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00:06 Greetings, and welcome to the HTLF Third Quarter twenty twenty one Conference Call. This afternoon, HTLF distributed its third quarter press release and hopefully, you've had a chance to review the results. If there is anyone on this call who did not receive a copy, you may access it at HTLF’s website at htlf.com.

00:31 With us today from management are Lynn Fuller, Executive Operating Chairman; Bruce Lee, President and CEO; Bryan McKeag, Executive Vice President and Chief Financial Officer. Management will provide a brief summary of the quarter, and then we will open the call to your questions.

00:53 Before we begin the presentation, I would like to remind everyone that some of the information management will be providing today falls under the guidelines of forward-looking statements as defined by the Securities and Exchange Commission.

As part of these guidelines, I must point out that any statements made during this presentation concerning the company's hopes, beliefs, expectations and predictions of the future are forward-looking statements, and the actual results could differ materially from those projected.

01:24 Additional 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 website or the SEC's website. 01:37 At this time, I will now turn the call over to Mr. Lynn Fuller at HTLF. Please go ahead, sir..

01:44 Thank you, Towanda, and good afternoon. Welcome to HTLF’s third quarter twenty twenty one earnings call. We appreciate everyone joining us today as we discuss the company's performance for the third quarter of twenty twenty one. For the next few minutes, I'll touch on the highlights for the quarter.

I'll then turn the call over to HTLF’s President and CEO, Bruce Lee, who will cover business performance. Then Bryan McKeag, our EVP and CFO will provide additional color around HTLF’s results. And also joining us today is Nathan Jones, EVP and Chief Credit Officer, who will be available to answer questions regarding credit.

02:29 Now, on to the financial highlights for the third quarter of twenty twenty one. I'm pleased to report that we had another solid quarter.

Net income in the third quarter available to common shareholders was fifty three point nine million compared to forty five point five million for the third quarter of twenty twenty, an increase of eight point four million or eighteen percent.

02:56 Diluted earnings per common share was one point two seven dollars compared to one point two three dollars for the third quarter of last year, an increase of zero point zero four dollars or three percent.

Year to date earnings per share is three point eight eight dollars, which is an increase of one point two nine dollars or fifty percent over last year. 03:21 Annualized return on average common equity and average tangible common equity for the quarter was ten point three two percent and fifteen point one four percent respectively.

And year to date, that's ten point nine five percent and sixteen point three four percent respectively. 03:41 Annualized return on average assets for the quarter was one point one nine percent and year to date, one point two five percent.

Net interest margin on a fully tax equivalent basis was three point three four percent for the quarter and three point four one percent year to date. Our efficiency ratio was sixty point three eight percent and year to date, fifty eight point zero five percent. Bruce and Bryan will share more detail on these ratios in their comments.

04:11 While book value and tangible book value per common share continued to increase ending the quarter at forty eight point seven nine dollars and thirty four point three three dollars respectively. That's a six percent and four percent increase respectively from a year ago.

Tangible common equity ended the quarter at seven point eight nine percent, just short of our goal of eight percent to nine percent and all regulatory capital ratios continue to be very strong bolstered by our issuance of one hundred and fifty million in sub debt during the quarter.

04:48 Well, at this month's board meeting, HTLF’s Board of Directors approved an eight percent increase in its quarterly cash dividend, raising it from zero point two five dollars per share to zero point two seven dollars per share on the company's outstanding common stock.

The dividend is payable on November thirty, twenty twenty one to stockholders of record at the close of business on November fifteen, twenty twenty one. 05:15 This marks the third increase in twenty twenty one and results in a thirty five percent total increase over the prior year's quarterly dividend level of zero point two zero dollars per share.

The Board also approved a preferred dividend of one hundred and seventy five dollars payable on January fifteen, twenty twenty two to stockholders of record on December thirty one, twenty twenty one.

05:42 Well now I’ll turn the call over to Bruce Lee, HTLF’s President and CEO who will provide an overview of the company's operating performance and credit.

Bruce?.

