HTLF - Earnings call 4 2023 | Heartland Financial USA Inc

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Operator

Greetings, and welcome to HTLF's 2023 Fourth Quarter Conference Call. This afternoon, HTLF announced its annual earnings and fourth quarter financial results. And hopefully, you've had a chance to review the earnings release that is available on HTLF's website at htlf.com. With us today from management are: Bruce Lee, President and CEO; Kevin Thompson, Chief Financial Officer; Bryan McKeag; 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 guideline of forward-looking statements as defined by our Securities and Exchange Commission.

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

HTLF, factors filings, turn Mr. Additionally, XX-Q SEC's time Lee. to XX-K may website. and or the the be to obtained President I included time information is Lee, go from now the call Please in over ahead, Bruce on company's company's will those which and CEO. on the Mr.

Bruce Lee

we've Lee, Good and Fourth position and Thank everyone. I as the you, Valerie. a undertaken afternoon, as Conference HTLF initiatives our Earnings Welcome This appreciate bank. XXXX to is HTLF's drive discuss Bruce joining us and we President performance to you top-performing Call. CEO. results Quarter strategic

a preferred February quarterly April we a share him ] during $XXX approved dividend stock, his well on payable decade. $X.XXXX His XXXX. Board Credit For the few Jones, Also on on the our for our more results dividend The discuss fourth a then in our over on quarter new to expertise per the highlights regarding turn of credit his minutes, of is Directors portfolios. Nathan the thank and I'll Thompson, us stewardship questions our today per [ common have also share for Series Kevin personally has across XX, Board XXXX. for helped retiring want call year. contributions wish during next I'll CFO, the McKeag, tenure, numerous retirement. The dividend HTLF over call. I depository stock guide who joining E and our results. of significant to past and company's Officer; his approved our XX, which the for quality growth is Bryan of payable can CFO, Brian $X.XX stable to HTLF cash the also Chief on answer

XX a dividend confidence years, from than reflects share value maintained common or performance. stock stability ending XX% more and in progress to significant phase our strategic the and charter company a execution HTLF book Stockholders benefited in HTLF tangible our consolidation, significant XXXX. XXXX next successful and and plans. was This year $XX.XX, structurally our quarter. of strength, positioning of We For increase per common our year from focus every strategies a completed at X.X. increased strategically increase has on our also the

initiatives drive loss and and investments were wholesale the short-term capital repositioning fourth growth, interest sheet. high-cost negative our repay net enhance to component proceeds of sale set on for a of loss in capital. One connected securities efficiency with and low-yielding million of will used assets million our HTLF of a selling This, more pretax resulted borrowings. efficient efficiency $XXX strengthened balance of X.X stockholders reducing deposits use margin improved high-cost proceeds investment HTLF By $XX.X that to EPS we in of and wholesale funding, and sold and quarter In EPS part, Our significantly our million. higher was the common flexibility in quarter, position. totaling the $X.XX. sheet return $XXX increased The deliver balance our

or In quarter, assets, our to $XXX to FDIC X% $X.XX, excludes seeing the quarter available sheet income year, of the costs. assessment $XX related an quarter. and of expense $XX.X which write-down of EPS stockholders of balance million, for and For EPS year the were Adjusted million net repositioning. EPS fourth sheet the balance increase for losses was linked income on restructuring was stockholders already benefits common of were $XXX.X earnings million available million sale earnings to and net common special losses the to from available from $X.XX. We're $X.XX. Adjusted common the interest stockholders or and repositioning, $XX.X million

sold to was in a $XXX of We from net our or XX equivalent margin increase on momentum and $XX.X rising year. deposits. of net wholesale linked interest largely interest of the total $X billion, expansion the maintained were year, customer strong the borrowings. we million, to a decrease from the quarter. the funding in to was For loans, million due and million an income The tax short-term from notable see X.XX%. In assets $XXX linked or basis basis, X% saw growth HTLF decrease continue X% repay securities points commercial quarter previous to

the strength X% ag and or from grew Let's growth in quarter, In highlights. start with with linked we saw commercial commercial In loans total, and million the $XXX portfolios. line fourth quarter, guidance. our loan in our ag

