Heartland Financial Q1 2020 Earnings Report
Key Takeaways
Heartland Financial reported a solid first quarter with a net income of $20.0 million, or $0.54 per diluted common share. The company experienced commercial loan growth of $76.5 million and non-time deposit growth of $212.3 million. The net interest margin was 3.81%, and the efficiency ratio improved to 61.82%.
Net income of $20.0 million, or $0.54 per diluted common share, compared to $31.5 million, or $0.91 per diluted common share, for the first quarter of the prior year.
Net interest margin of 3.81%, with a fully tax-equivalent net interest margin (non-GAAP) of 3.84%.
Efficiency ratio (non-GAAP) of 61.82% for the first quarter of 2020, compared to 64.93% for the first quarter of 2019.
Total commercial loan growth of $76.5 million and non-time deposit growth of $212.3 million for the first quarter of 2020.
Heartland Financial
Heartland Financial
Forward Guidance
The economic disruption resulting from the COVID-19 pandemic will make it difficult for some customers to repay the principal and interest on their loans, and Heartland's subsidiary banks have started working with customers to modify the terms of certain existing loans. Heartland expects modifications to increase in the near term. Heartland expects to process approximately $300-$500 million of additional loans due to the announced expansion of the PPP on April 24, 2020. The ultimate impact of the COVID-19 pandemic on Heartland's financial condition and results of operations will depend on risks and uncertainties, such as the severity and duration of the pandemic, related restrictions on business and consumer activity, and the availability of government programs to alleviate the economic stress of the pandemic.
Positive Outlook
- Enabled approximately 2/3rds of employees to work from home and canceled all in-person events and meetings.
- Expanded time off program and enhanced health care coverage for COVID-19 related testing and treatments.
- Implemented a 20% wage premium for customer-facing and call center employees.
- Closed most bank lobbies and implemented drive-through only for in-person transactions.
- Announced a series of relief programs for consumers and small business customers, which include waiving account maintenance fees, ATM fees and early redemption penalties on CDs, and deferrals on loan payments.
Challenges Ahead
- The economic disruption resulting from the COVID-19 pandemic will make it difficult for some customers to repay the principal and interest on their loans.
- Heartland's subsidiary banks have started working with customers to modify the terms of certain existing loans.
- The ultimate impact of the COVID-19 pandemic on Heartland's financial condition and results of operations will depend on risks and uncertainties, such as the severity and duration of the pandemic, related restrictions on business and consumer activity, and the availability of government programs to alleviate the economic stress of the pandemic.
- Heartland expects that nonperforming assets and delinquent loans will increase through 2020 as customers’ ability to repay loans is adversely impacted by economic disruptions caused by the COVID-19 pandemic.
- The allowance calculation under CECL is an expected loss model, which encompasses expected losses over the life of the portfolio, including expected losses due to changes in economic conditions and forecasts, such as those caused by the COVID-19 pandemic.