05:52 Thank you, Lynn. Good afternoon, everyone. I am pleased to share with you HTLF’s solid third quarter results. We continue to see strong growth across our markets, and we're already seeing results from the investments we've made in talent and technology for our lending teams.

06:11 In the third quarter, total assets grew to a record nineteen billion, an increase of six twenty five million from the linked quarter. Assets are up three point four billion or twenty two percent from a year ago.

Asset growth is driven by our strong momentum in commercial and consumer loans, and we continue to see significant growth in deposits and service fees. 06:39 Let's start with loan growth highlights.

Loans grew two sixty three million across our portfolios, excluding PPP, an increase of three percent from the linked quarter, exceeding our guidance for the quarter of two twenty million. We saw continued strength across our commercial loan portfolios. With the exception of construction, all categories showed growth during the quarter.

07:09 From the linked quarter, Commercial and Industrial increased nineteen million or one percent. Owner occupied real estate increased one hundred and ninety five million or ten percent. Non-owner occupied real estate increased thirty three million or two percent. Our ag portfolio increased five million or one percent.

Construction decreased forty million or five percent. We added two twenty six new commercial relationships during the quarter, representing one hundred and sixteen million in funded loans and sixteen million of new deposits. 07:53 We're focused on executing our talent acquisition strategy.

In California, we added an agri-finance team of twenty two people. It's an excellent team that includes relationship managers, treasury management officers, and credit professionals and strategically adds to our growing agribusiness in the Central Valley of California.

The strength of our agribusiness group complements our other HTLF specialized industries teams, that have expertise in healthcare, specialty manufacturing and distribution, food and beverage and professional services. 08:34 We're also extending our reach in several high growth markets in the Midwest. We have opened offices in St.

Paul, Des Moines, and Cedar Rapids and are scheduled to open two offices in the Western Suburbs of Chicago this quarter. We have added thirteen commercial bankers at these locations.

08:57 Our commercial pipeline is sixteen percent higher from the end of the second quarter, and we expect to grow commercial loans in excess of two hundred million in the fourth quarter. I'm traveling regularly and meeting with our clients and bankers. It's exciting to see firsthand our clients’ creativity, resilience and optimism.

Headwinds remain and clients are managing challenges from supply chain disruptions, workforce shortages, and wage pressures and inflation. 09:34 We're very pleased with the pace of PPP forgiveness. With PPP1 loans, ninety nine percent of customers and dollars have already completed the forgiveness process.

As PPP2 borrowers become eligible to apply for forgiveness, we are seeing a steady pace of activity. 09:56 We also had strong growth in our core consumer based loan portfolios, which encompasses both consumer and residential mortgage loans, increasing by fifty million from the linked quarter and greatly exceeding our forecast of twenty million.

We expect continued growth albeit at a slightly slower pace and forecast twenty million of growth in core consumer based loans in the fourth quarter. 10:28 Turning to deposits, non-time deposits totaled fifteen billion at quarter end, an increase of four sixty five million or three point two percent during the quarter.

Demand deposits increased two thirty eight million or four percent to six point five billion. Savings deposits increased two twenty seven million or three percent to eight point four billion. 10:59 We saw total deposit growth for the tenth consecutive quarter.

Total deposits were a record sixteen billion, an increase of four zero seven million from the linked quarter and three point three billion or twenty five percent from a year ago. Our already exceptional deposit mix improved even further.

Forty one percent of deposits are in non-interest bearing accounts, and ninety three percent in non-time account balances. 11:33 Our deposit pricing strategy continues to serve us well. Total deposit costs remained low at eight basis points, a decrease from sixteen basis points one year ago. Helping us weather continued pressure on our margins.

11:52 Turning to key credit metrics, Nathan Jones, our Chief Credit Officer and his team use a disciplined credit approach that has delivered strong credit quality across our portfolios. Non-performing loans decreased two point one million from the linked quarter and represented eighty four basis points of total loans.

Non-performing assets as a percentage of total assets decreased to forty six basis points from fifty basis points in the linked quarter. 12:25 Other real estate decreased to four point seven million from six point three million dollars in the linked quarter.