deposits. For relationships quarter, million million commercial $XXX year, and loans grew added fourth new X%. commercial representing the or in the new XXX ag $XXX we funded loans $XX In of and million

across pipeline over regions with in distributed billion. and $X West at our Mountain Our strong Southwest. commercial It's remains the strength

million decreased While relationships $XX loan more from decreased or X%. million consumer X,XXX quarter. added portfolio consumer we mortgage X% the the $XX loans or our quarter, linked than in And residential

year, the Residential million X%. $XX loans or $XX or For loans consumer X%. decreased mortgage million decreased

the $XXX wholesale balance decreased pay to funding. the Turning the repositioning from million deposits, used from linked sheet as to proceeds wholesale were high-cost down deposits quarter

to linked from industry and Customer from portfolios. up million geography continues quarter, of Average by deposits increased deposits or customer Customer $XXX than quarter increasing consecutive deposit be the across million X%. granular. higher diversified base deposits concentration deposit our the linked the are quarter, were with $XX Our substantially growth. industry XX% second and diverse, customer no

total decreased balances, $XX.X customer to for only to ongoing deposits deposits Total accounts year customer While reflecting the billion X%. of interest-bearing balances maintain to to due demand the accounts. Total decreased mix, transition XX% deposit quarter favorable largely of or the decreased a we customer deposits. billion, of are $XXX with or paydown deposits insured XX% the for wholesale $X.X collateralized. declining million

with million combined $XXX increasing Importantly, we third customer in the saw and deposits half the growth. annualized X% quarters momentum for of in the fourth year, second

conditions ratio Turning Nonperforming of to to to lowest key -- credit performance and declined charge-offs or well total I'm increased to recent to million across market by Net with first commercial of Midwest approach owned country specifically. of on long-term challenges loans applying primarily of pressure credit additional the by assets a points downgrade the cash who to of no a increased is driven delinquency in point the decreased, sale manufacturing Market average estate additional total the real strong basis X loss have improved disciplined a basis loans. sorry, metrics, of ratio customer, already flow with $XXX,XXX $XX the our experiencing XXXX our the continues X quarter amount basis estate real XXXX. due decreasing in property, acquisition. NPAs enable XX points collateralized continue associated. office

our X.X% or total reviews weakness. office loan conducting of see is our stress at We're Our exposure where additional potential of portfolio. targeted portfolios we low

that new XXXX, control reducing of repositioning centralizing our introduced retail reducing includes charter which We by of and continued rationalization continue estate for our of our structure, to number size delivery enhance real through strategies their HTLF executing costs span plan, the expenses retail leaders our decreasing sheet location. the X.X, industry underwriting. In and and despite challenges. branch our ongoing increasing retail balance we next phase strategic and portfolio and consolidation surveillance the screen completed management HTLF opportunities refine and We

expanding under business. on is Phoenix, enhance Denver, of more we a by Milwaukee, stages in banking small to and a consumers return these footprint capital. but talent will City, Minneapolis higher growth Each adding review products capabilities investing deliver better at use digital our platform creating efficiency, as current drive expanding on Valley, in underway also market serve We're serve maximize California's and and assets components customers and Our Kansas EPS treasury and help of and are growth and capital. look to our middle efficient return and Central us all various management

on work customers recognize HTLF employees. X.X growth, XXXX. turn to more our to investor We're our strength growth, forward I for thank will customers, the Kevin and our over growth Officer, return them most please and more each capital. communities, to call through investors their now for is and of operating commitment is moving our and due in Thompson, importantly, HTLF's communities. quality all on together delivering to costs hard of deck. HTLF in our Financial efficient executing dedication investing For reducing performance want the to serving financials. insight to and details other. I refer strategies, This EPS continued and and in improving on XX And, Chief the assets Pages X X.X, use revenue

