Heartland Financial USA — Q4 2023 Earnings Presentation
54 slides from Heartland Financial USA's earnings presentation, Feb 13, 2024
Slide 1: 4th Quarter 2023 Investor Presentation
4th Quarter 2023 Investor Presentation
Slide 2: Safe Harbor
2 Safe Harbor Within the charts and tables presented, certain segments, columns and rows may not sum to totals shown due to rounding. This investor presentation (including any information incorporated herein by reference) and future oral and written statements of HTLF and its management, may contain
Slide 3: Table of Contents
3 Table of Contents HTLF Overview 4-8 HTLF 3.0 9-16 HTLF Strategic Focus 17-22 Financial Summary 23-49 Non-GAAP Reconciliations 50-54
Slide 4: HTLF Vision Statement, Values and Guiding Principles
4 HTLF Vision Statement: We help our customers achieve their goals by delivering financial expertise and insights with best-in-class experiences, while actively contributing to the vitality of the communities where we live and work Values and Guiding Principles Integrity Always do the right thing. B
Slide 5: $19 Billion Asset Regional Bank Headquartered in Denver
$19 Billion Asset Regional Bank Headquartered in Denver - Operations Center in Dubuque One Charter with 11 Distinct Banking Brands Consolidated Suite of Products and Services Commercial & Small Business Focus Across Footprint Consumer & Wealth Management Adjacent Businesses
Slide 6: Fiscal 4Q 2023 Financial Highlights
NASDAQ: HTLF Fiscal 4Q 2023 Financial Highlights Dollars in millions As of 4Q23 Balance Sheet Total Assets $19,412 Total Loans Held for Investment $12,069 Total Deposits $16,202 Loan / Deposit Ratio 74.5 % Tangible Common Equity1 $1,228 Total Common Equity $1,822 Capital Total Common Equity / Total
Slide 7: HTLF's Transformation: Not the Old Heartland Financial
7 HTLF's Transformation Not the Old Heartland Financial Where We Were - Heartland Financial Current / Future State - HTLF $19.4 Billion Asset Regional Bank ▪ One Legal Board / Local Advisory Boards ▪ One Bank Charter, One Call Report, One ALCO/Treasury ▪ Fully Consolidated IT Systems Denver Headquar
Slide 8: Attractive & Diverse Geographic Markets
Note: MSA - Metropolitan Statistical Area Note: MSA deposit data generated from S&P based on the FDIC Summary of Deposits data study as of 6/30/23 Large Metropolitan Markets (MSAs > 1M pop.) Rank in HTLF Market Market Deposits (M) Denver, CO 6 $4,260 Phoenix, AZ 11 $1,486 Kansas City, MO-KS 20 $753
Slide 9: HTLF 3.0 - The Journey
9 HTLF 3.0 - The Journey ▪ Consortium of 11 community banks ▪ Separate bank charters and boards ▪ Growth through acquisition ▪ Asset growth focus ▪ Inconsistent legacy products and services ▪ High efficiency ratio ▪ Focus investments in Commercial business ▪ Differentiate through quality of talent,
Slide 10: HTLF 3.0: 3-Year Strategic Plan
10 HTLF 3.0: 3-Year Strategic Plan
Slide 11: HTLF 3.0 - Building Blocks
11 HTLF 3.0 - Building Blocks Reduce complexity and focus on core business √ Charter Consolidation complete √ Sale of MSR portfolio √ Exited remaining mortgage origination business √ Sold/closed 19 branches since January 2022 √ Partnered with 3rd party for retirement plan recordkeeping √ Sold consum
Slide 12: HTLF 3.0 - Strategic Transformation
