Heartland Financial USA Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
July 31, 2023

There are 9 speakers on the call.

Operator

Greetings and welcome to HTLF's 2023 Second Quarter Conference Call. This afternoon, HTLF announced its Q2 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 Brian 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.

Operator

As part of these guidelines, any statements made during this presentation concerning the company's hopes, its beliefs, expectations and predictions of the future are forward looking statements and actual results could differ materially from those projected. Additional information on these factors is included from time to time in the company's 10 ks and 10 Q filings, which may be obtained on the company's or the SEC's websites. I will now turn the call over to Mr. Bruce Lee, HTLF President and CEO. Please go ahead, Mr.

Operator

Lee.

Speaker 1

Thank you, Abigail. Good afternoon, everyone. This is Bruce Lee, President and CEO. Welcome to HTLS 2023 Second Quarter Earnings Conference Call. I appreciate you joining us today as we discuss our solid performance and momentum heading into the second half of the year.

Speaker 1

For the next few minutes, I'll discuss HTLF's highlights for the quarter, then turn the call over to Brian McKay, Chief Financial Officer, for more details on our performance and financials. Also joining us today is Nathan Jones, Chief Credit Officer, who can answer questions regarding the stable credit quality across our portfolios. The HTLF Board of Directors approved a quarterly cash dividend of $0.30 per share on the company's common stock payable on August 25, 2023. The Board also approved a dividend a $175 for Series E preferred stock, which results in a dividend a $0.4375 per depository share payable on October 16, 2023. For more than 40 years, HTLF has increased or maintained our common stock dividend each quarter.

Speaker 1

This reflects our strength and stability and confidence in our strategies and performance. In the Q2, HTLS strength and diverse geography enabled us to continue executing our strategies despite recent industry challenges, we delivered strong loan growth and new customer relationships and our stable deposit base and growth strategies give us momentum heading into the second half of the year. For the quarter, net income available to common stockholders was $47,400,000 and EPS of 1.11 these numbers were negatively impacted by 2 items. A charge off of $5,300,000 related to a previously disclosed overdraft, the result of a fraud incident impacting the account of a single long time customer and $1,500,000 of premium write offs related to an unusually high level purchase SBA loan payoffs that were processed during the quarter. These were partially offset by the $4,300,000 gain from the sale and transfer of the record keeping and administration services component of our retirement business to July business services.

Speaker 1

We view these as notable items this quarter. Together, they decreased pretax income by $2,500,000 in EPS by $0.05 Our growth strategies are delivering results. In the Q2, HTLF added new customers, delivered solid loan growth and significantly increased fee income. From the linked quarter, we added 1300 net new commercial accounts in more than 1400 net new consumer accounts. Commercial and Ag loans grew $224,000,000 2% and loan yields increased 44 basis points on newly originated loans.

Speaker 1

Service charges and fees increased $2,500,000 or 15%, including an annual Visa incentive $1,600,000 and capital markets fees increased $1,600,000 or 65%. Customer deposits were flat and expenses were slightly elevated, including a $1,100,000 increase in advertising spending. We continue to strengthen our balance sheet and increase borrowing capacity by more than $500,000,000 to a total of $3,300,000,000 with less than $1,000,000 outstanding. Our capital ratios, including all unrealized gains and losses as of June 30, exceeded all well capitalized regulatory ratios. Brian will go into more details.

Speaker 1

Let's start with deposits. HTLF Banks have a diverse and granular deposit base. As a result of our strategic diversification, our customer deposits are diversified by both geography and industry with no industry concentration higher than 10% across our portfolios. Overall, total deposits for the quarter were flat from the linked quarter at 17,700,000,000 and 66% of total balances are insured or collateralized. Total customer deposits were also flat from the linked quarter.

Speaker 1

While we maintain a favorable deposit mix, customer demand accounts decreased from 35% to 34%, which reflects the ongoing transition to interest bearing accounts. We've launched a commercial deposit campaign with enhanced customer outreach and product offerings in small business and commercial. The campaign drove new commercial deposit balances in the 2nd quarter and positive trends have continued in July. With increased marketing spend resulting in additional customer contact and accounts opened. We've also continued our consumer deposit campaign that launched late in the Q1.