Kevin Thompson

Bruce operational million liquidity in described in million of excited to expenses, profile $X.X details bank in consolidated beginning release to HTLF from charter both the team HTLF the am items the and our our Thank and to of wholesale of million our used and net securities. to centralize retail items I'm the in interest serve I our team. going of optimize part say on our to $X.X just to beginning in The had the improved more the Refer high-cost HTLF these of our of quarter on our restructuring peer This forward. first and valuations very facilities leverage, we strategic to the income presentation. and a X.X effectively. of down that to projects pretax are transformation. in strategic $X $X.X our related thrilled footprint. These final actions the of our of sell will the executed to earnings this result customers repositioning Most HTLF the under I've how going consolidate profitability pay that's deposits be related million increase We you, plans XX on will as detailed and approximately of related million loss unusual I ] transformation. The were our banks proceeds deck our of X.X just admired more bank quarter want per for from positions are Bruce. expenses and sales Page had quarter. a in long improve and that We borrowings. improves earnings management talented efficiency be to earnings forward. We are to $XXX to part [

FDIC quarter had did as assessment of Finally, insurance special we banks many an $X.X million. this

million due XX% our interest $XXX $XXX good to in million the $XXX value million compared totaled with million million of Loan with decreased offset amortization, rates. as the and decline in We in average deposits. business. deposits quarter. customer deposits bond sales Investments economic normal improvements continue see growth increasing prior decreased wholesale customer $XX by fair to to to increased $XXX grew deposits our we to Loans trends and

adjusting X.XX% increased management, unusual with to credit when efficiency higher for point strong and The the to and for expense This is basis down an revenue expect month nonaccrual ratio basis XX up both as These expenses expectations we that the the of by fees The initiatives. The This [ for were December for been our overdraft cost full our were for card at charter XX%, going was very $XX or will other ratio permanent our million our we across change customer are provision in while losses tax year. Noninterest our around of to single common the projects, but treasury basis for loan fee of expanding moved expect mostly our the was will reserve. Net also expenses than decreased basis XX% pleased with point expense. increase loan fee million own fee that a charge-offs impact and Loan growth when driven the total are $X lending-related offset only to from reduction million to other adjusting exceeded benefited points consumer the to securities XX quarter and points base. Also, adjusting tangible to points new loans. the a in a X% assets with growth ] total and This fee points million. repositioning. $X.X even offset structure at loss. basis was We Capital quarter. Net X.XX% the in normalize X.XX%. by up this interest account in growth forward, driven ratio strategic to we ratios items fees The are income instituted X that increased NSF policies income in with to two $X of one credit expenses of increased our of in in to consumer the excluding restructuring investments and the have going the in quarter and quarter required benefits The $XXX,XXX of of margin, million X.XX%, million. prior low XX the analysts basis X.XX%. increased going loans. X for included loan is securities low value in even provision quarter quarter specific usual, liabilities revenues to additional fees net $XX forward. tax points and market equity yields year that made adjusted allowance full total the the losses Professional remain X.XX%. Noninterest improve them our them, profitability $XX.X flat The status credit basis and that sheet of securities interest-bearing loss decrease would for CETX and which our delinquencies deposits X balance increased was XX as part were investments additional we forward. was of and in and which losses which expenses for quarter. items, in after

change to refer for XXXX, our no earnings outlook provide deck, Page in we you compared results, XXXX to If management environment. our our the of economic XX assuming

flows We with commercial in a We X% year. strong pay We our portfolio securities to some growth cash of loan plan funding. portfolio the and consumer the our growth principally commercial amortize down growth. in off used anticipate to in increase deposits let loan X% wholesale fund to to with expect XX%,

We a net environment. interest assuming interest X.X%, stable around expect stable of a margin rate

credit full We for provision expect year modestly. increase our losses to

and occupancy, as operational mortgage marketing, our expenses lower technology the offset by lower by with Core fees fees XXXX. should and expect around to business performance management X% We of flat down as card core be legal fees income well growth overdraft treasury and noninterest consumer lower offset business, and NSF with small in be exit mortgage in and with investments. expenses,

the as CETX Our XX%, And year-end. I to to such new ] and tax be to around increase ratios all effective by now rate tax capital approaching should items, back XX% amortization discrete time XX.X% are Bruce. credits. earnings accretion expected excluding over securities will turn [ finally, with

