a interest that basis points balances totaled premium than X.XX%. $XXX.X equivalent million fell from to quarter main non-maturity write-offs points; interest payoffs million in interest NIM, much net

Non-interest the was quarter. quarter this up prior from million income $XX.X of million $X.X

quarter. $X.X was $X.X of this million core $XX to expenses, to Shifting losses, totaled quarter. $X.X million last to markets income from $XX up primarily expectation million, which security down non-interest our million fees driver $XXX.X this again Excluding were million. expenses exceeded Strong million a capital quarter. noninterest That's

to Excluding restructuring, than increased gains operating $XXX asset was costs the coming The recurring higher tax rate our and run million driven million. $XXX $X.X million, credit expenses forecasted in and increase due legal million million credit $X.X increase higher level costs higher of losses, $XXX.X notably to by professional compared last costs to increased consulting most activity for fees and deposit-related $X.X in an advertising a several million issues quarter. items, to and

and per ahead or $XXX deposit $XXX of HTLF to to million to or wholesale rest deposit loan to X% $XXX X% of of enable see customer bulk million, decrease the quarter. Achieving deposits. and of per million investment would growth expects XXXX, the be Looking flows to expectations million, growth available $XXX to quarter, cash loan growth these

conditions a tax projected from future Obviously, per rate run quality expected low and to provisions our $X in a mid-X.XXs to projections June decline The million than worse metrics Provisions impact basis. are net interest market recession quarter. if any develops credit moderate credit equivalent is could stabilize margin million significantly. losses in or near declines $X to range on the for to

that is and per million losses, expected are $XX to per income, $XXX to noninterest in operating excluding Core gains range expenses million quarter. is expected to to be investment quarter. $XX be million the $XXX Recurring million

Our range, $X.X million forecasted excluding credits be for to between the and reasonable believe is next tax finally, we charter million consolidation restructuring XX% X are quarters. quarter costs rate per run And to tax a new XX% $X rate. the a in

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

Bruce Lee

questions. ready I Abigail, Bryan. you, Thank think we're open up it to for

Operator

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

Jeff Rulis

deposit your Any total beta where terminal be that and the guess, I of a or beta peak that the on slide. thoughts kind timing just you on Just as Looks guys like level forecast? XX%. would of at the, under question slide,

Bruce Lee

in Yes, so been yes. you I'll far, at XX%. think, I we've jump Like Yes, this. about said,

up you customer If can move deposits, Jeff. the one XX%. really we That's it's manage, to

So I pretty well there. doing think we're

what at high quarter, this XXX%. it at look over last happened pretty you was If

least or So have had at really two, basis, this on last the the rate we, follow to cycle a given in competition. percentage increases,

our and hope to that next and more in if the Our And deposits. deposit our raise, in about that's would keep next move. get belief raise beta percent in the for range for normal cycle a is for XX-or-so probably is total one, this us another now we that or two XX% normally that customer and cycle total is to can XX% back which us there

competition. So I think on depends that's reasonable, but it really

Jeff Rulis

Okay.

capture along you of kind in bounced top that I you the coming that -- maybe side did that in, right? So Is think quarters. rein and of it

Bryan McKeag

Yes.

normal or next keep customer that for us to XX% move the deposits. beta slowing to, maybe beta or that two within So out down here whatever calculates in our should that but move

Jeff Rulis

sense leave Got it. then I'll just charter have to it about million consolidation. to -- think to annually. And maybe the amount of I just for And been a there. What date? saves get Okay. achieved in jump gears you've talked $XX I

far? Just what percent have so you got to

Bruce Lee

Bryan, do that one? take you want to

Bryan McKeag

Yes, yes.

of like that I that little hard. just I what's it's consolidation the as Expenses tend related a there's we move think hate to isolate in to -- a go use -- would be term out forward. bit, lot to it's to things and hard

at Our I fourth leverage, -- on get our per X.XX% X.XX% down goal, I core think XX, to our or and down were if we quarter, can Slide were the in the that asset. if cost think we you look close we

That's where shooting for. we're

can we're the And everything. to to today. we've we of across fourth way to got three bank, about when end I half it's think things I one So think, come at it, finally going and get one doing

So but in. little of a is to ways that a go, lot

Bruce Lee

think I right. was Jeff, So Bryan

is million $XX million go. million $XX between have to number's we $X of already and million the another and $X our to think in, I $XX million

