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spk05: Greetings and welcome to HTLF's 2022 fourth quarter conference call. This afternoon, HTLF announced its fourth quarter earnings and hopefully you had a chance to review the results. The earnings release is available on HTLF's website at htlf.com. With us today for management are Bruce Lee, President and CEO, Brian McKay, Executive Vice President and Chief Financial Officer, and Nathan Jones, Executive Vice President and 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. As part of these guidelines, any statements made during this presentation concerning the company's hopes, beliefs, expectations, and predictions of the future or forward-looking statements and actual results could differ materially from those projected. Additionally, information on these factors is included from time to time in the company's 10-K and 10-Q filings, which may be obtained on the company's or the SEC website. I will now turn the call over to Mr. Bruce Lee, HTLF President and CEO. Sir, you may begin.
spk04: Thank you, Tawanda. Good afternoon, everyone. This is Bruce Lee, President and CEO. Welcome to HTLF's 2022 Fourth Quarter Earnings Conference Call. I appreciate you joining us today as we discuss our continued strong performance in ongoing momentum. For the next few minutes, I'll discuss HTLF's highlights for the fourth quarter and year, then turn the call over to Brian McCaig, Chief Financial Officer, for more on our results. Also joining us today is Nathan Jones, Chief Credit Officer, who can answer questions regarding the excellent credit quality across our portfolios. HTLF had tremendous success and significant growth in 2022. We are driving momentum, executing our strategy, and delivering strong results that exceed expectations. This month, our Board of Directors approved a record quarterly cash dividend of $0.30 per share on the company's common stock, a 7% increase from the previous quarter. The dividend is payable on February 28, 2023. This increase reflects our strong performance for the quarter and year and our confidence in our strategies and ongoing results. In 2022, revenue was a record $726 million, an increase of $37 million or 5% for the year. Total revenue increased $10 million or 5% from the linked quarter. For the year, we delivered net income available to common stockholders of $204.1 million and EPS of $4.79. For the quarter, net income available to common stockholders was $58.6 million and EPS of $1.37. For the quarter, we saw notable expansion of our net interest margin on a tax equivalent basis, rising 20 basis points to 3.65%. Our efficiency ratio decreased 15% from a year ago to 54.33%. For the year, we reduced our number of employees by 11%. We're driving efficiency while investing for growth. And total assets grew to a record $20.2 billion up $970 million, or 5%, from a year ago. Assets increased $561 million, or 3%, from the linked quarter. Asset growth was driven by strong momentum in commercial and consumer loans, and we continue to see growth in deposits and service fees. Let's start with loan growth highlights. In 2022, we saw a tremendous loan growth of $1.6 billion, or 17%, excluding PPP, across our portfolios. In the fourth quarter, loans grew $505 million, an increase of 5% from the linked quarter and greatly exceeding our guidance for the quarter. This includes approximately $105 million in increased credit line utilization, primarily in agribusiness, and approximately $100 million of loan growth, which we previously expected to close in the first quarter. This was an exceptional quarter, and our commercial loan pipeline remained strong at over $1 billion. We expect total loan growth of $150 to $200 million in the first quarter. In the fourth quarter, we saw significant strength across our commercial portfolios. From the linked quarter, commercial and industrial increased 185 million, or 6%. Owner-occupied real estate decreased 20 million, or 1%. Non-owner-occupied real estate increased 111 million, or 5%. Construction increased 80 million, or 8%. in our ag portfolio increased 139 million or 18%. Seasonal line utilizations were up and we expect this to normalize in the first quarter. For more on line utilization, please see page 24 in the investor deck. In the fourth quarter, we saw commercial loan growth in eight of our 11 bank markets. we added 303 new commercial relationships representing $296 million in funded loans and $229 million of new deposits. On average, new originations were of higher credit quality than the overall portfolio as measured by risk ratings and credit scores. And 79% of these loans have variable rate structures compared to 69 percent last quarter. The depth and breadth of our products