Delinquency ratio decreased to twelve basis points from seventeen basis points in the linked quarter. Non-pass-rated loans decreased to nine point two percent, a decrease of one point two percent for the quarter.

12:51 Lastly, in the third quarter, we reported a net recovery on charge-off loans of one point three million or minus five basis points of average loans. We are strategically investing for growth through our talent acquisition strategy. We have expanded and strengthened our commercial teams.

We are providing them with best in class technology, while we continue to engineer processes for speed and scale. 13:22 We're also establishing a fifteen dollar per hour minimum wage for all employees beginning November first. We actively listened to our customers, to our bankers, and structured research.

In partnership with [Greenidge] [ph], we conduct commercial customer experience research to identify opportunities to satisfy emerging needs. Through this dialogue, we collect market intelligence to inform our strategies and investments.

13:58 We are on track to deliver more service enhancements, and digital functionality that will enrich the customer experience. We're expanding our document management capabilities to reduce administrative burden for our customers and bankers. We're adding more convenience features like online appointment scheduling and live chat.

14:21 We are partnering with Temenos for robust consumer online account opening, loan origination, and digital onboarding. And we're excited about offering custom digital experiences in the future to our customer portal that's currently in development. These enhancements enable us to continue to optimize our branch network.

Since twenty nineteen, we have closed or announced plans to close twenty three branches or sixteen percent of our network. 14:57 Importantly, we retained ninety five percent of the deposits from these locations. We continue to look closely at our footprint and expect a further reduction of seven percent in the network.

HTLF is in the process of finalizing and evaluation of consolidating our separate bank charters into a single charter to drive efficiency, improve agility, reduce expenses and enhance scalability. 15:30 We are well positioned to consolidate our bank charters.

We already successfully operate a well-integrated shared services model and consolidating charters will yield additional benefits including driving efficiency and reducing redundancies, realizing significant expense savings, focusing existing resources where they add the most value, simplifying regulatory and financial reporting, and adding greater capacity to better serve our customers.

16:06 Two key tenants of our evaluation are. First, our banks will maintain their brand identities and retain local decision making, local leadership, and local boards. Second, HTLF will maintain its strong and sizable presence in Dubuque, Iowa.

Currently, HTLF – current HTLF operational and administrative functions will continue to be largely staffed and run from Dubuque. 16:40 When completed, we expect to achieve annualized revenue opportunities and expense reductions totaling three percent to five percent of our current cost base.

While other institutions may have achieved greater savings in their charter consolidation initiatives, our savings may be somewhat lower as we already operate a well-integrated and mature shared services model. We expect to communicate more details when the evaluation is complete later in the fourth quarter.

17:17 Lastly, I want to acknowledge our employees. I'm proud of how they continue to adjust, adapt, and advance. I'm grateful for their hard work and dedication. It has strengthened our company and delivered strength, insight, and growth to our customers, communities, and shareholders. Together, we are HTLF.

17:42 I will now turn the call over to Bryan McKeag, HTLF’s Chief Financial Officer for more details on our performance and financials..

17:53 Thanks, Bruce, and good afternoon. I'll begin today by referencing our earnings release, which details another solid quarter for HTLF with earnings per share reported at one point two seven dollars, loan growth of two sixty three million, excluding PPP long forgiveness, improved credit metrics and continued deposit growth.

18:17 Before I go into my comments, I would remind you that you can find additional information on the quarter in the third quarter investor presentation, which is available in the IR section of HTLF’s website.

18:31 So, I'll start my comments with the provision for credit losses, which was a four point five million benefit this quarter, and primarily driven by improved underlying credit metrics.

Highlighted by loan upgrades, exceeding downgrades, a two million dollar decrease in non-performing loans, a record low level of loan delinquencies, and one point three million in net recoveries on previously charged off loans.

19:00 The economic outlook factors used to develop the allowance were largely unchanged from last quarter and still retain a measured level of caution and uncertainty that management deems appropriate for lingering economic headwinds that are yet to be resolved.