Focused Business Investments Commercial Consumer Invest Enhance Efficiency 12 HTLF 3.0 - Strategic Transformation √ Retail ▪ Target - Mass Affluent ▪ Target - Business owners, Executives, and Employees √ Private Banking √ Wealth √ Middle Market ▪ Investments in six growth markets √ Specialized Indus
Slide 13: HTLF 3.0 - Initiatives
13 HTLF 3.0 - Initiatives Commercial Corporate / Other Consumer q Talent Adds & Lift Outs q Build out Treasury Management Product Suite q Acquire or Build New Fee Income Business q Launch Small Business Digital Bank q Balance Sheet Repositioning q Review Footprint to Maximize Return on Capital q Acc
Slide 14: HTLF 3.0 Actions in Motion
14 HTLF 3.0 Actions in Motion Commercial Talent Acquisition & Uptiering √ Head of Division Commercial & Middle Market √ Treasury & Payments Solutions - National Sales Leader ▪ Invest in and top-grade in-market Middle Market Bankers ▪ Enhance Division Commercial Banker talent ▪ Invest in and top-grad
Slide 15: HTLF 3.0 is Well Underway
15 HTLF 3.0 is Well Underway Balance Sheet Repositioning (Completed) • Sold $865M securities • Repaid higher cost wholesale deposits • Pre-tax loss of $140M Strategic Benefits: ØTCE Ratio ØNet Interest Margin ØFuture earnings Retail Optimization (In Process) • Centralized and increased span of contr
Slide 16: HTLF 3.0: Strategic Targets
16 HTLF 3.0: Strategic Targets 2026 Adjusted 20231 HTLF 3.0 3 Year Targets EPS Growth (5)% 6 - 8% Return on Average Assets 1.01% 1.40 - 1.50% Fee Income to Revenue 16.7% 22 - 25% Efficiency Ratio 59% 50 - 52% Tangible Common Equity to Assets 6.5% 9.5 - 10.0% 1. See appendix for reconciliation of non
Slide 17: Commercial Banking Growth
$2,135 $2,531 $2,535 $2,645 $3,464 $3,652 $1,274 $1,473 $1,776 $2,240 $2,265 $2,638 46% 48% 48% 50% 50% 52% C&I CRE: Owner Occ. % of Total Loans ex PPP 2018 2019 2020 2021 2022 2023 17Note: $ in millions Commercial Banking Growth Focus on operating company relationships $6,290 $3,409
Slide 18: New Commercial Relationships
18 New Commercial Relationships B al an ce S he et - M ill io ns N um ber of N ew R elationships $296.0 $210.3 $214.3 $253.4 $196.1 $228.9 $51.1 $47.6 $95.0 $54.0 303 327 313 269 234 Loan balances ($M) Deposit Balances ($M) New Commercial Relationships 4Q 2022 1Q 2023 2Q 2023 3Q 2023 4Q 2023 1,143 N
Slide 19: Focus on Credit Discipline
19 Focus on Credit Discipline • Chief Credit Officer joined in 2020 from a Regional Bank bringing 25+ years of banking experience • Improved process and procedures • Improving talent throughout credit admin • Centralized function at HTLF • Cohesive approach in all markets • Focus on improving the cr
Slide 20: Improving Quality of Capital Base
20 Improving Quality of Capital Base Growing Common Equity Tier 1 Capital Total Risk Based Capital 10.1% 10.7% 10.9% 10.9% 11.5% 11.1% 11.0% 2017 2018 2019 2020 2021 2022 2023 13.5% 13.7% 13.8% 14.7% 15.9% 14.8% 14.5% 2017 2018 2019 2020 2021 2022 2023
Slide 21: Commitment to Deliver Long Term Growth
As of 4Q23 Asset 5Y CAGR 11.2 % Gross Loans 5Y CAGR 9.9 % Deposits 5Y CAGR 11.3 % 5Y Average ROATCE, non-GAAP1,3 15.9 % EPS (TTM) 5Y CAGR3 5.2 % Dividend 5Y CAGR 15.3 % Revenue/FTE 5Y CAGR2,4 6.9 % 21 Commitment to Deliver Long Term Growth 5-year Lookback 1. See appendix for reconciliation of non-GA
Slide 22: HTLF Investment Thesis
22 HTLF Investment Thesis 1. See appendix for reconciliation of non-GAAP financial measures Organic Growth Healthy Returns Strong Customer Deposits Improving Efficiency Organic growth driven by local market expertise, talent additions, and the build out of our middle market banking group Large granu