Jeff Rulis

maybe Okay. expectations, couple end you kind the year And is expectation? and did, generally talked or achieved quarters. that the mean speaking, of Is by fully stops end, year? the with the that I expenses charter that of of about of kind aligns next Bryan costs that, for about

Bruce Lee

done Yes. the by of be end All year. will the the costs

Operator

David James. of Long line the from comes question next Our Instructions] [Operator with Raymond

David Long

you forward we about futures What maybe assumptions accurate X.XX% coming low type you hikes? -- may deposits goes to low the that the And -- from to you outlook? rate to have thinking the baked the what are that are Bryan, Is assumptions that with assuming where be then there? do NIM in you mid-X.XX% of done range. talked on do the in and going down mid-X.XX% XX%, Fed noninterest-bearing

Bryan McKeag

Yes.

environment of this I think only won't little on so -- to or It NIM a point two, flat lot, in bit at two is basis a XX this need deposits. a need keep it's might assumption And last basis just non-maturity this a can help. the we fairly move lot. or get we be we that might point a but that data

this hold quarter. income side, last stronger We to we the So both a than and did side we come need need our a deposits noninterest-bearing decent expense kind through little the to flat. relatively on of last then move job

If point only at down you percentage look of one they went customer mix. deposits, the

So in around know hopefully, we can any somewhere hold Bruce, don't that you that. around I have range. comments if thoughts -- other

Bruce Lee

Yes.

fund kind able think deposit growth about So being David, with to modeling, loan it's growth. we when our the of

As to plus can million. we we $XXX minus growth. think loan $XXX deposits million think mentioned, we grow We of or $XXX million

referenced, happens is include the XX% the all funding, down well. that as able Bryan by it's portfolio And XX%. the take flow you other us if our thing helps that wholesale of And $XXX it's then that take with million, out, wholesale as we're to But and you funding the if shift off the cash is when demand. funding wholesale investment pay

David Long

time Makes picture disruption more sense. HTLF, spent time on maybe And much offense would you offense versus March. were defense? but say after bigger from compare does is to how strategy how defense events of the separately, much the versus a that spending it. ago? a now how And year question, Got lot a of Within then then you there's on industry in focusing

Bruce Lee

we're ago, we now, on a right were probably And I'd say say I'd XX%. David. probably question, Great XX% offense. year

market just spending that. I almost doing And prospects. talent recruiting include on our the part very our recruiting. also well. lot still customers spending and time you We're the to offense, when and offensive, time we're would outreach of So active that is a about of think existing in of as all We're

Operator

Liesch comes question line the next of Our with Instructions] Sandler. Andrew from Piper [Operator

Andrew Liesch

on up follow here. to margin the wanted Just

asset million, $XXX the earning margin another there? reducing funding the the some mix margin estimates. maybe securities you're that by better Some also reduce also book and so of stability of benefit if this that helps earning just side, from helping Is

Bryan McKeag

yes. of part it, that's Yes,

Andrew Liesch

Do that's you probably... think

Bruce Lee

ahead, Go Andrew.

Andrew Liesch

I remain if $XXX consistent for was seems you're for few just going if rates, ultimately should When to next the it trend think Fed you stop quarters, out start next the plus an again? out? I year. eventual least the like where say the mean, million -- And have raising the it can then margin do going to that take at rising in you think the bottoms do in you that that

Bryan McKeag

deposits. That's can trading the we're what at, all hold out then an be what, CDs, but probably be off we if deposits, will can can the paying down, a it's if pay to And today the get Xs good pull should probably use deposits in, Again, and take on will we that and question. think, and going are to we our a to X% if that fund investments now average, costing mid-Xs. be it X%. loans in X% you're a bit blend that little upper down higher, and If taking we

could to parts. So all How more would happens? bit. And basis it but it's slide the the happen, deposit see could moving say, side. basis that of the that a but all a betas me, hold If be probably we Five a -- if hold deposits? is Can points, math, little so margin the lot happen. doing XX think lot can about parts I we of low go So whole moving to? of of that doesn't that's that points, I a to you'll without kind positive continue bit. NIM, we to can the need that

comes to anything don't if I that mind else Bruce, So question. there's this on know