19:21 At quarter end, the total allowance for lending related credit losses, which includes both the allowance for credit losses on loans and unfunded commitments stood at one hundred and thirty one point five million or one point three three percent of total loans.

When the PPP loan balances are excluded, the total allowance stands at one point three nine percent compared to one point four seven percent at June thirty, twenty twenty one.

19:49 At quarter end, unamortized purchased loan valuations on the balance sheet totaled twenty one point five million or twenty three basis points of total loans, excluding PPP. 20:02 Moving to the rest of the balance sheet.

Investments grew nine twelve million this quarter and comprised just over forty percent of assets with a tax equivalent yield of two point one seven percent, a duration of just over five years and generates seventy to seventy five million of monthly cash flow.

20:24 Borrowings increased two fourteen million to end the quarter at six thirty seven million or three point three six percent of assets.

The increase this quarter includes both the issuance of one hundred and fifty million, two point seven five percent fixed rate sub debt, and the retirement of a twenty one million five point four three percent fixed rate holding company loan.

20:51 The tangible common equity ratio decreased nineteen basis points to seven point eight nine percent at quarter end. The decrease was a result of sixteen basis points decline due to the decrease in market value of investments, and another twenty six basis points decline due to the significant balance sheet growth this quarter.

These were partially offset by twenty two basis point increase from higher retained earnings.

21:19 Heartland’s regulatory capital ratios remain strong, with common equity Tier one at just under eleven point five percent and the total risk based now over sixteen percent with the inclusion of one hundred and fifty million in sub debt we issued this quarter. So, the balance sheet continues to be very strong and well positioned.

21:40 Moving to the income statement, net interest income totaled one hundred and forty two point five million this quarter, which was one point three million higher than the prior quarter. PPP interest and fees recognized this quarter was eleven point two million, which was unchanged from last quarter.

22:00 We exited the quarter with just under seventeen million of unamortized PPP loan fees remaining on our books. The net interest margin on a tax equivalent basis this quarter was three point three four percent that's down seven basis points compared to last quarter.

During the quarter, a ten basis point decline in investment yields was partially offset by two basis point increase in loan yields in a one basis point drop in interest costs. 22:29 This quarter, the net interest margin includes eight basis points of purchase accounting accretion, which was down one basis point from the prior quarter.

Non-interest income totaled thirty two point seven million for the quarter. That's down four hundred and forty thousand from last quarter. 22:46 Total mortgage banking revenue was up one point two million, which was offset by offset by security gains, which decreased one point three million, compared to last quarter.

In addition, service charges were four hundred thousand higher and trust fees were up two hundred, representing three percent increases in each category compared to last quarter. 23:09 Shifting to non-interest expense, non-interest expenses totaled one hundred and ten point six million this quarter, up seven point three million from last quarter.

Excluding acquisition, integration, restructuring and tax, credit costs, and asset gains and losses, core expenses increased just over million to one hundred and eight million compared to one hundred and two million last quarter.

23:35 The increase is attributed to several items, including a three point four million dollar increase in salary and benefit costs related to the addition of the new lending teams some wage inflation pressure and higher benefit costs as our employees have started to utilize the healthcare system at more normalized.

The remaining increase is primarily due to FDIC insurance assessments, which rose due to higher deposit levels and higher cost for security, legal, and account losses related to increases in claims and fraud activity this quarter. 24:15 Looking ahead to the final quarter of twenty twenty one and into twenty twenty two.

We believe HTLF will continue to deliver strong results, highlighted by loan pipelines that remain strong, leading to an expected growth rate ex-PPP and a two percent range per quarter as the economy continues to strengthen. Remaining PPP loan forgiveness will happen largely over the next two quarters.

24:43 We anticipate that PPP reductions will be replaced by non-PPP growth. Non-time deposits growth is likely to slow into the one percent range per quarter. Net interest margin will continue to be pressured, however, net interest income, excluding PPP fees is projected to grow modestly as earning assets grow and mix improves going forward.

25:09 Provision for credit losses are expected to remain low for the next quarter or two and then begin to normalize as loan growth continues, the economy stabilizes, and COVID and supply chain issues subside in twenty twenty two.