Slide 23: Financial Summary
Financial Summary 23
Slide 24: HTLF Highlights
24 HTLF Highlights 1. See appendix for reconciliation of non-GAAP financial measures 4Q 2023 Highlights FY 2023 Highlights Ø Loan growth of $640 million or 5.6% during the year Ø Commercial business loans increased 9.6% Ø 41% decrease in Wholesale and Institutional deposits Ø 19% increase in Tangibl
Slide 25: Adjusted Earnings Detail
25 Adjusted Earnings Detail 1. NIM calculated as fully taxable equivalent - See appendix for reconciliation of non-GAAP financial measures 4Q 2023 FY 2023 Earnings per share - reported $(1.69) $1.68 Net income / (loss) (70,363) 79,920 Adjustments Loss from sale of securities 140,007 141,539 (Gain) l
Slide 26: HTLF Diluted EPS and Common Dividends
$0.59 $0.68 $0.80 $0.96 $1.09 $1.20 17% 16% 22% 19% 23% 26% Dividends Payout Ratio Adjusted Payout Ratio 2018 2019 2020 2021 2022 2023 $3.52 $4.14 $3.57 $5.00 $4.79 $4.53 $3.52 $4.14 $3.57 $5.00 $4.79 $1.68 Diluted EPS Adjusted EPS 2018 2019 2020 2021 2022 2023 26 HTLF Diluted EPS and Common Dividen
Slide 27: Profitability Summary
Return on Average Assets (%) Return on Average Tangible Common Equity (%)1 Pre-Provision Net Revenue ($M)2 Revenue / FTE ($000) 1.21 1.06 0.98 0.94 (1.42) 1.08 0.40 0.96 1.01 ROAA Adjusted ROAA 4Q22 1Q23 2Q23 3Q23 4Q23 2022 2023 97.5 91.5 91.4 88.6 22.5 349.4 294.193.5 365.7 Revenues/FTE Adjusted Re
Slide 28: Net Interest Margin Breakdown
3.65% 3.40% 3.23% 3.18% 3.52% 3.37% 3.33% 4Q22 1Q23 2Q23 3Q23 4Q23 2022 2023 28 Net Interest Margin Breakdown NIM FTE1 Trends Annualized NIM FTE1 3.65% 3.40% 3.24% 3.18% 3.52% 5.21% 5.56% 5.91% 6.21% 6.49% 3.45% 3.67% 3.86% 3.78% 4.20% 0.74% 1.32% 1.86% 2.10% 2.09% NIM FTE Yield on Loans Yield on Se
Slide 29: 4Q2023 Cost of Funds & Betas
4Q2023 Cost of Funds & Betas 29 Deposit Funding Attractive Customer Deposit Costs Portfolio ($M) Average Cost of Funds Beta Deposit Type 3Q 2023 4Q 2023 3Q 2023 4Q 2023 DEC Cycle to date Non Interest Bearing $4,793 $4,500 0.00 % 0.00 % 0.00 % Interest Bearing $8,190 $8,412 2.01 % 2.27 % 2.31 % 40 %
Slide 30: 4Q 2023 Noninterest Income Breakdown
Commercial Revenue 48% Consumer Revenue 44% Other 8% 30 Noninterest Income Diversified Revenue Mix $13.6 $14.4 $16.5 $13.8 $13.6 $6.5 $6.3 $6.5 $6.7 $6.5 $4.0 $4.2 $4.5 $4.6 $4.6 $1.3 $1.5 $1.5 $0.7 $0.8 $1.8 $2.4 $4.0 $1.8 $1.7 Card Solutions Service Charges Retirement Plan Services Capital Markets
Slide 31: Operating Efficiency
2.34% 2.24% 2.17% 2.18% 2.63% 2.26% 2.30% 2.14% 2.14% 2.16% 2.08% 2.23% 2.16% 2.15% Core Expenses Non-Core Expenses 4Q22 1Q23 2Q23 3Q23 4Q23 2022 2023 54.33% 57.16% 59.88% 59.95% 59.31% 57.74% 59.06% 4Q22 1Q23 2Q23 3Q23 4Q23 2022 2023 1. Non-Core Expenses include: restructuring costs, tax credits, C
Slide 32: Highly Liquid Balance Sheet
• Collateralized borrowing capacity of $2.6 billion • Principal cash flow from portfolio of ~$751 million over the next 12 months, as of 12/31/23. • Total unencumbered AFS securities as of 12/31 is $1.9 billion to allow for flexibility in balance sheet management 32 12/31 Sources of Liquidity ($M) H
Slide 33: Investment Portfolio
US Treas/Agy 1.0% Muni 16.0% MBS - Agy 30.0% MBS - Non-Agy 32.9% CMBS - Agy 1.4% CMBS - Non-Agy 11.1% ABS 4.7% Other 2.9% 33 Investment Portfolio AFS Portfolio Detail as of 12/31/23 $4.6B Yield: 4.20% <1 Year 15.0% 1-3 Years 29.7% 3-5 Years 18.8% >5 Years 36.5% AFS Portfolio Duration as of 12/31/23