Speaker 1

Turning to loans. In the second quarter, we saw continued strength across our commercial loan portfolios. From the linked quarter, commercial and industrial increased $92,000,000 or 3%, owner occupied real estate increased $86,000,000 or 4%. Non owner occupied real estate increased $109,000,000 or 5%, construction decreased 89,000,000 8% and our ag portfolio increased $30,000,000 or 4%. In total, commercial and ag loans grew $224,000,000 an increase of 2% from the linked quarter and in line with our guidance.

Speaker 1

58% of loan production was commercial and industrial and owner occupied real estate. We delivered loan production across all of our regions with particular strength in the West, Mountain West and Southwest. In the second quarter, we added more than 300 new commercial relationships, Representing $214,000,000 in funded loans $48,000,000 of new deposits. On average, new originations were of higher credit quality than the overall portfolio as measured by risk ratings in credit scores and 81% of these loans have variable rate structures, an increase from 75% in the Q1. Our commercial pipeline remains strong at over $1,000,000,000 with 60% in commercial and industrial and owner occupied real estate.

Speaker 1

Loans are distributed across all regions. Our consumer loan portfolio increased $11,000,000 or 2% from the linked quarter, While residential mortgage decreased $13,000,000 or 2%. We expect total loan growth $150,000,000 to $200,000,000 in the 3rd quarter, which we expect to substantially fund through customer deposit growth. Turning to key credit metrics, our disciplined credit approach is delivering stable credit quality across our portfolios. Delinquency ratio remains low at 12 basis points.

Speaker 1

Nonperforming assets as a percentage of total assets remains flat at 33 basis points. Non pass rated loans increased slightly from the linked quarter to 4.8% and excluding the previously disclosed $5,300,000 overdraft, remaining net charge offs were 4,000,000 most of which had been previously reserved in the prior quarters. Market conditions have been applying additional pressure on the commercial real estate office market across the country. We feel good that our office exposure is 3.5% of our total portfolio. We continue to place emphasis on targeted reviews of our portfolios and recently conducted in-depth reviews of each office credit over $1,000,000 We believe our portfolio is well constructed, granular and generally situated outside of central business districts.

Speaker 1

We continue to enhance our ongoing portfolio management and surveillance and refine how we screen new opportunities for underwriting. For more on our CRE office exposure, please see Page 21 in the investor deck. HTLF is executing our strategies and delivering new customers, new deposit relationships, strong loan growth, increased fee income, stable credit quality and we're driving long term efficiency. Bank charter consolidation continues on budget and on schedule. We started at the beginning of 2021 and we expect to finish early in the Q4.

Speaker 1

We've successfully consolidated 9 of our 11 banks today, demonstrating we can consolidate charters to drive greater internal efficiency while delivering external growth. We also enhanced the products and services offered by our retirement plan services business through our partnership with July Business Services. HTLS sold the recordkeeping and administration services business to July and retained investment management oversight and participant education and support business. The transaction was completed and record keeping services were transitioned in the 2nd quarter. Both firms are stronger together as July's technology enhances the customer experience.

Speaker 1

Our strategies and accomplishments continue to be recognized locally and nationally. Nielsen report ranked HTLF among the top U. S. Commercial credit card issuers for the 8th year in a row. We continue to demonstrate consistent strength in the commercial payment space as HTLF saw a 30% increase in purchase volume growth in 2022.

Speaker 1

Last year, HTLF surpassed $1,000,000,000 in annual purchase volume as a commercial credit card issuer, and we continue to be one of the fastest growing Visa commercial card issuers. HTLF earns this recognition each year our employees' dedication and commitment to serving our customers, communities, shareholders and each other. We consistently deliver strength, insight and growth during good and challenging times. Together we are HTLF. I'll now turn the call over to Brian McKenna, Chief Financial Officer for more details on our performance and financials.

Speaker 2

Thanks, Bruce, and good afternoon. As Bruce described, we continued to move forward in a challenging environment this quarter, reporting earnings per share of $1.11 loan growth of over $220,000,000 and a stable, albeit more costly deposit base. In addition to the items Bruce mentioned in his comments, I would mention 2 other items this quarter. The Charter consolidation restructuring costs of $1,900,000 and the $300,000 of loss on sale of securities. Before I go into more detail, I want to remind everyone that our second quarter earnings release and investor the presentation are both available in the IR section of HTLF's website.