25:24 Non-interest income, excluding investment gains or losses in total is expected to be flat next quarter at about thirty one million. We expect to see year over year lift in core non-interest income in the ten percent range next year. Core expenses are expected to remain flat in the one hundred and eight million dollar range next quarter.

25:48 We intend to manage core expenses to a modest year over year increase in twenty twenty two. However, persistent or increasing inflationary pressures could be a difficult headwind. We believe a twenty two percent core tax rate that excludes new tax credits is a reasonable full year run rate, assuming no tax law changes.

26:10 And lastly, we expect the TCE ratio will climb back above eight percent next quarter as we get a twenty to twenty five basis points increase from retained earnings. However, a continued upward movement in interest rates could weigh negatively on the ratio. 26:27 And with that, I'll turn the call back over to Bruce for questions..

26:31 Thanks, Brian. Towanda, if you want to open up the line, we'll take questions now..

26:38 Thank you. [Operator Instructions] Our first question comes from the line of Jeff Rulis with D.A. Davidson. Your line is open..

27:06 Thanks. Good afternoon..

27:08 Hi, Jeff..

27:10 Hi. Just a question on the, did charter collapse? I guess analysis is still to be determined, but sort of the trigger on that, I mean, that's certainly been discussed for years and you stayed on that platform and really, I guess effectively not a lot changes. Just interested in the trigger for the timing of that.

I know that you've done a lot of internal work for years now.

I just wanted to kind of get a sense for the timeline of, kind of why now in that discussion?.

27:47 Yeah. So, Jeff, this is Bruce. I think couple of reasons. First of all, we had to make sure that we had a foundation internally so that we could actually execute on a charter collapse. We actually have that in place now. I think the second thing is, we've gotten larger that also was one of the factors as well.

And we just felt that that this was the right time to do it, especially with the pressure on both margin and expenses that this will be an opportunity for us to continue to reduce our efficiency ratio over time, and we've also been reducing the number of physical branch locations as well..

28:30 I think the other thing I would add Jeff is, when we do acquisitions and we’ve been doing acquisitions into our model, a model that has one charter and the ability to do bigger deals and set them the way that we want within the company will be easier if we don't have worry about the separate charter demarcations.

And so that will make it easier along with other internal things in our back office..

28:56 Yeah. And just to follow-up on Bryan's comment, our last acquisition, AimBank, they had geography that stretched across two states. So, based upon our model, we had to split their operation into our two separate charters with some of the assets going into New Mexico and some of them going into Texas..

29:17 That makes sense. Excited to kind of hear the results of that.

Maybe just Bryan then the expense guide is maybe absent, any decision on that to come in the fourth quarter? Is that fair to say? Or would that have much impact?.

29:37 Yes. And I would say the impact is likely to come more towards the end of when we get the charter consolidations done. So, I think it's going to be a little bit of a lag before you start to see the impact on our run rate from the consolidation.

There probably will be some one-time time expenses that will incur to get the consolidation done as we go through. So, it could be a little lag before we see the benefit.

30:02 Still working on the timing and what other things we have to make sure? We kind of cleared the deck of a couple of projects and then we can get going assuming we finalize the process here..

30:16 Okay.

So, your modest increase in the twenty two would be absent that, and like I said, maybe some upfront costs and the savings that you potentially identified would kind of be a twenty three event is that fair?.

30:31 Yeah, late twenty two into twenty three. Yes..

30:35 Okay. Maybe one last one on expenses, just seems a little elevator. I know the projects that you have and appreciate the slide on the number of items that you're working on, was there any lumpy pull forward in this quarter that would suggest, you know that tracking these projects is a little difficult from quarter to quarter.

But was this on the higher side, given your guidance sounds like flat and then moderate next year, but maybe just give us an update on the timeline of kind of where you are on that internal spend and work on that front?.

31:17 Yes. I think a couple of things.

So, we still have one quarter left in twenty twenty one and I think the consulting part, so what we expense as we kind do these projects, we’ll probably have one more quarter to go and then we expect that should start to slow down as we really then concentrate on the charter consolidation as one of our main projects. 31:40 So that should come down.