Bruce Lee

strategic on balance to plans. initiated of capital using and enhancing on net small rationalization, sheet, in growth expenses expenses, under investing retail and budget on in control. We're savings. our expanding of XXXX creating reviewing organic We we've market We treasury products Kevin. progress to higher middle capital. year adding a consumers remain EPS and and while reducing platform a Thanks, management on was and efficiently X.X, completed significant digital banking charter branch delivering and achieve consolidation key real centralized reducing size and estimated then return HTLF location, current a execution to successful serve customers. markets, increased talent maximize the structure our assets time footprint and business through our continuing capabilities retail exceeded growth return of repositioned growth We and leaderships and our estate focused

to think I can So we turn over now Q&A. it

Operator

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

Jeff Rulis

a couple Just outlook. on I questions, the guess, of

if half The first stable I with rate on second kind that's cuts in if should half? sheet the costs But maybe question in no you the benefit the to of can check first the you line to part where chewed be the kind on in for second of year. position speaking. Well, margin surprised up by from were restructuring, of in QX, some in cuts the I deposit generally see kind is, with tail of rate just some balance sensitivity wanted first the guess, is of us here, maybe then there

Kevin Thompson

that inverted I'll respond. country. I'll out really now, that asset-sensitive. we how say over the And hope depends We're the on do plays yield curve across It yield curve impact are the will really normalizes banks we this year. time. that

have to raw NIM. raw our right us rates basis a some a and opportunity to we're some decrease can react points buoy things many the basis, we now, impacts Among in up. That's our put point place loans. create We XX about X X strategically that to do on about talking with that any on basis. floors other basis So in opportunities hedging unadjusted,

our to funding. We some have some of opportunities wholesale reposition

We those time. over a roll have lot we deposit going that of on us. but have make programs in asset sensitive, should some And hedges benefit more that us off place

a topic for be to be the obviously, year, some this of have all And the to initiatives and we strategic it scenario. write-down prepared so able is over and now right are

Bruce Lee

fund add might what I we're deposit if things. Bruce. what to the wholesale we've to betas able funding. that, couple repay are. the to loan Also, as upon margin really of essence, our to and we're It's use if is accretive expect, able is the ] we trade sheet, [ the and to dependent a deposits helps modeled, balance that our I an this but grow Jeff, in cash flow that to margin. very of our And shrinks overachieve mean, investment revenue. portfolio

it able to the on whether decrease So things [ with really in improve each on depends our not those on margin of X.XX% move. or ] we'll on couple discussed Kevin that be to execute ability

Jeff Rulis

base quick a down guide, core on of in one off the expense And of base what to X%? the the 'XX of you the expense would put kind

Kevin Thompson

easiest to fourth at the look it quarter. think way I is the

in run called million And higher $X was at out of than those of million, another also about then came normal. million $XX unusual that $XXX expenses items. rate out take So you I

includes run our that rate about increases, you at million that forward. puts like going quarterly $XXX increases. that And performance seems So merit million, $XXX

past we've benefits the seeing from are we're few the doing initiatives over there years. underlying, So been lot of a

Jeff Rulis

and take $XXX again, to course year going that $XXX the you're rate? then I off improve million, X% million, if over the quarterly expenses by that to run hope of Kevin,

Kevin Thompson

That run a our rate, $XXX on million to million be be should average. would clear. more I little $XXX

Jeff Rulis

Okay.

balance of the the For year?

Kevin Thompson

right. That's

Jeff Rulis

in to One -- of M&A guess slides with timeline you've a X.X, complete first that of pretty that you've to last guess, kind 'XX, Bruce, you markets but think one, if pivot a part come what of it had with second say, well, in question through were be I the of the a laid you're I growth the I that that. accelerated do not out chance kind tangible, clarifying to in question, you or look can this terms into, haven't for do you wanted you does up -- bankers of X.X of were I here of kind targeted plan, an what acquire want what itself some the is, and to if you cheaper of then this talent abandoned question I year? And I and good all that grow terms present plan and guess, it to if part the M&A did the attractive doing -- acquisition? would we could. of