Speaker 2

I'll start my comments with the provision for credit losses, which totaled $5,400,000 or $2,300,000 higher than last quarter. This quarter the provision consistent with last quarter incorporates an economic outlook that anticipates a moderate recession developing over the next 12 months. Net charge offs increased this quarter to $9,300,000 $5,300,000 of which previously been reserved for in prior quarters and as such did not impact the provision. At the end of the quarter, total allowance for lending related credit losses, which includes both the allowance for credit losses on loans and unfunded commitments, decreased $4,000,000 to $129,800,000 or 1.1 percent of total loans $1,160,000,000 last quarter. Moving to the balance sheet, Bruce already discussed loans and deposits, So I'll start with investments.

Speaker 2

Investments declined almost $300,000,000 to $6,700,000,000 representing 33% of assets with a total with a tax equivalent yield of 3.87 percent and will generate cash flows of nearly $1,300,000,000 over the next 12 months with approximately $250,000,000 next quarter. The unrealized loss on the AFS portfolio worsened by $43,000,000 this quarter to $618,000,000 our relatively small HTM portfolio of $835,000,000 or 12 percent of investments has an unrecorded negative fair value mark of $28,000,000 We utilized nearly $250,000,000 of cash this quarter from the investment portfolio to fund loan growth and pay down borrowings. Moving on to borrowings, total borrowings declined $48,000,000 to $417,000,000 or 2.1 percent of total loans or total assets, sorry. The reduction was primarily in customer repos and we had less than $1,000,000 of Fed Advances outstanding at quarter end. To summarize our liquidity profile at quarter end, we have $1,300,000,000 of cash flow coming off our securities portfolio over the next 12 months with $250,000,000 next quarter.

Speaker 2

We have a low level of outstanding borrowings $3,300,000,000 of available capacity at the Fed and FHLB. We have several Fed fund borrowing lines and broker deposit sources that remain open and available. Our customer deposit base is granular and well diversified with over 66% of balances either secured or collateralized. Our loan to deposit ratio was 66%, and when removing wholesale deposits, it remains low at 80%. We have cash and unpledged available securities totaling over $4,100,000,000 And lastly, the holding company cash position stands at $268,000,000 or 3.5 times our current annualized interest and dividend payments.

Speaker 2

In addition, our dividend payout rate is relatively low at 27% of current EPS. With regards to capital, regulatory capital ratios remain strong with common equity Tier 1 at just over 11.3% and total risk based capital of nearly 15%. Adjusted for unrealized losses on our investments, the ratios remain above well capitalized level at approximately 7.4% 11%. The tangible common equity ratio increased 14 basis points to 5.86 percent atquarterend. The decline in market values of investments was partially offset by an increase in fair value swaps this quarter, resulting in a net decrease of 6 basis points from accumulated other comprehensive income or AOCI.

Speaker 2

Moving to the investment income statement, starting with revenue. Net interest income totaled $147,100,000 quarter, which was $5,100,000 lower than the prior quarter, and the net interest margin on a tax equivalent basis fell 16 basis points this quarter to 3.24%. The main drivers of the decrease were $1,500,000 of premium write offs related to a higher level of purchased SBA loan payoffs that were received in process during the quarter, which reduced NIM net interest margin by 3 basis points and a continued shift in deposit balances from lower costing non maturity deposits to much higher cost and time deposits, reduced net interest income by nearly $2,500,000 and decreased net interest margin by 5 basis points. Non interest income $32,500,000 this quarter was up $2,500,000 from the prior quarter. Excluding security losses, core non interest income was up $1,900,000 to $3,800,000 which exceeded our expectation $30,000,000 to $31,000,000 Strong capital markets fees were primarily a driver again this quarter.

Speaker 2

Shifting to expenses, non interest expenses totaled $109,500,000 this quarter, that's down $1,600,000 from last quarter. Excluding restructuring, tax credit costs and asset gains and losses, the run rate of recurring operating expenses increased $3,100,000 to 110,800,000 coming in higher than our forecasted $108,000,000 to $109,000,000 The increase was driven by $1,100,000 higher deposit related advertising costs and a $2,400,000 increase in professional fees due to several items, most notably higher legal costs for credit issues and an increased consulting activity level compared to last quarter. Looking ahead to the rest of 2023, HTLF expects to see loan growth of $150,000,000 to $200,000,000 or 2% per quarter and customer deposit growth of $100,000,000 to $150,000,000 or 1% per quarter. Achieving these loan and deposit growth expectations would enable the bulk of investment cash flows to be available to decrease wholesale deposits. The net interest margin is expected to stabilize near our June run rate in the low to mid-320s on a tax equivalent basis.

Speaker 2

Provisions for credit losses are projected to range from $3,000,000 to $5,000,000 per quarter. Obviously, any declines in market conditions and projections could impact future provisions if a worse than moderate recession develops or credit quality metrics decline significantly. Core net interest non interest income that is excluding investment gains and losses is expected to be $31,000,000 to $32,000,000 per quarter. Recurring operating expenses are expected to be in the $109,000,000 to $110,000,000 range per quarter. Our charter consolidation restructuring costs are forecasted to be between $2,500,000 $3,000,000 per quarter over the for the next two quarters.

Speaker 2

And finally, we believe a tax rate in the 23% to 24% range, excluding new tax credits, is a reasonable run rate. And with that, I'll turn the call over to Bruce.

Speaker 1

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

Operator

Thank you. We will now conduct our question and answer session. To ask a question, you will need to press star 1 1 and wait for your name to be announced. One moment, we'll be compile the Q and A roster. Our first question comes from the line of Jeff Rulis with D.

Operator

A. Davidson. Your line is open.

Speaker 3

Thanks. Good afternoon.

Speaker 1

Good afternoon, Jeff.

Speaker 3

Just a question on the, I guess, the slide, Your beta slide looks like the total deposit beta at just under 35%. Any thoughts on where that terminal or peak level would be and kind of timing of that as you guys forecast?

Speaker 2

Yes, I think I'll jump in and answer that. Yes, yes. Like you said, so far we've been at about 35 If you move up to customer deposits, it's 22%. That's the one we can really manage, Jeff. Okay.

Speaker 2

So I think we're doing pretty well there. If you look at what happened this last quarter, it was pretty high at over 105%. So we, this last cycle or 2 have had to really follow the rate increases, at least on a percentage basis, given the competition. Our belief is and our hope is that now this next raise and if there is another one that we can get back to more normally a 30% or so deposit beta for the next raise or 2, which would keep us probably in that 25% to 30% range in total cycle for our customer deposits. And that's about normal for us in the total cycle move.

Speaker 2

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

Speaker 3

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

Speaker 2

Yes. So slowing down to maybe that 30% beta here in the next move or 2 and whatever that calculates out to, but that should keep us within our normal beta move for customer deposits, I think.

Speaker 3

Okay, got it. Thanks, Brian. And then just to jump in gears to The Charter consolidation, I get a sense for, I think you've talked about $20,000,000 annually. What amount of Shaves have been achieved to date and maybe I'll just leave it there. Just what percent have you got to so far?

Speaker 1

Brian, you want to take that one?

Speaker 2

Yes. I think I would it's hard. Expenses tend to be a little bit To use the term, ragu, there's a lot of things that go in and out that it's hard to isolate what's just related to consolidation as we move forward. Our goal and I think if we can get the leverage that if you look at our Slide 14. We were down, I think in the Q4, we were down close to 2 point 12 or 10 on our core cost per asset.

Speaker 2

That's where we were shooting for. So we've got about half to 3 quarters of it, I think, today, and I think it's going to come at the end when we can finally get to one bank and that we're doing things one way across everything. So little ways to go, but a lot of that is in.

Speaker 1

So Jeff, I think Brian was right. I think our numbers between $13,000,000 and $14,000,000 of the $20,000,000 is our $1,000,000 of the $20,000,000 is already in.

Speaker 3

Okay, got it. We

Speaker 1

have another $5,000,000 to $6,000,000 to $6,000,000 to go.

Speaker 3

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

Speaker 1

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

Speaker 4

Okay. Thanks. I'll step back.

Operator

One moment for our next question. Our next question comes from the line of David Long with Raymond James. Your line is open.

Speaker 5

Good afternoon, guys. Thanks for taking my question. Hi, David. Brian, you talked about the assumptions on the NIM going forward maybe low to mid 3 20 percent range. What type of assumptions do you have baked in there?

Speaker 5

Is that assuming the that the Fed futures are accurate and we may be done with the rate hikes. And then from the non interest bearing deposits coming down to 28%, What are you thinking that goes in that 3.20 low to mid 3.20 outlook?

Speaker 2

I think it's a fairly flat assumption on the non maturity deposits. And We might need to keep this last move at that 30 beta, so we can get just a little bit of NIM help. It won't be a lot, only a basis point or 2, but that basis point or 2 in this environment is a lot. So We need both this last move to kind of come through a little stronger on the earnings the income side than the expense side. And then we need to hold our non interest bearing deposits relatively flat.

Speaker 2

We did a a decent job last quarter. If you look at customer deposits, they only went down 1 percentage point of the mix. So hopefully, we can Hold somewhere in that range. Bruce, I don't know if you have any other comments around thoughts around that.

Speaker 1

Yes. So David, when we think about kind of our modeling. It's being able to fund the loan growth with deposit growth. As we mentioned, we think $150,000,000 to $200,000,000 of loan growth. We think we can grow deposits plus or minus 150.

Speaker 1

And then the other thing that happens with that is, as Brian referenced, when you include the wholesale funding, its 28%, but if you take the wholesale funding out, its 34% is demand. And if we're able to take all of our cash flow off the investment portfolio and pay down the wholesale funding by $250,000,000 that shift helps us as well.

Speaker 5

Got it. Makes sense. Thank you. And then separately, more of a Bigger picture strategy question, but there's a lot of disruption in the industry now after the events from March. Within HTLF, how much time would you say is spent focusing on offense versus defense?

Speaker 5

And then How does that compare to maybe how much time you were spending on offense versus defense a year ago?

Speaker 1

Great question, David. I'd say right now, we're probably 60% on offense And I'd say a year ago, we were probably 80%. So we're still spending a lot of time on offense. And part of that is just outreach to our existing customers and to prospects. We're spending almost all of our time doing that.

Speaker 1

And when you think about offensive, I would also include recruiting. We're very active in the market recruiting talent

Operator

one moment for our next question. Our next question comes from the line of Andrew Liesch with Piper Sandler. Your line is open.

Speaker 4

Hey, guys. Good afternoon. Just wanted to follow-up on the margin here. Some of this margin stability also benefit from the earning asset mix when you're reducing securities book by another 250,000,000 And that helps reduce on the funding side, so just made a better earning estimate, is that also helping the margin there?

Speaker 2

Yes, that's part of it. Yes.

Speaker 4

Got it. It seems like that's probably

Speaker 2

Go ahead, Andrew. I was

Speaker 4

just saying that it seems like if you're going to take out another $250,000,000 for the next few quarters that mix, that trend should have Should remain consistent for the at least in the next year. And then if you have that plus an eventual Stop and it's at raising rates. I mean, where do you think the margin ultimately bottoms out? When do you think it can start rising again?

Speaker 2

That's a good question. Again, if we can pull off what we think, we're going to be trading out deposits at On an average, should be probably today in what the mid-3s. If it's all CDs, it will be a little bit higher. But if we can get a blend and Hold our deposits and that will fund loans that are now in the upper 7s to 8. And then if we can take the investments and use that to pay down, you're taking probably 4% and paying down 5% costing deposits.

Speaker 2

So all of that is positive to the NIM. So but to me, it's all about the deposit side. Can we hold the deposits and can we hold the betas that we need to, So that whole kind of moving parts can happen. If that doesn't happen, you will see the margin probably continue to slide a bit. How low could it go if that happens?

Speaker 2

I would say without doing a lot of math, I think Could be a little bit 5 basis points, 10 basis points more, but that's a lot of moving parts. So Bruce, I don't know if there's anything else that comes

Speaker 4

to your

Speaker 2

mind on this question.

Speaker 1

Yes. Andrew, for us, it's all about doing what we did this quarter and opening up all those net new accounts over 3,400 on a combined basis and continue to grow the new relationships and being able to fund the loans with deposits. We're able to do that. We're able to actually grow our margin.

Speaker 4

Got it. All right. That's helpful.

Speaker 1

I mean, that's the entire strategy that we have. That's why we're playing so much offense. That's why we were spending the advertising dollars And we're definitely seeing the account growth.

Speaker 4

Got it. Just on fee income side of this, the increase in the service charges, do Customer accounts contribute to the uptick there?

Speaker 2

I would say probably not a lot yet, But they will, especially on the commercial side. The uptick in the service charges is where, as Bruce mentioned, the Visa, We had a one time kind of bump. All right.

Speaker 1

Yes. But they still grew even excluding that almost $1,000,000 So there's a lot of good momentum In our service charge business, Andrew.

Speaker 4

Got it. Yes. Makes sense. All right, Beth. Thanks for taking the questions.

Speaker 4

I'll step back.

Operator

One moment for our next question. Our next question comes from the line of Terry McEvoy with Stephens. Your line is open.

Speaker 6

Hi, good evening, guys. How are you doing?

Speaker 1

Hi, Terry.

Speaker 6

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

Speaker 1

Yes. So, Kerry, I'll take that one. The comments both in at the annual meeting, as well as what's been going on since the annual meeting. Denver is clearly one of the markets we've been very successful in recruiting, also in Arizona and a couple of others. So we're on that path and we clearly think that the disruption on the acquisition will help push some of the people over the edge.

Speaker 1

There was a lot of loyalty to the one bank where we have a lot of overlap. And I think now just in the last that we've seen some activity there.

Speaker 6

And then a question for Nathan. What are you monitoring and Looking at within the C and I portfolio, any areas you're deemphasizing and there's some red flags or yellow flags?

Speaker 7

Yes, we feel pretty good about our C and I portfolio especially. It really has continued to perform. We've had a couple of one offs that we continue to watch. But Really, we're just looking at the industries there, I'd say probably focusing on the ones that might be most acceptable to potential downturn. So contractors, construction based firms and other type service providers are probably getting the most focused now.

Speaker 6

Great. Thanks for taking my questions.

Speaker 1

Thanks, Jerry.

Operator

Star one one on your telephone and wait for your name to be announced. One moment for our next question. Our next question comes from the line of Damon DelMonte with KBW. Your line is open.

Speaker 8

Hey, good afternoon guys. Hope everybody is doing well today. So just to kind of follow-up on the credit topic. Just wondering what your maturity schedule looks like for commercial real estate loans over the next few quarters. Do you have a lot coming up for renewal?

Speaker 1

No, not really. It's one of

Speaker 7

the real positives for us. We really do have a very elongated maturity schedule. I think we even have that highlight in our Investor Day, which you can see there. But I'd say about 15% of our portfolio in the CRE, general CRE portfolio is

Speaker 1

going to mature over the next year and a half, so very little. The vast majority of it is in out years, Much further out, around the 4% to 5% range.

Speaker 8

Got it. Okay. That's helpful. Thank you. And then, Brian, with regard to the expense guide, Should we anticipate the advertising expense staying elevated like we saw this quarter?

Speaker 8

Or does that kind of come back in during the next couple of quarters?

Speaker 2

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

Speaker 1

David, this is Bruce. I would say probably for the Q3, it will remain where it is. We'll probably begin to reduce a little bit in the Q4. At least that's been our history.

Speaker 8

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

Speaker 2

Yes, that's what we need to focus. That's one of the discretionary items that we need to get in. There's lots of pieces in there. So it takes a lot of different areas, but that's where I think we need to focus.

Speaker 8

Got it. Okay.

Speaker 2

We'll be 0.5000000 or so out of there, if not more.

Speaker 8

All right, great. That's all that I had. Thank you very much.

Speaker 1

Thanks, Damon.

Operator

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

Speaker 1

Thank you, Abigail. In closing, HTLF had a solid second quarter. We endured industry challenges and stayed focused on our commitment to serving our customers, communities and each other. We continue to add commercial, small business and consumer customers, grow loans, increased fee revenue, improved customer service, maintained stable credit quality, we're driving growth and we're well positioned. We have momentum.

Speaker 1

Thank you for joining us. Our next quarterly earnings call will be in late October. Have a good evening.

Operator

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

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Heartland Financial USA Q2 2023
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