We then will bump up in temp cost again trying to get some of these projects to completion before we start the consolidation. So, I would say those are two things that happened on the project side, professional fees and some of it was in the salaries and benefit line as well.

32:01 The rest of the cost increase, a lot of it was we added the lending teams that Bruce talked about. So that was one component. And quite frankly we have been getting a benefit from our employees not doing as much in the healthcare area staying at home, not visiting being the doctor, not doing some of their normal healthcare.

And so, we're seeing that starting to open up. 32:25 We're seeing the claims starting to pick up and a lot of that is normal people going back and using the healthcare system. So, those new teams and the healthcare costs, I think are going to stick. And so, that's why I'm thinking some of this cost to yield is stickier than other..

32:47 Got it. Sorry, that triggered one last small one.

The agribusiness team you added in the [Central Valley] [ph], what was the total number of folks that you brought on?.

32:56 Twenty two..

32:58 Okay. It sounded like it ranged… Go ahead..

33:02 Well, that would include again, relationship managers, treasury management officers, and the credit team and support team..

33:13 Great. Thank you. I'll step back..

33:17 Thanks, Jeff..

33:20 Thank you. Our next question comes from the line of Terry McEvoy with Stephens. Your line is open..

33:28 Terry, you there? Towanda I don't think he has come [Multiple Speakers]..

33:36 Check to see if your line is on mute Terry?.

33:39 Is that better?.

33:40 There we go..

33:41 Sorry. I think battery in the headset died. Good afternoon, everyone. Let's just stick with just the consolidation of the bank charters. I mean, everything I've heard sounds quite positive.

What would you lose? What's the other side of the argument that is maybe being discussed internally?.

34:03 Well, we spent a lot of time talking about it and we don't think there's really very much that we lose at all. Especially when you keep the brands, you keep our structure with local CEO, local decision making, local boards, quite honestly, that's why we chose to do it. We didn't see any downside..

34:27 That makes complete sense. Slide thirteen, the digital strategy, so much went into that slide, and I don't want to just overlook it. So, I guess my question is, you do a few things very well first.

What's the takeaway from the slide? Is it treasury management, consumer loan originations, or what are those few things that you're looking to do extremely well, at least in Phase one here?.

34:50 Yes. I think the way to think about it is, if you look at the upper left hand corner, those are the things we're really trying to do better. And those are the things that the customers are asking for first.

35:07 So, we really thought that we would turn this around a little bit and not focus on what we thought the right thing to do was, but what did the customer’s expectations, what expectations do they have? And so, then also on the right hand, upper right hand corner, those are also things that our customers were looking for.

In sort of the bottom half, a lot of this is more on what I would call the efficiency side..

35:38 Yes. I think Terry just to add on that. I think what we're really working hard is to get that acquired and fill that top one or the account analysis that we're trying to get done before the end of the year, the account opening and maintenance and the online products. We're trying to get those done before we start to collapse the charters.

So that is already – so that as the charters move together, that functionality just grows across the footprint..

36:09 I think the other thing, Terry, it goes to a little bit of the elevated expenses Bryan already talked about as well as getting some things done first.

We wanted to get the customer facing things done first to provide value for that customer experience, so that next year, we can really focus on this charter collapse and installing Temenos on the retail side, because we believe that will be a game changer for our customers and internally..

36:42 Great. Thanks..

36:43 We only had one capacity, so we wanted to get, we have to get some of these things done first..

36:47 Understood. I appreciate that, and Bryan, thanks for your fourth quarter outlook for some of the balance sheet and income statement items very, very helpful. Thanks..

36:56 Thanks..

36:57 Thank you. Our next question comes from the line of Andrew Liesch with Piper Sandler. Your line is open..

37:05 Hi. Good afternoon everyone. Just one last question on expenses.

The one hundred and eight million in the modest growth next year, that modest growth up that run rate, not the full year number in twenty one, is that correct?.