Bruce Lee

able about do were mean, much us, fund all and we we're being on for up dollars, to able new we're the That's growth. basis opening we margin. deposits. the accounts, the the loans grow doing new and We're grow that and able all so why this offense. we're spending to our X,XXX have. what to those it's we playing that, entire advertising that's account to continue a actually seeing definitely with net I the That's relationships strategy combined Andrew, why in did Yes, over quarter

Andrew Liesch

Got it.

increase the fee of the service there? on the Just uptick customer new contribute accounts the charges. The side, income just to

Bryan McKeag

I is a would kind as The the of bump. say service probably Bruce they charges a uptick onetime yet, we will, the not on but where, Visa, lot Visa in commercial side. had especially the mentioned,

Bruce Lee

excluding But they almost grew $X that still EBIT million.

in charge So lot Andrew. our business, service there's a momentum of good

Operator

[Operator Terry McEvoy line Instructions] the Our with question from comes next Stephens. of

Terence McEvoy

last I the looked for has at is, and when I Maybe on annual you? opportunity you disruption guess question against And front? And overlap about markets. that a I that markets. question, an with worked from my meeting and of talked your the first March recruiting or presentation, was bank merger the think hiring maybe present then that could hiring you assisted market week, the in announced, you there's about lot how for

Bruce Lee

Yes.

that So one. take Terry, I'll

since So very as couple the of at and meeting both in been as annual in the one what's recruiting, a Denver meeting, successful of we've comments Arizona others. in, well annual the on in the -- markets going is been clearly also

last path, some that now, to acquisition will bank where disruption the the in activity I week, on overlap. clearly the the of of a some we the think think of over just push a And edge. people seen help we've lot lot we loyalty was There there. we're on one have the So that and

Terence McEvoy

And looking you're Any C&I and deemphasizing monitoring within and some flags, then a at are question yellow for you portfolio? the red Nathan. flags? areas What

Nathan Jones

a continues just feel couple the industry pretty if but continue of We that good there, It our launch, we're C&I looking might potential the about one-offs I'd Yes. downturn. probably on had ones acceptable perform. to portfolio to We've to really be say most a we focusing especially. really, at

are focus probably the providers now. firms type So getting other contractors, construction-based and service most

Operator

next Our KBW. DelMonte question comes with the of line from Instructions] Damon [Operator

Damon DelMonte

what coming topic, your for few a real up estate over lot next credit up the have So to follow maturity just like of kind for looks schedule Do just loans on renewal? quarters. commercial the wondering you

Nathan Jones

a positives really. do It's very schedule. have of for maturity We us. really elongated not real one the No,

have you of see even can Investor next XX% say which about highlight the years. CRE, is we general over that there. to mature X.X I'd our But from our going portfolio, in CRE Day, think portfolio the I

majority it vast five The out around four the is much of further range. little. very in years, out, So to

Damon DelMonte

it. Got

anticipate saw does with this the come guide, Or should Okay. kind during Bryan, quarters? That's to elevated the couple regard expense helpful. that quarter? advertising expense And staying back of we then, the like next of we in

Bryan McKeag

it Probably stay where maybe I'd where little lower, it say to going bit a about was, is. but about

Bruce Lee

I is the this probably quarter. quarter, At our it will reduce third say been least to for where begin history. Damon, remain Bruce. fourth a would it in is. the probably We'll bit that's little

Damon DelMonte

Got it.

occurred Okay. kind last also And item about because as services of down some we think should that outside of then quarter? the onetime things line well coming this

Bryan McKeag

That's get lots of $X.X in there, or takes we we of to different of that There's so focus. out one discretionary need lot need in. so million where We'll the areas, not it if to what -- but That's I focus. of pieces a we Yes. think more. items there, that's

Operator

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

Bruce Lee

had solid other. customers, stayed quarter. and industry commitment you, communities to on endured Abigail. We closing, HTLF second In serving our Thank challenges focused our each and a

growth, quality. add stable loans, to customer customers, fee and we're maintain well credit and continue positioned. consumer increase commercial, We revenue, business driving We're small improve grow service,

We momentum. us. joining Thank for have you

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

Operator

conclude does This conference. program. today's in participation your the for you Thank

disconnect. may You now

Heartland Financial USA (HTLF) 31 Jul 232023 Q2 Earnings call transcript