Slide 34: Diversified Loan Portfolio Across Product and Footprint
Loan Composition by Product Type Geographic Diversification (by Bank Division) Loans Held to Maturity ($M)Operating Line Utilization Rates C&I 30% CRE-OO 22% CRE-NOO 21% RESI 7% AG 8% CONS 4% CONST 8% Yield: 6.49%1 CO 16% TX 13% NM 8% IA 8% IL 9% AZ 13% WI 10% KS/MO 5% CA 8% MN 6% MT 4% 35% 33% 33%
Slide 35: C&I Portfolio
Manufacturing 19% Wholesale Trade 10% Construction 10% Real Estate 10% Health Care 7% Educational Services 5% Finance 6% Retail Trade 6% Administrative Support Services 3% All Other 24% ▪ Diversified across Industry and Geography • No Industry > 19% • No Geographic market > 16% ▪ Granular portfolio
Slide 36: CRE Owner Occupied Portfolio
CO 21% AZ 11% NM 6% CA 13% TX 9% IL 11% WI 9% KS/MO 4% IA 7%MN 6% MT 3%Real Estate 17% Retail Trade 12% Manufacturing 10% Health Care 18% Other Services 8% Construction 6% Wholesale Trade 6% Accomodation /Food Service 5% Arts & Entertainment 3% All Other 15% ▪ Diversified across Property and Geograp
Slide 37: CRE Non Owner Occupied Portfolio
Highlights Hospitality 15% Logistics/ Distribution 10% Medical 13% Multifamily 12% Office 17% Retail 17% Industrial Flex/ Other 9% Other 7% CO 22% NM 11% TX 9% MN 8% AZ 11% KS/MO 6% IA 5% IL 10% CA 10%WI 5% MT 3% ▪ Diversified across property and geography, by bank division ▪ Average Loan Balances:
Slide 38: CRE Non Owner Occupied - Office
CRE-NOO Office Loans ($M) Geographic Diversification (by Bank Division) $380 $425 $408 $426 $425 4Q 2022 1Q 2023 2Q 2023 3Q 2023 4Q 2023 38 CRE Non Owner Occupied - Office 3.5% of total loans Highlights 1. LTV and the debt service coverage ratio is only calculated on commercial loans greater than $1
Slide 39: Construction Portfolio
39 Construction Portfolio 8% of total loans CO 29% TX 11% AZ 17% CA 10% NM 3% IL 11% WI 8% KS/MO 3% IA 3% MN 2% MT 3% Multifamily 31% Logistics/ Distribution 23% Land 13% 1-4 Family 11% Industrial Flex/ Other 6% Office 4% Medical 3% Other 9% ▪ Diversified across property type and geography, by bank
Slide 40: Agriculture Portfolio
CA 29% TX 19% WI 15% IA 8% NM 7% MT 12% KS/MO 4% Other HTLF Markets 6% ▪ Diversified across Commodity and Geography ▪ Granular portfolio - $400 thousand average loan size ▪ 1.00% non accrual ▪ Crop ins. is required on exposures >$500,000 Highlights Geographic Diversification (by Bank Division) Beef
Slide 41: Deposit Summary
$16.2 $6.2 39% Total Deposits Brokered ICS Collateralized Insured Uninsured/ Non- Collateralized $17.5 $17.7 $17.6 $17.0 $16.2 $9.5 $9.2 $9.2 $9.3 $9.2 $5.7 $5.5 $5.4 $5.4 $5.6 $2.3 $3.0 $3.0 $2.3 $1.4 Commercial Consumer Non Customer 4Q2022 1Q2023 2Q2023 3Q2023 4Q2023 Deposit Flows ($B) 41 Deposit
Slide 42: Healthy Deposit Mix
Non Interest Bearing 28% Interest Bearing Checking 29% Savings 7% Money Market 16% Time 12% Total Wholesale/ Institutional Deposits 8% Geographic Diversification (by Bank Division) Commercial Customer Diversification 42 Healthy Deposit Mix Total Deposit Composition Public Admin 10% Health Care 9% Co
Slide 43: Consolidated Capital Ratios Exceeding Well Capitalized Levels
11.07 11.28 11.33 11.37 10.97 4Q22 1Q23 2Q23 3Q23 4Q23 6.50 TCE/TA (%) 1 Tier 1 Leverage Ratio (%) CET1 Ratio (%) Total Risk Based Capital Ratio (%) 5.21 5.72 5.86 5.73 6.53 4Q22 1Q23 2Q23 3Q23 4Q23 11.81 12.02 12.05 9.59 9.44 5.00 5.00 4Q22 1Q23 2Q23 3Q23 4Q23 14.76 14.98 14.93 14.90 14.53 4Q22 1Q2
