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HF

HEARTLAND FINANCIAL USA INC (HTLF)·Q1 2024 Earnings Summary

Executive Summary

  • Q1 2024 delivered solid results: diluted EPS of $1.16 and adjusted diluted EPS of $1.22, with fully tax-equivalent net interest margin expanding to 3.57% on stable deposit costs and higher loan yields .
  • Credit quality remained stable; nonperforming assets fell 11% to 0.51% of assets, while allowance for lending-related credit losses stood at 1.18% of loans .
  • Strategic actions advanced HTLF 3.0: customer deposits grew modestly excluding Rocky Mountain Bank (RMB), wholesale/institutional deposits fell $312.4M, and RMB sale was announced (expected Q3 close with $30–$35M pre-tax premium) .
  • Catalyst: UMB merger announced (0.55 UMB shares per HTLF share); the Q1 earnings call was canceled the same day, concentrating investor focus on deal terms and regulatory timetable .

What Went Well and What Went Wrong

What Went Well

  • Net interest margin expanded to 3.57% FTE from 3.52% in Q4, driven by higher loan yields (6.63% vs. 6.49%) and reduced high-cost wholesale funding; deposit costs held at 2.11% .
  • Credit metrics improved: nonperforming assets declined $12.5M to 0.51% of assets; allowance for loan credit losses rose slightly to 1.06% of loans with net charge-offs at 0.08% annualized .
  • Management highlighted deposit growth (ex-RMB) and wholesale funding reduction as execution on HTLF 3.0; “We grew customer deposits while continuing to pay down high cost wholesale deposits” — Bruce K. Lee, CEO .

What Went Wrong

  • Total deposits decreased 6% sequentially to $15.30B (partly due to RMB transfer); GAAP noninterest income remained soft year-over-year (-8%) on lower capital markets fees and mortgage-related sales .
  • FDIC special assessment ($2.0M) and ongoing consulting/legal costs pressured noninterest expense, with professional fees up 21% YoY .
  • Customer demand deposits fell 5% QoQ, reflecting continued migration to interest-bearing accounts; time deposits also declined, with customer time down 11% QoQ .

Financial Results

MetricQ2 2023Q3 2023Q4 2023Q1 2024
Diluted EPS (GAAP) ($)$1.11 $1.08 $(1.69) $1.16
Adjusted Diluted EPS ($)$1.09 $1.12 $1.06 $1.22
Net Interest Income ($MM)$147.132 $145.756 $156.137 $154.215
Net Interest Margin (FTE) (%)3.23% 3.18% 3.52% 3.57%
Total Noninterest Income ($MM)$32.493 $28.383 $(111.801) $27.663
Efficiency Ratio (GAAP) (%)60.93% 63.77% 293.86% 62.46%
Adjusted Efficiency Ratio (FTE) (%)59.88% 59.95% 59.31% 58.77%

Balance Sheet and Mix

Metric (Period-End)Q2 2023Q3 2023Q4 2023Q1 2024
Total Loans HtM ($MM)$11,717.974 $11,872.436 $12,068.645 $11,644.641
Total Deposits ($MM)$17,663.543 $17,100.993 $16,201.714 $15,302.166
Customer Deposits ($MM)$14,645.303 $14,797.578 $14,856.428 $14,269.317
Wholesale & Institutional Deposits ($MM)$3,018.240 $2,303.415 $1,345.286 $1,032.849
Cost of Deposits (Annualized) (%)1.86% 2.10% 2.09% 2.11%

Credit Quality and Capital

KPIQ2 2023Q3 2023Q4 2023Q1 2024
NPLs / Total Loans (%)0.54% 0.44% 0.81% 0.82%
NPAs / Total Assets (%)0.33% 0.33% 0.57% 0.51%
Allowance for Loan Credit Losses / Loans (%)0.95% 0.93% 1.02% 1.06%
Allowance (Lending-Related) / Loans (%)1.11% 1.08% 1.15% 1.18%
Tangible Common Equity Ratio (%)5.86% 5.73% 6.53% 6.88%
CET1 Ratio (%)11.33% 11.37% 10.97% 11.40% (prelim.)

Loan Category Breakdown (Period-End)

Category ($MM)Q4 2023Q1 2024
Commercial & Business Lending$6,292.999 $6,092.256
Non-Owner Occupied CRE$2,553.711 $2,495.068
Real Estate Construction$1,011.716 $1,041.583
Agricultural & Ag Real Estate$919.184 $809.876
Residential Mortgage$797.829 $756.021
Consumer$493.206 $449.837
Total Loans HtM$12,068.645 $11,644.641

Context vs Prior Year (YoY)

  • Net interest income rose to $154.2M (+$2.0M, +1%) vs Q1 2023; NIM (FTE) improved to 3.57% from 3.40% on higher earning asset yields despite higher deposit costs .
  • Noninterest income declined to $27.7M (-$2.3M, -8%) on lower capital markets fees and mortgage loan sales; trust fees also decreased post-RPS sale .
  • Diluted EPS was $1.16 vs $1.19 a year ago; adjusted diluted EPS $1.22 vs $1.26 .

Guidance Changes

  • Q1 2024: Earnings call canceled due to UMB merger announcement; no formal updated guidance provided for the quarter .
  • Prior guidance (from Q4 2023 call): 2024 NIM ~3.5% (stable in a stable rate environment), core expenses ~$109–$110M quarterly, deposit growth 5–7% to fund loan growth, tax rate ~24% excluding discrete items .
MetricPeriodPrevious GuidanceCurrent GuidanceChange
Net Interest Margin (FTE)FY 2024~3.5% (stable) No update (call canceled) Maintained/Unchanged (no new update)
Core Operating ExpensesFY 2024~$109–$110M/quarter run-rate No update (call canceled) Maintained/Unchanged
DepositsFY 2024+5–7% to fund loans No update (call canceled) Maintained/Unchanged
Effective Tax RateFY 2024~24% excl. discrete items No update (call canceled) Maintained/Unchanged

Transaction-Specific

  • Rocky Mountain Bank sale: expected Q3 close; pre-tax premium estimated at $30–$35M, with $352.7M loans and $596.3M deposits moved to “held for sale” as of Q1 .

Earnings Call Themes & Trends

Note: Q1 2024 call canceled; themes reflect Q3/Q4 calls vs current quarter disclosures.

TopicPrevious Mentions (Q3 2023)Previous Mentions (Q4 2023)Current Period (Q1 2024)Trend
HTLF 3.0 executionCharter consolidation complete; efficiency focus Repositioned securities; centralized retail; branch rationalization in plan Continued execution: RMB sale; wholesale deposit reduction; key hiring Advancing
Deposit mix and costsCustomer deposits +$152M; demand mix trending to interest-bearing Cost of deposits flat at 2.09% QoQ Cost of deposits 2.11%; customer savings +$189M ex-RMB Stable costs; mix shift persists
Margin sensitivity & hedgingNIM guided ~3.20% near-term Asset-sensitive; hedging floors considered; NIM around 3.5% FY NIM rose to 3.57% FTE; loan yields higher Improving
Regional growthStrength Mountain West/Southwest; pipeline >$1B Added 234 new commercial relationships; pipeline strong Talent investments in Central Valley CA, Denver, KC, Milwaukee, Minneapolis, Phoenix Consistent growth focus
Credit/CRE office exposureOffice exposure ~3.6%; targeted reviews Office exposure ~3.2%; stable delinquencies NPAs down; delinquency uptick tied to single construction loan Stable with idiosyncratic items
Regulatory/legal—FDIC special assessment $8.1M in Q4 FDIC special assessment $2.0M in Q1 One-offs diminishing

Management Commentary

  • “HTLF delivered another solid quarter. We grew customer deposits while continuing to pay down high cost wholesale deposits and our credit quality remains stable… HTLF 3.0… will drive efficiency, enhance EPS growth, deliver higher return on assets and more efficient use of capital.” — Bruce K. Lee, President & CEO .
  • Q4 2023 CFO on NIM sensitivity: “We are asset-sensitive… any 25 bps decrease impacts NIM ~5–7 bps on a raw basis… we can put hedging floors in place… and reposition wholesale funding.” — Kevin Thompson, CFO .
  • Q4 2023 CEO on footprint optimization: “We’re taking a deep dive into each of our markets… everything is on the table” — Bruce K. Lee .

Q&A Highlights

  • Margin outlook and rate sensitivity: asset sensitivity managed via hedges and deposit programs; NIM targeted around 3.5% for FY 2024 .
  • Expense base: core run-rate ~$109–$110M per quarter; targeted reductions via retail centralization and real estate optimization .
  • Footprint strategy: rigorous market-by-market capital allocation; potential divestitures considered (sub-banks), consistent with HTLF 3.0 .
  • Provision dynamics: conservatism around specific credits; stable overall credit outlook .
  • Fee income: lower NSF/OD fees structurally, to be offset by treasury management and card fees; capital markets pipeline rebuilding .

Estimates Context

  • Wall Street consensus (S&P Global) for Q1 2024 EPS and revenue was unavailable via our S&P Global feed due to missing CIQ mapping for HTLF; as such, formal beat/miss vs estimates cannot be determined at this time. Values retrieved from S&P Global were unavailable.
  • Directionally, underlying results showed sequential improvement in NIM and stable deposit costs, while adjusted EPS rose vs Q4; however, without consensus figures, estimate revisions and beat/miss cannot be quantified [GetEstimates error].

Key Takeaways for Investors

  • Positive margin trajectory: NIM (FTE) expanded to 3.57% on higher loan yields and reduced wholesale funding; deposit costs remain stable, supporting net interest income durability .
  • Credit stable: NPAs fell to 0.51% of assets; allowance coverage increased; delinquency uptick tied to a single construction loan (non-systemic) .
  • Mix optimization: material reduction in wholesale deposits (-$312.4M) and modest customer deposit growth ex-RMB, consistent with HTLF 3.0 efficiency goals .
  • Strategic portfolio reshaping: RMB sale expected to close early Q3 with $30–$35M pre-tax premium, sharpening geographic focus and capital efficiency .
  • Expense discipline: adjusted efficiency ratio improved to 58.77%; prior guidance indicates ~$109–$110M quarterly core expense run-rate .
  • Deal catalyst: UMB merger (0.55 UMB shares per HTLF share) shifts narrative toward regulatory milestones and integration planning; near-term stock driver likely deal progress rather than fundamentals .
  • Near-term trading frame: absent new guidance and a canceled Q1 call, focus on NIM sustainability, deposit trends, credit stability, and deal timeline; watch for RMB sale close and any regulatory updates.

Additional Context and Source Documents

  • Q1 2024 8-K & earnings press release (Item 2.02; Exhibit 99.1) with full financial tables and non-GAAP reconciliations .
  • UMB merger 8-K (Item 1.01) detailing exchange ratio, governance, closing conditions; joint press release referenced; Q1 call cancellation noted .
  • Prior quarter calls: Q4 2023 and Q3 2023 transcripts for strategy, guidance, margin sensitivity, deposit mix, and credit commentary – –.