and services is expanding relationships and developing new ones. We have made strategic investments in specialized industry verticals and capital markets expertise, including loan syndications, interest rate derivatives, trade finance, and foreign exchange. and were driving business in fee generating products. Service charges and fees increased 2.1 million or 14% for the year and 1% for the quarter, driven primarily by our growing credit card business. In 2022, HTLF reached a significant milestone, surpassing $1 billion in purchase volume as a commercial card issuer. HTLF continues to be one of the fastest-growing Visa commercial card issuers. For more on the growth of our commercial non-interest income, please see page 20 in the investor deck. Our consumer loan portfolio saw significant growth in 2022, increasing $87 million, or 21%. Consumer loans grew $11 million, or 2%, from the linked quarter. residential mortgage increased 24 million or 3% for the year and was flat from the linked quarter. Turning to deposits, non-time deposits increased 302 million or 2% for the year. Non-time deposits decreased 448 million or 3% from the linked quarter, mostly due to balance declines that occurred in our commercial operational accounts for seasonal needs and year-end distributions and not as a result of account attrition. We expect these account balances to rebuild over time. Time deposits increased 793 million or 77% for the year and 694 million or 62% from the linked quarter. The increase in time deposits for both the year and the quarter was primarily driven by an increase in wholesale time deposits. Overall, total deposits grew to a record $17.5 billion, an increase of $1.1 billion or 7% for the year and $245 million from the linked quarter. We maintain our favorable deposit mix 90% of deposits are in non-time accounts. 36% of total deposits are in non-interest-bearing accounts. And our deposit pricing strategy continues to serve us well. In the fourth quarter, core deposit costs were 44 basis points and total deposit costs 74 basis points. For detail on our deposit beta, please see page 23 of the investor deck. Turning to key credit metrics, our disciplined credit approach is delivering excellent credit quality across our portfolios. Delinquency ratio is at a historic low of four basis points. Non-performing loans represented 51 basis points of total loans. Non-performing assets as a percentage of total assets remained low at 33 basis points. Non-pass rated loans decreased to 44.7% from 5.3% in the linked quarter. Lastly, in the fourth quarter, we had net loan recoveries of 1.7 million. We continue to take a conservative credit approach given concerns around the current economic environment. Despite some headwinds, we've sustained momentum, we're executing our strategies, and we're delivering record revenue, record organic loan growth, record customer acquisition, improved credit quality, expanded net interest margin, and a lower efficiency ratio. We're doing all this while consolidating our bank charters. In 2022, we successfully executed five bank charter consolidations, with our banks in Arizona, California, Colorado, Illinois, and Minnesota becoming divisions of HTLF Bank. Transitions have been smooth, and the project continues on schedule and on budget. We expect to finish charter consolidation early in the fourth quarter of 2023 and deliver $20 million of annual savings and capacity after the project is complete. Brian will share more details in his comments. We also continue to optimize our branch network. In 2022, we reduced our number of total branches by 8% to 119 total locations. In alignment with HTLF Bank's Colorado charter, as of January 1st, HTLF's corporate headquarters is now in Denver. Geographic diversity is a strength of HTLF. We have 11 markets in 12 states, with Denver as our largest market. HTLF's corporate headquarters in Denver reinforces our presence in and commitment to growth markets. We are committed to our strong and sizable presence in Dubuque, Iowa, where 17% of our employees are located. HTLF operational and administrative functions will continue to be largely staffed and run from Dubuque. As I look back on 2022, it was a year of significant growth and tremendous accomplishment for HTLF. We continue to execute our strategies, grow our business, operate more efficiently, deliver strong results, and most importantly, serve our customers and communities. This is all the result of the hard work and dedication of HTLF's employees. 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. We move forward together because together we are HTLF. I'll now turn the call over to Brian McKegg, Chief Financial Officer, for more details on our performance and financials.
spk09: Thanks, Bruce, and good afternoon. As Bruce just outlined, this was another strong quarter for HTLF with earnings per share of $1.37, loan growth of just over $500 million, revenue growth this quarter of over $10 million, and stable, clean credit performance. Included in this quarter's results were three large notable items. First, $2.4 million of losses on the sale or write-down of assets, which were primarily facilities related. Second, charter consolidation restructure costs, $2.4 million. And third, shareholder dispute resolution costs of over $1 million. Together, these items decreased pre-tax net income by more than $5.8 million and earnings per share by $0.11. Before I go into more detail, I want to remind everyone that our fourth quarter earnings release and investor presentations are both available in the IR section of HTLF's website. So I'll start my comments with the provision for credit losses, which totaled $3.4 million. That's a $2.1 million decrease over last quarter. This quarter, the provision reflects our strong loan growth, continued stable, healthy credit performance, and an economic outlook that anticipates a moderate recession developing over the next 12 months. In addition, the provision benefited from $1.7 million of net loan loss recoveries. At quarter end, the allowance for related for lending-related credit losses, which includes both the allowance for credit losses on loans and unfunded commitments, increased $5.1 million to $129.7 million, or 1.13% of total loans. In addition, at quarter end, unamortized purchase loan valuations on the balance sheet totaled just over $10 million, or nine basis points of loans. Moving to investments. Investments remain flat at $7 billion, representing 35% of assets with a tax equivalent yield of 3.45%, and will generate cash flows exceeding $1 billion over the next 12 months. We continued to actively manage the portfolio by taking several actions during the quarter. First, we utilized nearly $65 million of cash flow this quarter to fund loan growth, and second, We took advantage of some mid-quarter market disruption and reinvested $115 million of cash flow into a AAA-rated security with a purchase yield of nearly 9% and a duration of less than a year. With regards to capital, regulatory capital ratios remain strong with common equity tier one at just over 11% and total risk-based just over 14.75%. The tangible common equity ratio reversed a several-quarter decline, increasing 27 basis points to 5.21 percent at quarter end. The rise in market value of investments this quarter contributed 15 basis points of the increase. Moving to the income statement, starting with revenue, net interest income totaled $165.2 million this quarter, which was $9.3 million higher than the prior quarter. And the net interest margin on a tax-equivalent basis rose 20 basis points this quarter to 3.65%. The main drivers of the increase are strong loan growth, an asset-sensitive balance sheet, and the Fed's short-term interest rate increases. This quarter, the net interest margin includes three basis points of purchase accounting accretion, which is unchanged from the prior quarter. Non-interest income of $30 million this quarter was $800,000 higher than the prior quarter. Excluding security losses, core non-interest income was $30.1 million, which was at the high end of our $29 to $30 million forecast. So in total, quarterly revenue grew $10 million, or 5%, and exceeded expectations. Shifting to expenses. Non-interest expense totaled $117.2 million this quarter. That's up $8.3 million from last quarter. Excluding restructuring, tax credit costs, and asset gains and losses, the run rate of recurring operating expenses increased $3.1 million to $109.1 million compared to $106 million last quarter and exceeded our forecast of $105 to $106 million. Operating expenses were higher than anticipated in Q4, primarily due to legal and other cost reimbursements related to the resolution of a shareholder group dispute and higher incentive compensation accruals due to stronger than expected quarterly revenue and loan growth. As a result of the strong revenue growth this quarter, the fourth quarter efficiency ratio improved to 54.33% from 55.26% last quarter. Now looking ahead to 2023, HTLF expects to see continued success and improvement, highlighted by expected loan growth of 6% to 8% next year, with $150 to $200 million expected next quarter. Deposit growth is expected to be 3% to 5% next year, with Q1 expected to show nominal growth. Investment cash flow will be utilized to fund the gap between loan growth and deposit growth. Net interest income for Q1 will be down versus Q4 due to two fewer days in the quarter. Full year, net interest income will be much higher than 2022. That reflects our higher net interest margin and larger balance sheet. However, the magnitude of the increase will be dependent upon future Fed rate moves and deposit pricing, which are difficult to predict at this time. Provision for credit losses are projected to range from $4 to $6 million per quarter given projected loan growth and assuming credit trends begin to normalize from their current levels. However, declines in economic conditions and projections could significantly impact future provisions if a worse than moderate recession develops. Corn on interest income, that is excluding investment gains and losses, is expected to be $28 to $29 million next quarter and is projected to raise 4% to 5% on a full year basis as persistently weaker mortgage revenue is offset by growth in other income categories, primarily commercial fees. Recurring operating expenses are expected to be $108 to $109 million next quarter and show a 2% to 3% increase on a full year basis. This includes the impact of an increase in FDIC costs of $3 to $4 million for the full year. Charter consolidation restructuring costs are expected to be $2 to $2.5 million next quarter. In total, we estimate the remaining cost to complete the project will approach $10 million over the next four quarters. And finally, we believe a tax rate of 22 to 23%, excluding new tax credits, is a reasonable run rate. So with that, I'll turn the call back over to Bruce for questions and answers.
spk07: Thank you, Brian. Do we want to open up the call, Tawanda?
spk05: Thank you. We will now conduct our Q&A session. To ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster.
spk06: Our first question comes from the line of Terry McEvoy with Stevens.
spk05: Your line is open.