Slide 44: Summary Asset Quality
$4,766 $11,684 $13,662 $13,816 $10,970 0.04% 0.10% 0.12% 0.12% 0.09% Delinquencies ($000) Delinquencies / Total Loans (%) 4Q22 1Q23 2Q23 3Q23 4Q23 Non-Performing Assets Non-Performing Loans Net Charge-offs Loan Delinquencies 30-89 days $66,931 $65,702 $66,097 $66,178 $110,481 0.33% 0.33% 0.33% 0.33%
Slide 45: Allowance for Credit Related Losses
1.13% 1.16% 1.11% 1.08% 1.15% 0.96% 0.98% 0.95% 0.93% 1.02% 0.17% 0.18% 0.16% 0.15% 0.14% Allowance for Credit Allowance for Unfunded 4Q 2022 1Q 2023 2Q 2023 3Q 2023 4Q 2023 $20,196 $16,468 Balance: 12/31/2022 Balance: 12/31/2023 Allowance as a % of Loans Allowance for Credit Losses ($000) Allowance
Slide 46: Management Outlook
46 Management Outlook Assumes no change in economic environment FY 2024 vs FY 2023 Loan Growth Deposit Growth ▪ 6-8% growth, principally in the commercial portfolio ▪ 5-7% growth, to fund loan growth, with strong commercial and some consumer ▪ Securities amortization (cashflow) to pay down wholesale
Slide 47: ESG Highlights
47 2022 Highlights 25% Board diversification continually evolving and targeting diverse candidates $808 thousand in charitable contributions gifted to local organizations $1.6 billion in Small Business loans carrying balance Planted ~2,000 trees, one per FTE facilitated by the 'One Tree Planted' org
Slide 48: Contact Information
LITLE Contact Information FTLF HTLF Strength. Bruce K. Lee Strength. Kevin Thompson Insight. Biseidentand CEO Insight EVP, Chief Financial Officer Growth: 303.365.3850 office Growth. 303.365.3813 office [email protected] [email protected] Strength. Michael G. Flood Strength. Shelley Reed Insight VP, In
Slide 49: Together We Are HTLF - Bank Brands
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Slide 50: Non-GAAP Reconciliations
50 Non-GAAP Reconciliations
Slide 51: Reconciliation of Tangible Book Value Per Common Share
YTD 4Q23 3Q23 2Q23 1Q23 4Q22 2023 2022 Reconciliation of Tangible Book Value Per Common Share (non-GAAP) Common stockholders' equity (GAAP) $ 1,822,412 $ 1,714,825 $ 1,748,285 $ 1,718,700 $ 1,624,350 $ 1,822,412 $ 1,624,350 Less goodwill 576,005 576,005 576,005 576,005 576,005 576,005 576,005 Less c
Slide 52: Reconciliation of Non-GAAP Measure - Efficiency Ratio
YTD 4Q23 3Q23 2Q23 1Q23 4Q22 2023 2022 Reconciliation of Non-GAAP Measure-Efficiency Ratio Net interest income (GAAP) $ 156,137 $ 145,756 $ 147,132 $ 152,212 $ 165,220 $ 601,237 $ 598,236 Tax-equivalent adjustment1 2,058 2,152 2,136 2,209 2,152 8,555 8,399 Fully tax-equivalent net interest income 15
Slide 53: Reconciliation of Adjusted Earnings
YTD 4Q23 3Q23 2Q23 1Q23 4Q22 2023 2022 Reconciliation of Adjusted Earnings Net Income/(loss) $ (70,363) $ 48,091 $ 49,416 $ 52,776 $ 60,654 $ 79,920 $ 212,180 Loss from sale of securities 140,007 114 314 1,104 153 141,539 425 (Gain) loss on sales/valuation of assets, net 2,072 108 (3,372) 1,115 2,38
Slide 54: Together We Are HTLF - Bank Brands
i Bank of Py Atizona Qy Bake os she Pes Barksis ILLINOIS aes aciisonotirreunx CITYWIDE BANKS, elise ee Es Rocky MINNESOTA Sota PREMIER GQ fieeeeain WISCONSIN SS eemavnrom -NEWMEXICO ire nank Bank ___ BANK & TRUST" TAC 2 amen emereTrerl scent HT Bank acleen tiie + Together We Are
Heartland Financial USA — Q4 2023 Earnings Presentation on 6ix