Bruce Lee

talk me what let achieve beyond. and first XXXX in about we'll maybe So

and are in to really starts management every investments really you the for If the deck, X our in targets we would to a up it look in And because at but what investments, make Page XXXX. particularly being in XXXX of made progress XX our people are of treasury single kind area of XXXX, expect during out it in earnings and ramp lot years. lays XXXX

that markets. were we at that were probably to the we we're progress to we in market, as if they feel in those make particularly we these culture, talent able again, was of very the specific and M&A, a acquisition it best and would focused so far confident significant at happens they very XXXX. that's moment, over time. And would And along think period I commercial I at look be mentioned. can right the XXXX those in right the look provided first, And targets but do, growth to the achieve in I the accretion, So markets progress, expect, if but bank, in

or those M&A now on as we to with needed have is So presented ongoing opposed at all opposed we're pivot dialogue itself. to markets. the right But institutions an we focus in opportunity to and our But if if acquisition talent M&A. not some would

Operator

line Our question of of McEvoy Terry Inc. from next comes Stephens the

Terence McEvoy

could lot dollar just through X signs, was I important when in a through Slides if areas. a start, significant Maybe X, just I seeing investment looking of I kept

I concerns XXXX? are So any into my you and how I Is there'll XXXX guess, do all move guess And paying be you is, for it question X.X? some through footprint as HTLF facilities, we and creep expense that how optimization? alleviate

Bruce Lee

Yes.

let's talk moment. about for first maybe So a facilities

pretty the they it's XX They think of we were we've it's at facilities are years obvious and are a how different and XX time were I too as over years a where our grown consumers by at all look facilities branches utilized whole that large, built our to old. world.

our come now we're the real all going the to We cost also this, So only people but will structure. estate not down. attack believe that

also So we're for it, consumers investing the particularly technology, bank digital I'm about we're creep, additional not small doing and business. or the really worried in because expense account while

So pretty that -- question over there, X-year very that delivery period answer actually Terry? time. this our significantly decrease feel really of Did we will I we're system confident your

Terence McEvoy

just your a say branch? you my do of a individual implying region kind are as your one when at state larger -- than state? something If sense. you or Or were you at within locations prepared makes in or footprint, question take looking just follow-up, a when And you remarks, Yes. mean look a a

Bruce Lee

and where those in whether into be was look to markets. talking will branch than Yes. the more growth dive a getting of we my not really the deep markets that a the we comments, or capital see that of at our in couple returns a invested, years taking and have or out we're really there region Terry, looking even potentially a each I much about

done in a never taking very the So we're we've past. look at really heavy honestly, that, which,

Terence McEvoy

it statement? to increase nonperforming manufacturing that a loans, And was your for base. broader connected quick then not weakness question fair any The maybe Nathan. company-specific, Is nonaccrual customer a in or in just

Nathan Jones

fair It's a very And it's again, well statement. collateralized.

work something have but it. we as look So we'll continue it's actively forward and working to through a hopeful we're on it,

Operator

Our next Liesch of the Sandler. from question comes Piper line of Andrew

Andrew Liesch

provision shutting is this of some that there was a kind it manufacturing tied Just specifics though, down. the The voluntarily that. looks company curious around to Is like credit? that of

Bruce Lee

one, let to take Nathan going that Andrew. I'm

Nathan Jones

the I'll take company, into we one, areas a and ones we're get that very posture working through and start accounts a that that Andrew. a one. it. that's We as decided of one can have No, through decided it's don't different to go of receivable lot we ahead move just to and take just deal the you upfront just to to with take back. [indiscernible] cautious, We so then coming keep it conservative

Andrew Liesch

here including kind quarters or is And guidance of amortization. guess I in kind then of down those forecast another. some the so you've several we out it's -- for expense credit had the to those have tax not way

So that going what's I expectation your forward? guess on

Kevin Thompson

do expenses, are more credits are in term been tax they The we've tax that impact tax solar you're recently doing and right. line. the short but they credits nature, Yes, benefit also

And don't any will currently so we anything be up. interesting we if for But year. opportunistic this anticipate comes

Andrew Liesch

should be expense rate the base, clean year the for pretty right? So for and tax it a

Kevin Thompson

point. at this what That's we expect

Operator

Our of comes Damon line of KBW. the question next from DelMonte

Damon Del Monte

or up you are it noted include it'd to about wanted Does year. if elevated that a talking the think over outlook normalized XXXX that I slightly follow be you fourth amount Just quarter? the the level? up was provision, here in on the for

Kevin Thompson

for providing credit growth, earlier, and and loan we a we Nathan bit think we're forward current does it conservative which there. economy do includes little little in being our controlled. growth outlook the carry bit, the credits mentioned are case we well a softens -- are and But mostly That loan that

Damon Del Monte

one NPL that provision drove included credit as the the in the was loan that this And quarter higher, increase well?