spk08: Hi. Good afternoon, everybody. Hi, Terry. Hi, Brian. Thanks for all the financial outlook. Maybe if I could just ask a question. The $20 million of benefits from the charter consolidation, can you remind me, is that all on the expense side? And then maybe if we just take a step back, could you give us a few real-world examples of the benefits of the charter consolidation outside of the numbers? And maybe just to finish the thought, has there been any impact on local decision-making or even the perception that things have changed there? Thank you.
spk04: Yeah, Brian, let me maybe answer or give some comments on Terry's last questions. There is absolutely no impact on local decision-making, not only the perception, but there's actually no impact. The decisions that our local CEOs and leadership teams were able to make pre-charter consolidation and post-charter consolidation are exactly the same. So there's absolutely no change there, and it's actually gone very, very, very smoothly. Brian, why don't you talk a little bit about the real-world examples of not just the expense side, but the actual changes because your area has a lot of that benefit.
spk09: Yeah, I think there's certainly internal efficiencies that we'll gain, Terry, for example, not doing as many call reports. That's a simple one, right? But we also manage multiple investment portfolios. We'll eventually only need to manage one. Same with liquidity, maintaining liquidity at 11 banks versus one. So there's a lot in finance. There's, throughout the operations side, you know, Reg O doesn't have to be reported as much. There's some compliance things that help as well. So there's lots of those things. I think for, you know, for additionally for customers, it will be easier for them to bank at any one of our locations across the footprint, easier than it is today. And so there are customer benefits as well. In terms of the $20 million... efficiency gain in terms of dollars. It's really in a couple, maybe two or three places. The predominant place is expense savings. As you can probably see, our FTE count is down already. Whether we'll have to replace some of that, but we certainly won't have to replace it, I don't think, all back to the levels that we were before because we'll become more efficient. So there's Some cost takeouts for not having to do certain things, but there's going to be efficiency gains as well where we won't have to add back people even if we continue to grow. And maybe the third, and this is probably the smaller one, is there's probably some efficiencies in the Treasury area just with when we do exercise some of our trades, there are probably bigger blocks and we can maybe get a little bit better execution. So one other thing that I might add is that we One big benefit that we get internally is we don't have to participate loans back and forth between banks. And we spend a lot of time in the operations area and in the finance area kind of sorting that out, and we put it all together, but then keeping the banks separate. So, Bruce, anything else to add?
spk04: Yeah, just two other things, and I want to piggyback on what Brian just said about the internal loan participations between our charters. One of the real benefits of the banks that we've already consolidated is that their balance sheet and therefore their income statement now actually reflects the work that they've done. Where before, if they had made a loan and it was participated, only the amount of the loan that was not participated remained on their balance sheet. So they're actually now getting the full benefit for everything they're doing, whether it's originating loans or on the deposit side. They're getting the benefit of the deposits if others are using those deposits to fund loans. And then also, you know, we had to manage capital at 11 different charters in the past, where now you don't have to do that. So those are just some of the kind of the non-expense side, but the real benefits in how we operate going forward, Terry. Thanks for the question.
spk08: Yeah, thanks for all the color there. And then as a follow-up, on the deposit side, what's it, $800 million of brokered CDs at 395. Can you just talk about how long you expect those to be on the balance sheet? Is it kind of a one-year type product? And maybe what's your deposit beta going forward from here? It's been relatively low so far.
spk04: BRIAN, WHY DON'T YOU TAKE THAT ONE?
spk09: YEAH, SO I THINK THE 800 MILLION OF CDs, BROKERED CDs, I BELIEVE ARE ALL LESS THAN A YEAR, AND I THINK THEY'RE PREDOMINANTLY LESS THAN SIX MONTHS, SO THEY'RE NOT LONG CDs, TERRY. AND THEN OUR DEPOSIT BETAS, AND YOU PROBABLY CAN SEE IN THE DECK THAT, YOU KNOW, THEY'RE ABOUT, THERE'S BEEN ABOUT 14 OR 15 BASIS POINTS, beta in the fourth quarter. I think those will move up a little bit. It wouldn't surprise me if we saw another 5 to 10 ticks on that beta. We're having to do a little bit of catch-up, but we've moved pretty close to the market, but we're going to move a little bit more to stay with the market. And on the commercial side, we have been making decisions all along that we need to make to make sure that we maintain our customers and and, you know, are open to what relationships we have to customers to price appropriately.
spk08: Great. Thank you for taking my questions, and enjoy the night.
spk07: Thanks, Terry.
spk05: Thank you. Please stand by for our next question. Our next question comes from the line of Damon Del Monte with KBW. Your line is open.
spk01: Hey, good evening, guys. Hope you guys are all doing well today, and thanks for taking my questions. Just wanted to ask a little bit about the margin, Brian. I heard the commentary that, you know, NII will be down on a lower day count in part. I'm just kind of wondering, you know, where you see the margin peaking, if you think it's a first quarter event or a second quarter event, and kind of how you look at the cadence of the margin throughout the year?
spk09: Yeah, that's probably the toughest question I'm going to get today. Sorry. But let me take it in chunks. I would say the first quarter here, our margin, I would say, would stay, without any Fed moves, would probably stay just slightly below the 365 that we posted. I think there's, you know, as I said, there's some latent beta catch up here that I think happened, you know, in December and maybe even early January. So I think we'll fight without any Fed help to stay there. Now, if the Fed raises, like everybody thinks, 25 basis points in a couple days, we'll get a little bit of benefit from that, but not nearly like we were getting before. And I think the deposit betas are going to continue to ratchet up a bit. And we might get a tick or two there. So I would say, all in, we're going to stay somewhere in the first quarter between 360 for sure and maybe 365 on the top end. For the full year, if the Fed doesn't reduce rates in the last half of the year, maybe we get one additional. So we get two bumps instead of one. I think we can stay above 360. But we probably are close to topping out. Now, we might go up a little bit with a Fed move, but I think we're going to slide back down. So we might touch a little bit higher, but I think we're going to bounce around this 365 to 70 maybe once in a while. But then I think long-term we're in the 360s. Okay, that's helpful.
spk01: That's helpful. Thank you. And then with regards to the outlook for loan growth, I think you said like 6% to 8%. Are you seeing greater opportunities on the CNI side or the CRE side, or is it kind of equally weighted?
spk04: Yeah, this is Bruce. Let me take that, and then I'll ask Nathan to weigh in since he sees everything. I think there's more opportunity right now on the CNI side, and our agribusiness group is also generating a lot of opportunity there. There's some activity clearly on the real estate side, particularly in the industrial space, some of the warehousing, some distribution, and a couple of the markets still has some multifamily activity going on. Nathan, you want to add to that?
spk11: Yeah, Bruce, I would fully concur. I think the opportunities really do show themselves on the C&I side and then where we're seeing opportunity on CRE and being very strategic. We do see some good opportunities there as they're coming about, but they're just not as prevalent as they had been historically. Again, because we're just watching a little bit tighter now and taking precautions appropriate for sizing and doing sensitivities to make sure that they'll perform through the cycle.
spk01: Got it. And kind of a more technical or detailed question here. What is your exposure to office space?
spk07: Nathan?
spk11: Yeah. Yeah. We have just a little bit north of $450 million exposure there from a balance perspective.
spk01: Okay, perfect. Okay, great. That's all that I had. Thank you.
spk09: Thanks, David. Just to add maybe on to that office, though, you know, Nathan, you might add where those offices are typically located because I think office can be a very general term. You know, is it downtown high-rise office space? Is it? more low-rise, suburban. Could you give a little bit of that color, Nathan, because I think that would help everybody on the call.
spk11: Yeah, absolutely. You know, just by nature of kind of where we're located and our footprint, we really stay kind of more focused outside of the central business districts and more focused kind of in a suburban office, kind of really looking at, you know, more of a granular portfolio, multi-tenant nature, amortizing, and we think very well underwritten. So, So far, we feel very good about where we're at, but we are watching it very diligently and kind of continuing to stay in front of it and talking with our customers and making sure that we understand kind of where they're at and so we can make those decisions earlier. But from that perspective, we do feel that the performance today still looks pretty good.
spk09: Thanks for doing that, Nathan.
spk05: Thank you. Please stand by for our next question. Our next question comes from the line of Jeff Rulis with DA Davidson. Your line is open.
spk03: Thanks. Good afternoon. Maybe one for Nathan. Just wanted the type of loans that were, I guess, resolved out of non-accrual in the quarter, I think around $6 million net, but just wanted to kind of get a sense for what was recovered.
spk11: Yeah, absolutely. It's really, there wasn't any area of significance. The recovery was really on a credit that we had in agriculture from really several years back. Just due to the really great work done by our special assets group to stay with it, I was really able to see through and get some recoveries there. But from the non-performing perspective, kind of how that's going, we just continue to work it down. I would say there's any one area, especially we could call out as being a systemic as where we're working through it. It's just the overall book itself. We continue to work hard to make sure we're getting ahead of those credits and getting them either a back into our performing line of business or helping them find a different bank or opportunities for them to going forward.