37:20 I would say actually we're trying to have it be very modest off this one hundred and eight. Again, as we go into next year, I think some of the consulting and some of things we're doing will come off, but again, I think it's modest over the full year, probably relatively flat hopefully slightly down from where we are..

37:43 Got it. Okay. That's helpful..

37:46 As I said, the one headwind that concerns me is, all the inflation that's out there and all the wage inflation, things like that that we all in the industry are going to deal with. So that's probably the biggest hurdle to get where we want to go right now..

38:05 Certainly. Yeah.

Then on the – [indiscernible] portfolio continue to add some this quarter? You are going to add as much cash as you did a few quarters ago, but what's the appetite to continue building that portfolio? And what have you been adding there?.

38:27 Yes.

So, I think in terms of growth of the portfolio, our hope is that the growth will slow considerably and maybe flatten out as we can get the loan engine these new teams humming, we like to be able to convert basically the cash flow little bit off the investment portfolio and certainly the cash flow that’s coming off of the forgiveness right in so back into loans.

So, if we can do that, you may not see earning assets grow a whole lot for a quarter or two, just more reposition, and then after that, we should see earning assets grow as PPP forgiveness is over. 39:09 Yeah, in terms of [Multiple Speakers], it's probably what most banks are adding. It's fairly low credit, [indiscernible], those sorts of things.

I don't know, probably in the one point five to one and three quarter range, in terms of yield right now.

Hopefully getting a little bit better with the tenure moving up, but we tend to play a little bit shorter of the ten year mark, so, it helps a little bit really in the front end of the curve to come up for us to get the real benefit from our balance sheet..

39:45 Definitely.

And then the team that came over in the Central Valley, California, what size loan portfolio were they managing at their prior bank?.

39:59 Prior to coming over, it was in excess of one billion dollars..

40:05 Okay. So, they could bring that over, but that seems little – that would be aggressive if they did [indiscernible]..

40:13 There's an opportunity there..

40:16 Okay, great. Thanks for taking the question. I’ll step back..

40:22 Thank you. Our next question comes from the line of Damon DelMonte with KBW. Your line is open..

40:30 Hey, good afternoon guys.

Hope everybody is doing well today? Just one quick follow-up on the lending team, you guys bought over, are you disclosing where they came from?.

40:44 We are not disclosing where they came from..

40:49 Okay, fair enough.

And then they started, was it like early in the quarter or I guess when did they come onboard and what is the, maybe is there like any restrictions on when they can try to bring over some of that business?.

41:05 Yes. So, they came late in the quarter. So, we really, we didn't get any real production out of them in the third quarter and they do not have any restrictions. So, we do expect to get some volume from them from that team even in the fourth quarter..

41:26 Okay. Okay, great. And then obviously, you guys have a lot going on. The charter consolidation seems to be a pretty sizable project for you guys that you're working on.

How does all of this kind of internal behind the scenes activities going out? How does this impact your outlook for M and A, which has been a long standing component of your strategy? Are you guys, kind of shifting towards focusing more on what you've built and leveraging the current footprint and not relying on external growth anymore or how do we think about M and A?.

42:05 Yes, I would say that we want to do both. This is the opportunity and we can control this and we felt it was time, again on these projects as well as the charter consolidations, but the way that we are thinking about it, we can still do M and A and charter consolidation and Temenos and the talent acquisition strategies..

42:31 Got it. Okay.

And then just lastly, Bryan, could just go back and revisit your commentary on the margin outlook on the core margin? And I may have missed what you said the impact was from PPP loans this quarter?.

42:45 Yeah, PPP loans had a bigger impact this quarter. The dollar amount is over. Looking at non-net-interest income, the dollar amount was the same, but it had a bigger impact in terms of the basis points. I'm thinking I did that, hang on here. I’ll go through my notes.

Yes, I think had we not had the PPP loans and if you backed out the purchase accounting, our margin would have been around three twelve. So, it had about fourteen basis points of the fact this quarter..

43:27 Perfect.

And then that three twelve, could you just repeat what you were saying about your expectation in the fourth quarter and kind of as you head into twenty twenty two?.