Nathan Jones

those It smaller there, And was. piece it was been have honestly, weren't a recovery. if just of would two loans it. it Yes, a

one, that was other So manufacturing major was the the a driver primarily company other driving the increase. that the was one

Damon Del Monte

income. fee just And on then lastly,

but remain little to You a kind pressure. of flattish, of expect bit it

other I I service fee hear in correctly? think you kind said on offset by did some of line growth that the areas,

Kevin Thompson

pressure we fourth That's correct. saw were a flat in saw the we bit already Yes, till and of the little third you quarter. that quarter,

HTLF So started in overcome treasury we've some that to we're and management the X.X on. working other initiatives of already that

Operator

Our next question David Raymond of James. comes of Long from the line

David Long

I footprint banks of option? this route. footprint this to an that to can to want Maybe review, question. was that talk going review of mention on far you're could But would subsidiary completing that we that sale about be as one something potentially or the Terry that candidate? follow as your up Is go kind a

Bruce Lee

is I table look subsidiaries subsidiaries the would Yes. the focused our and the very again, subsidiaries. everything growth the we say allocated on as that on well we one when same at of structure of that we're our capital as have expense of those

Kevin Thompson

company we'll years. And contributing and understand talented in the HTLF that is help adapt and on is of that of really team allocations help at to several what we bringing funds environment, us brought of capital this our economics part business as underlying transfer talent. banking a X.X, on this understand really us add, just truly look I'll part pricing, that dynamically And and interesting I next see believe we really can going of the strategically forward so and to the profitability to

Bruce Lee

and on And investment have that as it yield at a answer. But generates we say, separate we Yes. also answers. where charters had consolidated, same balance basis, a comes different looking all different looking through we're portfolio it have does everybody we're of the consistent at with a up charters, before may now things we've different have a which lens, David, different they -- sheets, our and to approach would when separate different with the everybody I consolidated a everything now

David Long

incremental had, the And is think, the in say with what from you other I quarter? mentioned here of based reported is when top -- $X question that that you the sort NII then the of million of in that on Is fourth sales. on? million restructuring security $X Kevin, incremental incremental, What I portfolio a million you $X

Kevin Thompson

securities We the that benefited XX. happened on fourth the of from November quarter, in some repositioning

of benefit, saw we half $X in of the So that million about quarter. that

yield are your there going we headwinds so a And really were That's deposit forward. Reserve We going we're the interest This good the territory sure sure is Thank we this better how the and good puts did if higher flat look sure kind going still a is obviously takes do competition puts on benefit. margin to But is that forward. what in of Federal still could not costs. unchartered a a again, going takes curve We're of a we're There's than net like. sign and to react. experiencing lot that forward. interest -- cooperates. for. margin lot making of which - goodness, net economy we're not, prepared is the that quarter, going with not how But banks in

David Long

X.X, finally, been $XXX of -- run noncore HTLF have you included? expecting to of any those $XXX most top just million think then already the you expenses are that on any And Or million do rate?

Kevin Thompson

that there's quick footprint be, would very includes earn-back there expenses evolving where included. in There as are some there that and if stages the initial estate, adjustments. could could of just X.X, I'll in a but through. be we expenses, we're there go those are view, those buoy And going from needs as areas so of Most our be model. we're to already We're HTLF up additional our of real add, our something

Operator

to are closing no Lee any call questions, turn further I'd comments. to Mr. for there As over back the like

Bruce Lee

all in that want This Again, us. to you, the time Bryan done. to the Thank with will he's thank be he's be going last room Valerie. McKeag I for

call joining So first again, And for welcome I to that. you, all appreciate I us. for his thank with really us. earnings appreciate Kevin that. thank really you Bryan. And

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

Operator

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

You disconnect. Have may now day. great a

Heartland Financial USA (HTLF) 29 Jan 242023 Q4 Earnings call transcript