spk03: And Nathan, that's not a change. Sorry, Bruce, go ahead.
spk04: No, I was just going to provide a little more color, Jeff, the, um, The recovery was on a loan that had been previously fully charged off, so it didn't have any – that was not connected to the decrease in our non-accrual loans.
spk03: Right. Yeah, I kind of flubbed the question there. I was really looking for the direction of non-accrual. I got you. But I think Nathan kind of – not anything overly specific. It's been just continued work, and I – you know, kind of the follow-on was – there's no change in aggressiveness. It's not as if, you know, if this mild recession is upon us, you didn't change gears or anything. It's just working those credits and you just got, like you said, nondescript reductions in non-accruals.
spk11: Correct.
spk03: Okay.
spk11: And thank you for the clarification on that, Bruce.
spk03: And just a follow-on, maybe for Brian. Did that recovery impact the margin at all? Was there anything in there that you'd say that kind of non-core, the 365?
spk09: Yeah, no, there was no interest recovery. It was all principal recovery. This one, Jeff, just for the color, this one was one of the loans that we charged off coming into the COVID. We had a couple of big charge-offs as we entered COVID. I think it was back from that time. So it's been, you know, like three, almost three, Two and a half, three years since we took the charge off.
spk03: Okay. Got it. Great. Thanks. And just jumping over on topics to the expense side, I wanted to make sure I got the 108 to 109. Brian, you said 2% to 3% full-year growth, correct? Yep. Okay. Okay. And that would exclude the charter restructuring cost of $2.5 million, correct?
spk09: Correct. Yeah, it excludes those items. I always exclude the charter restructuring, any tax credit costs from last year, and any gains and losses that are in that expense line item. If you back those out of last year and put a 2% or 3% increase on top of that, that's where I think we're at.
spk03: Brian, do you have a 22 core expense number? relative to the 443, what would be the core?
spk09: I probably could get it. I don't have it here. I'll need to do some math. I'm sometimes doing math while everybody's on the call.
spk03: I understand. Yeah, if we could follow up, that would be all right.
spk09: I'll kind of poke through the numbers. It is pretty easy, though, Jeff. If you go to our income statement, there's three line items specific to those three items I talked about.
spk03: Okay, yeah, I appreciate it. Probably track it down. Okay, well, thank you. I'll step back. Thanks, Joe. Thank you.
spk05: Please stand by for our next question. Our next question comes from the line of Andrew Leisch with Piper Sander. Your line is open.
spk10: Hey, good afternoon, everyone. Hi, Andrew. Following up on the expenses here, just looking in once the charter conversion is complete, charter consolidation is complete and you have the cost saved in there, have you looked out and seen what other investments in the franchise you expect to make? Are any of these savings going to be redeployed or do you think they're all going to follow the bottom line?
spk04: Yeah, Andrew, I think that's a really great question and I would anticipate that You know, as I'm thinking about it, over half of them will probably redeploy into the charter with products or potentially some geographic expansion. But it's really where the opportunities are. And, you know, at the end of the day. Yeah, and one of the things that we've been talking about, as you know, we'll probably reinvest in our consumer deposit platform. that's one of the things that we'll probably reinvest in during, you know, maybe the back half of 23 or early in 24.
spk10: Okay. Got it. That's helpful there. And then on the growth for this year, three to five and a half percent deposit growth, because where is that deposit growth coming from? I would imagine it's not on the wholesale side like you had here this last quarter, but what's giving you the confidence that, 3 to 5% is achievable in this tougher environment.
spk04: Yeah, we think it'll come from the commercial side and the small business side where we've been generating a lot of new business and new opportunities. We think the consumer side you know, honestly, will probably be flattish as we're just now starting to see the average balances in our consumer accounts start to decrease. You've heard us talk in the past that those extra balances during the pandemic, you know, they were holding steady. We just saw them start to decrease for the first time during the fourth quarter. So our goal is to generate enough new business to offset that decrease on the consumer side. And we think that we'll be able to grow the commercial and the business banking and small business side on a go-forward basis. And we would have done that this year, except we did have significant commercial operational outflows in the quarter that I referenced.
spk10: Got it. All right. Thanks for taking the questions. I'll step back. Thanks, Andrew.
spk05: Thank you. Please stand by for our next question.
spk06: Our next question comes from the line of David Long with Raymond James.
spk05: Your line is open.
spk02: Hi, everyone.
spk09: David.
spk02: Hello. I wanted to circle back to the discussion on the deposit base. And, Brian, you gave some good colors, so I appreciate it. But just as you're looking out for the rest of this year, non-interest bearing, I think we're at about 32%. Where do you think that ends the year? And do you have a rough estimate? DEPOSIT BETA ALL IN THAT YOU'RE USING FOR YOUR OUTLOOK FOR THIS YEAR AS WELL.
spk09: BRIAN, YOU WANT TO TAKE THAT ONE? YEAH, I THINK OUR DDA'S ARE 36% THE WAY WE CALCULATE THEM. I DON'T KNOW IF MAYBE YOU'VE GOT AVERAGE BALANCES OR SOMETHING, DAVID, BUT I THINK IT'S 36. BUT THAT'S DOWN A LITTLE BIT FROM WHERE IT WAS, SO THAT HAS MOVED A LITTLE BIT THIS YEAR WITH THE WAY DEPOSITS HAVE FLOWED. So we think that that can probably solidify. And some of that outflow that we saw at the end of the quarter was out of DDA in the commercial side. So hopefully, some of that will flow a little bit and build back. And I think the new customers that Bruce is talking about, if we're successful in bringing in C&I customers, which we have been, those tend to be more DDA and non-interest bearing accounts. I think, you know, there we can hold our own and maybe grow just a little bit on the DDA side and certainly grow then non-maturity deposits in total. Betas that we use.
spk07: And we think, Dave.
spk09: Oh, go ahead. Go ahead, Bruce. No, go ahead. I'll finish with the betas and then you can jump in and add some color. I was just going to say our betas that we model are typically around 25 to 30 percent on the non-maturity side. and probably around 80% on the CDs. It kind of blends together for something in the mid-30s for overall betas. Now, we've been doing better than that. Particularly, we did better than that in the first probably 250 basis point move, where we didn't move much, if any. So I still think we have some catch up, which is why I think you know, our margin's not going to go a lot higher and it's going to kind of tread water here because we're probably going to be having some catch-up on those betas here going forward.
spk04: David, I was just going to mention on that commercial deposit growth, that will also help us on the treasury management fee side because those operating accounts of all those new relationships, we're able to provide them with our products that we have on the treasury management side, as well as those C&I customers are using more of our capital markets products, whether they're swapping their floating rate loans, which this quarter, 79% of our loans were floating, which is an all-time high for us.
spk02: Got it. Thanks for the additional call. And then just the last thing I wanted to ask, back to the deposit side, Within your footprint, very broad-based footprint, do you notice any material differences in deposit pricing within your footprint? Are you getting better pricing out west, maybe in the Midwest, maybe Texas? I guess the question maybe specifically would be where do you see the least amount of deposit competition and where do you see the most competition?
spk04: I think the Midwest always has had more competition. than the West. I mean, that's been the history, and you've heard us talk about that in the past. But I would tell you the one market that probably we do the best in is in New Mexico. It's not so much that there's no competition. It's just we've got a great team out there. They've been there a long time. And there aren't as many credit unions, as an example, out there. You know, where we are seeing the highest competition is where there's significant credit union activity, which also tends to be in the Midwest.
spk02: Guys, thanks for taking my questions, guys. I appreciate it. You bet. Thanks, David.
spk05: Thank you. As there are no further questions at this time, I would now like to turn the call back over to Mr. Lee for closing remarks.
spk07: Thank you, Twanda.
spk04: In closing, HTLF had a strong fourth quarter and outstanding year. In 2022, we delivered record total revenue of $726 million, a 5% increase, record loan growth of $1.6 billion, or 17%, excluding PPP. Our fourth quarter efficiency ratio decreased 15% from a year ago to 54.33%. Our credit quality continues to be excellent and improving, and we have increased the dividend on our common stock to a record $0.30 per share, all while seamlessly executing charter consolidation to deliver improved customer experience, efficiency, and unlock capacity for future growth. Our strong momentum continues into 2023, and we are well positioned to continue driving growth. Thank you for joining us tonight. Our next quarterly earnings call will be in late April. Have a good evening.
spk05: Ladies and gentlemen this concludes today's conference call. Thank you for your participation. You may now disconnect.
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