43:36 Yes. I think in the fourth quarter, I think with the – so I think of it in two different ways. I think the margin is going to continue to be under pressure a few basis points just because of still there's a lot of liquidity and there is the continued loan repricing of that in the investment portfolio.

But I think net interest income dollars will grow because we had a lot of growth come in at the end of the quarter, both in the investment portfolio as well as in the loan portfolio. And if we can – we're off to a decent start this quarter already on Bruce’s two hundred million projections.

44:23 So, if we can keep bringing that in and get that to average, those three pieces should give us pick-up in net interest income. The real wildcard will be PPP and how much that gets forgiven and how much of that fourteen million we bring in this quarter versus moves into next year in the first quarter.

Because probably I think at fourteen million or just under fourteen, thirteen point eight or whatever it is, is going to come in, I think almost all of it is going to come in, in the next two quarters..

44:54 Got it. Okay. I guess with lastly on credit, a few quarters in a row of negative provisioning.

Do you think that you're going to need to take any provisioning here to close out the year and as you go into twenty twenty two?.

45:14 I always hesitate to say yes or no because tomorrow, Nathan could call me and say something happened that we didn't expect. I would say if nothing unexpected happens in terms of non-performers popping up, new non-performers or some non-performer getting way worse than we thought.

45:36 I think we should be, again, I think there's still going to be net loan upgrades rather than downgrades, and I think that will largely offset the loan need to provide for a loan growth component. So, I'm thinking we could be plus or minus a little bit around zero..

45:57 Got it. Okay. Alright, that's great. That's all that I had. Thank very much..

46:03 Thank you. We have a follow-up from the line of Jeff Rulis. Your line is open..

46:09 Thanks.

I know we're blur in the lines a little bit with organic and M and A sort of opportunities, but at a high level, you see quite a few larger bank announcements throughout your footprint in terms of not MOEs, but larger transactions, any care to kind of comment on opportunities off of that or if that again, back to that M and A discussion, could you sit back and maybe take dislocation of other deals versus super aggressive on buying or just I guess the reaction from your group on deals you've seen throughout your footprint? If that changes anything or your thoughts on opportunity?.

46:55 Yeah. We continue Jeff to have a deep pipeline of banks of all sizes that smaller deals are difficult because they just don't move the needle on EPS, but if they're very strategic and in our current markets, I mean, we would look at deals that are under one billion.

And as to larger deals, I mean, we prefer to do transactions from a billion to call it five billion or six billion. Those are big enough to move the needle, but again, we're focused on our current markets in building scale and dominance in those markets.

47:36 Yes, the MOEs that you're talking about, we wouldn't be opposed to them, but as you know, those are more challenging to put together. They take longer. They're harder to do and you always have the social issues. So, again, not opposed to it, but we look at anything that's very positive for the shareholders obviously..

48:00 Jeff, I might just – a couple of follow-ups there. Again, our strategy right now is to control what we can control and we think that's first and foremost on the talent acquisition side, because that will help us grow whether it's in California or in the Midwestern cities that I referenced.

Also, we have had a lot of good hires that we've made in Colorado. 48:26 So, we're really focused on growing that first. And as you mentioned, we have a few of those, particularly MOEs have occurred in our marketplace, which enables us to not only think about the talent there, but also the customer disruption.

So, we have a lot of opportunity in front of us and that's what we're trying to execute on right now..

48:47 Okay. Thanks guys..

48:52 Thank you. As there are no further questions at this time, I would like to turn the call back over to Mr. Bruce Lee for closing remarks..

49:03 Thank you, Towanda. In closing, HTLF had a solid third quarter.

We had total commercial loan growth of two one four million, consumer loan growth of fifty million, total deposits were recorded at sixteen billion, we increased our dividend to zero point two seven dollars, our third dividend increase this year and we ended the quarter with total assets of nineteen billion.

49:32 Our momentum continues, we're driving growth, maintaining strong credit quality, and investing in top talent. We're well-positioned for the rest of this year and into twenty twenty two. I'd like to thank everyone for joining us today. Our next quarterly earnings call will be in late January. Have a good evening, everyone..

49:56 Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect..