Heartland Financial USA Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
January 29, 2024

There are 8 speakers on the call.

Operator

Greetings and welcome to HTLF's 2023 4th Quarter Conference Call. This afternoon, HCLF announced its annual earnings and 4th quarter financial results, and hopefully, you've had a chance to review the earnings release that is available on HCLF's website at hclf.com. With us today from management are Bruce Lee, President and CEO Kevin Thompson, Chief Financial Officer Brian McKay and Nathan Jones, Chief Credit Officer. Management will provide a summary of the quarter 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 the Securities and Exchange Commission.

Operator

As part of these guidelines and statements made during this presentation concerning the company's hopes, beliefs, expectations and predictions of the future and forward looking statements and actual results could differ materially from those projected. Additional information on those 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 website. I will now turn the call over to Mr. Bruce Lee, HCLF's President and CEO. Please go ahead, Mr.

Operator

Lee.

Speaker 1

Thank you, Valerie. Good afternoon, everyone. This is Bruce Lee, President and CEO. Welcome to HTLF's 2023 4th Quarter Earnings Conference Call. I appreciate you joining us as we discuss our results and the strategic initiatives we've undertaken to drive performance and position HTLF as a top performing bank.

Speaker 1

For the next few minutes, I'll discuss our highlights for the Q4 year. I'll then turn the call over to Kevin Thompson, our new CFO for more on our results. Also joining us today is Nathan Jones, Chief Credit Officer, who can answer questions regarding the stable credit quality across our portfolios. Brian McKeag, our retiring CFO is also on the call. I want to personally thank Brian for his numerous contributions to HTLF over the past decade.

Speaker 1

His expertise and stewardship have helped guide our significant growth during his tenure, and we wish him well during his retirement. The HTLF Board of Directors has approved a quarterly cash dividend of $0.30 per share on the company's common stock payable on February 27, 2024. The Board also approved a dividend of $175 for Series E preferred stock, which results in a dividend of $0.4375 per depository share payable on April 15, 2024. For more than 40 years, HTLF has increased or maintained our common stock dividend every quarter. This reflects our strength, stability and confidence in our strategies and performance.

Speaker 1

Stockholders also benefited from a significant increase in tangible book value per common share, ending the year at $28.77 a 19% increase from 2022. 2023 was a year of significant progress and successful execution of our strategic plans. We completed Charter Consolidation, Strategically and structurally positioning the company to focus on our next phase, HTLF 3.0, Our connected set of initiatives that will drive efficiency, enhance EPS growth, deliver higher return on assets and more efficient use of capital. One component of HTLF 3.0 was repositioning our balance sheet. In the Q4, HTLF sold investment securities With proceeds totaling $865,000,000 and a pre tax loss of $140,000,000 The proceeds of the sale were used to repay high cost wholesale deposits and short term borrowings.

Speaker 1

By selling low yielding investments and reducing high cost wholesale funding, we increased our net interest margin, improved our balance sheet efficiency and flexibility and significantly strengthened our capital position. This in part resulted in a $72,400,000 loss for the quarter to common stockholders and EPS of negative $1.69 For the year, net income available to common stockholders was $71,900,000 and EPS of $1.68 Adjusted earnings for the quarter were 45 point $6,000,000 available to common stockholders and EPS of 1.06 which excludes losses related to the balance sheet repositioning, losses on sale or write down of assets, FDIC special assessment expense and restructuring costs. Adjusted earnings for the year were $193,900,000 available to common stockholders and EPS of $4.53 We're already seeing benefits from our balance sheet repositioning. In the Q4, net interest income was $156,000,000 an increase of $10,000,000 or 7% from the linked quarter. For the year, net interest income was $601,000,000 an increase of $3,000,000 or 1% from the previous year.

Speaker 1

We saw notable expansion of our net interest margin on a tax equivalent basis rising 34 basis points from the linked quarter to 3.52%. And total assets were $19,400,000,000 a decrease of $718,000,000 or 4% from the linked quarter. The decrease was largely due to the securities sold to repay wholesale funding and short term borrowings. HTLF maintains strong momentum in commercial loans and we continue to see growth in customer deposits. Let's start with loan growth highlights.

Speaker 1

In the Q4, we saw strength in our commercial and ag portfolios. In total, commercial and ag loans grew $224,000,000 or 2% from the linked quarter, in line with our guidance. For the year, Commercial and Ag loans grew $719,000,000 or 7%. In the Q4, we added 234 new commercial relationships, representing $196,000,000 in funded loans and $54,000,000 of new deposits. Our commercial pipeline remains strong at over $1,000,000,000 It's distributed across our regions with strength in the Mountain West and Southwest.

Speaker 1

While we added more than 2,200 consumer relationships in the quarter, our consumer loan portfolio decreased $12,000,000 or 2% from the linked quarter and residential mortgage loans decreased 16,000,000 or 2%. For the year, consumer loans decreased $14,000,000 or 3%, Residential mortgage loans decreased $56,000,000 or 7%. Turning to deposits. Wholesale deposits decreased $958,000,000 from the linked quarter as the proceeds from the balance sheet repositioning were used to pay down high cost wholesale funding. Our deposit base continues to be diverse and granular.

Speaker 1

Customer deposits are diversified by geography and industry, with no industry concentration higher than 10% across our portfolios. Customer deposits increased $59,000,000 from the linked quarter, the 2nd consecutive quarter of customer deposit growth. Average customer deposits were up substantially from the linked quarter, increasing $271,000,000 or 2%. While we maintain a favorable deposit mix, Customer demand accounts decreased to 30% of customer balances, reflecting the ongoing transition to interest bearing accounts. Total deposits for the quarter decreased to $16,200,000,000 largely due to the pay down of wholesale deposits.

Speaker 1

61% of total balances are insured or collateralized. Total deposits for the year decreased $1,300,000,000 with customer deposits declining only $367,000,000 or 2%. Importantly, we saw momentum in the second half of the year with customer deposits increasing $295,000,000 combined in the 3rd 4th quarters for 4% annualized growth. Turning to key credit metrics. Our disciplined approach continues to enable strong credit performance.

Speaker 1

Delinquency ratio increased decreased, I'm sorry, to 9 basis points of total loans and our lowest ratio of 2023. Net charge offs declined to $392,000 or 1 basis point of total average loans. Nonperforming assets increased to 57 basis points, primarily driven by the downgrade of a well collateralized long term Midwest manufacturing customer who is experiencing cash flow challenges due to a recent acquisition. NPAs have already improved in the Q1 of 2024, with the sale of a real estate owned property, decreasing the amount by $10,000,000 with no additional loss associated. Market conditions continue applying additional pressure on commercial real estate across the country, in the office market specifically.

Speaker 1

Our office exposure is low at 3.2% of our total loan portfolio. We're conducting targeted reviews of our portfolios where we see stress or additional potential weakness. We continue to enhance our ongoing portfolio management and surveillance and refine how we screen new opportunities for underwriting. In 2023, HTLF continued executing our strategies Despite industry challenges, we completed charter consolidation and introduced HCLF 3.0, The next phase of our strategic plan, which includes repositioning the balance sheet, reducing our retail delivery costs by centralizing our retail structure, decreasing the number of retail leaders and increasing their span of control and reducing real estate expenses through branch rationalization, size and location. Our current footprint is also under review As we look to maximize our return on capital, we're investing in growth by expanding middle market banking in adding talent in California's Central Valley, Denver, Kansas City, Milwaukee, Minneapolis and Phoenix, expanding treasury management products and capabilities and creating a digital platform to serve consumers and small business.

Speaker 1

Each of these components are underway and at various stages, but all will help us better serve our customers and drive efficiency, enhance EPS growth, deliver a higher return on assets and more efficient use of capital. On HTLF 3.0, Please refer to Pages 5 through 12 in the investor deck. HTLF is moving forward together in 2024. We're executing our 3.0 strategies, investing in quality revenue growth, reducing our operating costs, improving EPS growth, return on assets and efficient use of capital and most importantly, serving our customers and communities. This is all due to the hard work and dedication of HTLF's employees.

Speaker 1

I want to recognize and thank them for their continued commitment to delivering strength, insight and growth to our customers, communities, investors and each other. I will now turn the call over to Kevin Thompson, Chief Financial Officer, for more details on our performance and financials.

Speaker 2

Thank you, Bruce. I first want to say how thrilled I am to part of the HTLF team. I've long admired HTLF from positions in peer banks, and I'm very excited to be part of a talented team that's just in the The unusual items in the quarter that Bruce described are detailed in our earnings release and on Page 13 of our earnings presentation. Most of these items are related to actions that will improve the profitability of the bank going forward. We had a pretax loss of $140,000,000 related to Accel securities.

Speaker 2

The proceeds from this were used to pay down high cost wholesale deposits and borrowings. This both improves our liquidity profile and will result in approximately 6 $1,000,000 in improved net interest income per quarter going forward. We had $4,400,000 of restructuring expenses, $2,100,000 related to sales and valuations of facilities and $1,300,000 of expenses as we consolidated our final bank charter in the quarter. We executed on projects to centralize our retail management and to consolidate our footprint. These are just the beginning of the plans under HTLF 3.0 to increase our operational leverage, optimize our efficiency and to serve our customers more effectively.

Speaker 2

Refer to our earnings deck for more details on our transformation. Finally, we had an FDIC insurance special assessment, as many banks did this quarter, of $8,100,000 We continue to see good economic trends in our business. Loan growth totaled $196,000,000 and customer deposits grew $59,000,000 with Average customer deposits increasing $271,000,000 compared to the prior quarter. Loans to deposits increased to 74% as we decreased our whole deposits. Investments decreased $832,000,000 due to bond sales of $865,000,000 and normal amortization, offset by improvements in fair value with the decline in interest rates.

Speaker 2

We are very pleased that our revenue growth exceeded analyst and even our own expectations in the quarter. Net revenues increased 6% or $10,000,000 when adjusting for the securities loss. This is driven mostly by our expanding net interest margin, which increased to 3.52%. Loan yields increased 28 basis points to 6.49 percent while interest bearing liabilities only increased 10 basis points to 3.11%. The total cost of deposits decreased 1 basis point to 2.09%.

Speaker 2

Non interest expense was up in the quarter and adjusting for the $15,000,000 of unusual items, expenses were up $4,800,000 Professional fees were higher than usual, and we expect them to normalize going forward. Also, we made additional investments in tax credit projects, which are offset with benefits in tax expense. These two items account for $6,000,000 of additional expenses in the quarter And excluding them, expenses would have been down around $1,000,000 The adjusted efficiency ratio was 59% for both the quarter and full year. Non interest income when adjusting for securities losses was flat to the prior quarter. This included a decrease of $600,000 in consumer NSF and overdraft fees in the month of December as we instituted new fee policies across our single charter customer base.

Speaker 2

This is a permanent change to our consumer fee structure that will impact our fee income going forward, but we expect to offset this with growth in treasury management, card fees and other strategic fee initiatives. The provision for loan losses was $11,700,000 in the quarter with an allowance lending related credit losses of 1.15 percent of total loans. The provision was driven by loan growth and one credit that moved to non accrual status that required a specific reserve. Net loan charge offs remain low at 1 basis point for the quarter 11 basis points for the full year and delinquencies were also low at 9 basis points to total loans. Capital ratios are strong with the CET1 ratio of 11% even after the securities loss and other restructuring expenses that will improve our profitability going forward.

Speaker 2

The tangible common equity ratio increased 80 basis points to 6.53%, which benefited from the increase in market value of our investments and the reduction in assets as part of our balance sheet repositioning. If you refer to Page 28 of our earnings deck, we provide our management outlook for 2024 compared to our 2023 results, assuming no change in the economic environment. We expect loan growth of 6% to 8% principally in our commercial portfolio in the year. We anticipate a 5% to 7% increase in deposits to fund loan growth with strong commercial and some consumer growth. We plan to let our securities portfolio amortize down with the cash flows used to pay off wholesale funding.

Speaker 2

We expect a stable net interest margin of around 3.5 percent assuming a stable interest rate environment. We expect our full year provision for credit losses to increase modestly. We expect core non interest income to be flat with growth in treasury management and card fees, offset by lower consumer and small business NSF and overdraft fees, as well as lower mortgage fees with our exit of the mortgage business in 2023. Core expenses should be down around 2% with lower occupancy, marketing, legal and operational expenses offset by performance compensation and technology investments. Our effective tax rate should be around 24%, excluding discrete items such as new tax credits.

Speaker 2

And finally, earnings accretion and securities amortization are expected to increase all capital ratios with CET1 approaching 11.5 12% by year end. I will now turn the time back over to Bruce.

Speaker 1

Thanks, Kevin. 2023 was a year of Under budget, we exceeded estimated net savings. We then initiated HTLF 3.0. We've repositioned the balance sheet, centralized our retail structure and increased retail leadership's span of control. We're reviewing our current footprint to maximize return on capital, reducing real estate expenses through branch rationalization, size and location investing in middle market banking and adding talent in key growth markets, expanding treasury management products and capabilities and creating a digital platform to serve consumers and small business customers.

Speaker 1

We remain focused on continuing to achieve organic growth, while reducing expenses, enhancing EPS growth, delivering a higher return on assets and efficiently using our capital. So I think now we can turn it over to Q and A.

Operator

Our first question comes from the line of Jeff Rulis of D. A. Davidson. Your line is open.

Speaker 3

Hi, Jeff. Hi, good afternoon. Just a couple of questions, I guess, on the outlook. The first on the margin, stable here, I guess, in line with kind of Q4. I wanted to kind of check-in on sensitivity with rate cuts in the second half, if there were to be some generally speaking.

Speaker 3

Well, first question is, surprise maybe no tail of benefit from The restructuring, maybe that's chewed up by deposit costs in the 1st part of the year. But then if you can just kind of position us for where the balance sheet is, should you see some rate cuts in the second half?

Speaker 2

I'll respond that it really depends on how the yield curve plays out this year. We're inverted now. We do hope that the yield curve normalizes over time and that really will impact banks across the country. I'll say that we are asset sensitive. So on a raw basis, unadjusted, any 25 basis point decrease to rates impacts us about 5 to 7 basis points in our NIM.

Speaker 2

That's on a raw basis. We do have the opportunity to react and strategically create some opportunities to buoy that up. Among many other things that we're talking about right now, we can put some hedging floors in place with our loans. We have some opportunities to reposition some of our wholesale funding. We have a lot of deposit programs going on that should benefit us.

Speaker 2

And we have some hedges in place that make us more asset sensitive, but those roll off over time. And so This is the topic of the year obviously and we are all over it and have some strategic initiatives right now to be able to be prepared for a rate down scenario.

Speaker 1

Jeff, this is Bruce. I might add a couple of things. It's really very dependent upon what the deposit betas are. And if we're able to overachieve what we've modeled, That helps the margin. Also, if as we expect, we're able to grow deposits to fund loan We use the cash flow of the investment portfolio to repay wholesale funding.

Speaker 1

I mean that in essence shrinks our balance sheet, but that is an accretive trade to our margin and to our revenue. So it really depends on our ability to execute on those couple of things on whether or not we'll be able to improve on the decrease in margin that Kevin discussed with each quarter percent move.

Speaker 3

Okay. Thank you for that. And a quick one On the expense guide, what would you put the base of the core expense in 2023 to kind of based off of the down 2%?

Speaker 2

I think the easiest way to look at it is the Q4. So expenses came in at about $130,000,000 You take out $15,000,000 of those unusual items. And then I also called out another 6,000,000 of run rate that was higher than normal. So that puts you at about $109,000,000 $110,000,000 quarterly. That seems like our run rate going forward.

Speaker 2

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

Speaker 3

So Kevin, if I take that 109, 110 again and then you're going to hope to improve expenses by 2% over the course of the year off that Quarterly run rate?

Speaker 2

I should be a little more clear. That would be our run rate, 109 to 1010 on average.

Speaker 3

Okay, for the balance of the year?

Speaker 2

That's right.

Speaker 3

Okay. One last one, if I could. Wanted to kind of Bruce, not to you've laid out a pretty good plan here with 3.0. First question would be kind of the timeline of that. I haven't had a chance to look through all the slides of the And I guess in 'twenty four, the tangible, what do you think you complete this year?

Speaker 3

And then second part of that question is, I guess if M and A were to present itself in terms of bankers or markets that you've targeted that you want to grow into, Do you not abandon the plan, but you pivot to say, well, we can acquire this for a cheaper. I guess, clarifying that question, what part does M and A come up if it did and it were attractive and an accelerated kind of what you're doing with 3.0 in terms of some of the growth in talent acquisition?

Speaker 1

Yes. Thank you. Thanks, Jeff. So let me maybe first talk about What we'll achieve in 2024 and beyond. If you look at on Page 12 of the earnings deck.

Speaker 1

It kind of lays out what our targets are for 3 years. And we would expect to make progress in every single area during 2024, but it really starts to ramp up in 2025 and 2026 Because a lot of the investments, particularly in people and in our treasury management investments are really being made in 2024. So I think that it's probably at the moment the best I can do, but we would expect again to make progress, But the significant progress happens in 20252026 and we feel very confident to be able to achieve these targets over that period of time. And if we look at M and A, so first, We're very far along in the talent acquisition in those specific markets and we would look at M and A if it was The right culture provided the right accretion. They were focused as a commercial bank and they were in market, particularly in those growth markets that I mentioned.

Speaker 1

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

Speaker 3

Sounds good. Thank you.

Operator

Thank you.

Speaker 1

Thanks, Jeff.

Operator

Thank you. One moment please. Our next question comes from the line of Terry McEvoy Stephens Inc. Your line is open.

Speaker 4

Hi, good afternoon everybody.

Speaker 1

Hi, Derek.

Speaker 4

Kevin, welcome to the call and Brian, best of luck to you in the future. Maybe if I could start, when I was looking through slides 8 through 9, I just kept seeing dollar signs, just a significant investment in a lot of important areas. So I guess my question is, How are you paying for HTLF 3.0? Is it all footprint and facilities optimization? And I guess how do you alleviate any concerns that there'll be some expense creep as we move through 2024 and into 2025?

Speaker 1

Yes. So maybe let's talk first about facilities for a moment. I think it's pretty obvious as we look at all of our facilities and how we've grown over the years that Our facilities are 20 to 30 years old. They're too large. They were built at a time where branches were utilized by consumers and it's a whole different world.

Speaker 1

So this We're now going to attack our cost structure. We believe that not only the real estate, but also the people will all come down. So I'm not really worried about account or expense creep because while we're doing it, we're also investing in additional technology, particularly the digital bank for the consumers and small business. So we're really we feel very confident that our delivery system will actually decrease pretty significantly over this 3 year period of time. Did I answer that your question there, Terry?

Speaker 4

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

Speaker 1

Yes. Terry, in my comments, I was really talking about much more than A branch or potentially even a region, we are really taking a deep dive into each of our markets and looking at the capital that we have invested, the returns that we're getting and where we look out a couple of years to see whether or not The growth will be there in those markets. So we're taking a very heavy look at that, which honestly we've never really done in the past.

Speaker 4

Okay. And then maybe just a quick question for Nathan. The increase in non accrual or non performing loans, It was company specific, not connected to any broader weakness in your manufacturing customer base. Is that a fair statement?

Speaker 5

It's a very fair statement. And again, it's well collateralized. So it's something we're actively working and have a hopeful as we

Speaker 1

look forward on it, but we'll continue to work through it.

Speaker 4

Thanks for taking my questions.

Operator

Thank you. One moment please. Our next question comes from the line of Andrew Liesch Piper Stanley. Your line is open.

Speaker 6

Hi, Andrew. Hi, Andrew. Thanks for taking the question. Hi. The Vision though, it looks like it was a company that voluntarily is shutting down.

Speaker 6

Is that tied to this manufacturing credit? Just kind of curious on the specifics around that.

Speaker 1

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

Speaker 5

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

Speaker 6

Got it. All right. And then the expense guidance here does not include any tax credit amortization. I guess that you've had those now for several quarters. So it's kind of we have to kind of forecast those out some way or another.

Speaker 6

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

Speaker 2

Yes, you're right. The tax credits we've been doing recently are solar tax credits that are more short term in nature And they do impact expenses, but they also benefit the tax line. And so we don't currently anticipate any for this year, But we will be opportunistic if anything interesting comes up.

Speaker 6

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

Speaker 2

That's what we expect at this point.

Speaker 6

Got it. All right. You've covered all my other questions. I'll step back. Thank you.

Speaker 3

Thank you.

Speaker 4

Thanks, Andrew.

Operator

One moment, please. Our next question comes from the line of Damon DelMonte of KBW. Your line is open.

Speaker 7

Hey, good afternoon everybody. Hope everybody is doing well. Kevin, welcome and Brian, best of luck in your new endeavors. Just wanted to follow-up on the outlook for provision. I think you noted that it'd be up slightly over the 2023 year.

Speaker 7

Does that include the elevated amount here in the 4th quarter? Were you talking about if it was a normalized level?

Speaker 2

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

Speaker 7

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

Speaker 5

Yes, it was. It was just a smaller piece of it. And honestly, if those two loans weren't there, it have been a recovery. So the other one, the major driver was the other one that was a manufacturing company. It was primarily driving the increase.

Speaker 7

Got it. Okay. And then lastly on fee income, you kind of expect it to remain flattish, but a little bit of pressure, I think you said on The service fee line kind of offset by growth in some other areas, did I hear that correctly?

Speaker 2

That's correct. Yes, a little bit of pressure. We already saw in the 4th quarter and You saw we were flat still the Q3. So we've already started to overcome that in treasury management and some of the other HTLF 3.0 initiatives that we're working on.

Speaker 6

Got it. Okay. That's all

Speaker 7

that I had. Thank you.

Speaker 6

Thank you.

Operator

Thank you. One moment please. Our next question comes from the line of David Long of Raymond James. Your line is open.

Speaker 6

Good afternoon, everyone.

Speaker 4

Hi, David.

Speaker 6

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

Speaker 1

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

Speaker 2

And I'll just add as part of HTLS 3.0, Part of that is bringing on talent and we brought on a really talented team to help us understand the underlying economics of our business and really help us understand Capital allocations and funds transfer pricing, what is truly contributing to the profitability of this company going forward so that we can really dynamically and strategically look at that and adapt to this interesting banking environment, I believe we'll see in the next several years.

Speaker 1

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

Speaker 6

Got it. No, that's Great color. Thanks guys. And then the other question I had, I think Kevin you'd mentioned a $6,000,000 in incremental NII from the of portfolio restructuring with the security sales. Is that when you say $6,000,000 incremental, is that on top of what you here in the Q4, what is that $6,000,000 incremental based on?

Speaker 2

We benefited from some of that in the Q4. The securities repositioning happened on November 14. So we saw about half of that benefit, dollars 3,000,000 of that in the quarter. And so there are obviously a lot of puts and takes In your net interest margin going forward, that's a benefit. There's still headwinds in the economy with banks Still experiencing higher deposit costs.

Speaker 2

Thank goodness we did not. We were flat this quarter, which is a really good sign going forward. But A lot of good puts and takes going forward. We could do better than that on net interest margin if the again the yield curve cooperates. But we're not sure how the Federal Reserve is going to react.

Speaker 2

We're not sure how what competition is going to look like. This is a kind of unchartered territory that we're making sure that we're prepared for.

Speaker 6

Excellent. That's And then just finally, the HTLF 3.0, Any are you expecting any non core expenses on top of that $109,000,000 to $110,000,000 run rate or do you think most of those have already been included?

Speaker 2

Most of those are already included. There could be some as we're going through. We're just in the initial stages of HTLS 3.0 and we're evolving as we go. So there could be areas where there are additional expenses, but there would be From our view, a very quick earn back of those expenses to buoy up our model.

Speaker 6

Awesome. Great. Thanks for taking my questions.

Speaker 2

And that includes real estate, I'll add, if there's something in our footprint that needs adjustments.

Operator

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

Speaker 1

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

Speaker 1

And again, welcome to Kevin for his first earnings call with us. Really appreciate that. And thank you all for joining us. Our next quarterly earnings call will be in late April. Have a good evening.

Operator

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

Powered by Quartr

Key Takeaways

  • HTLF sold $865 million of low-yielding securities in Q4, incurring a $140 million pre-tax loss to repay high-cost wholesale funding and boost net interest margin by 34 bps to 3.52 percent.
  • Adjusted Q4 EPS was $1.06 (GAAP loss of $1.69 per share due to one-time charges), and full-year adjusted EPS was $4.53, excluding balance sheet repositioning, FDIC assessments, and restructuring costs.
  • Commercial and agricultural loans grew 2 percent in Q4 (up $224 million) and 7 percent for the year, with 234 new commercial relationships added and a pipeline exceeding $1 billion.
  • The HTLF 3.0 strategic plan is underway to drive efficiency and growth, including balance sheet optimization, retail leadership centralization, branch footprint review, middle-market expansion, enhanced treasury services, and a new digital platform.
  • Credit quality remains strong with a 9 bp delinquency ratio, net charge-offs of 1 bp, and nonperforming assets at 57 bps (driven by one well-collateralized loan), which has already improved in Q1 2024.
AI Generated. May Contain Errors.
Earnings Conference Call
Heartland Financial USA Q4 2023
00:00 / 00:00