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Heartland Financial USA, inc (HTLF) Q2 2021 Earnings Call Transcript

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Heartland Financial USA, inc (NASDAQ: HTLF)
Q2 2021 Earnings Call
Jul 26, 2021, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings, and welcome to the HTLF Second Quarter 2021 Conference Call. This afternoon, HTLF distributed its second 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.

With us today from management are Lynn Fuller, Executive Operating Chairman; Bruce Lee, President and CEO; and 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.

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. 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.

At this time, I will now turn the call over to Mr. Lynn Fuller at HTLF. Please go ahead, sir.

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Lynn B. Fuller -- Executive Operating Chairman

Thank you, Peter, and good afternoon. Welcome to HTLF second quarter 2021 earnings conference call. We appreciate everyone joining us today as we discuss the Company's performance for the second quarter of 2021. 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. Also joining us today is Nathan Jones, EVP and Chief Credit Officer, who will be available to answer questions regarding credit.

Now on to the financial highlights for the second quarter of 2021. I'm very pleased to report that we had an extremely strong second quarter, following a very good first quarter. We set a new record for net income in the second quarter at $61.6 million. And after our preferred dividend of $2 million, net income available to common shareholders was $59.6 million compared to $30 million for the second quarter of 2020, an increase of $29.5 million or a 98% increase. Year-to-date net income of $110.4 million was a 102% increase over the first six months of last year. We also set a new record for diluted earnings per common share for the quarter of $1.41 compared to $0.82 for the second quarter of last year, an increase of $0.59 or 72%. Year-to-date, earnings per share is $2.61.

While annualized return on average common equity and average tangible common equity for the quarter was 12.07% and 18.05%, respectively, year-to-date, that's 11.29% and 16.99%, respectively. Annualized return on average assets for the quarter was 1.35% and year-to-date, 1.27%. The net interest margin on a fully tax equivalent basis was 3.41% for the quarter and 3.45% year-to-date. Our efficiency ratio was 57.11% year-to-date, 56.86%, and Bruce and Bryan will share more detail in their comments. Book value and tangible book value per common share continued to increase, ending the quarter at $48.50 and $33.98 respectively, and that's a 9% increase for both from a year ago. Tangible common equity ended the quarter at 8.08%, in line with our goal of between 8% and 9%.

Given our record quarterly performance, history of growth, great credit fundamentals and strong liquidity position relative to peers, we share our analysts' optimism on their price indications.

Well, on the M&A front, we continue to have a very deep pipeline of acquisition opportunities across our footprint with a number of active opportunities currently in process. Additionally, I'm pleased to announce that Shelley Reed joined our M&A team as EVP of Corporate Strategy and Development in June. With over 20 years in the financial services industry, including 15 years of investment banking experience, Shelley has an extremely extensive background with all related aspects of buy-side and sell-side mergers and acquisitions.

At this month's Board meeting, HTLF's Board of Directors approved a $0.25 per common share dividend. That's nearly a 14% increase, payable August 30th, 2021, to shareholders of record on August 16, 2021. The Board also approved a preferred dividend of $175 payable on October 15, 2021, to shareholders of record on September 30th, 2021.

And last, at our Annual Stockholder Meeting in May, we elected two new Class 1 Independent Directors; Kathryn Graves Unger and Chris Hylen, also elected as Class 1 Directors were Susan Murphy, Marty Schmitz and myself.

I'll now turn the call over to Bruce Lee, HTLF's President and CEO, who will provide an overview of the Company's operating performance in credit. Bruce?

Bruce K. Lee -- President and Chief Executive Officer

Thank you, Lynn. Good afternoon, everyone. I am pleased to share with you HTLF's record second quarter results. They reflect our continued growth across markets and the economy's steadily improving conditions. At HTLF, we see growth everywhere. In this quarter, we saw growth in commercial loans, consumer loans, deposits and fees, resulting in record earnings per share and net income. In the second quarter, we delivered a record $1.41 earnings per share, an increase of $0.21 from the linked quarter and $0.59 or 72% from a year ago.

Total assets grew to a record $18.4 billion, an increase of $127 million from the linked quarter. Assets are up $3.3 billion or 22% from a year ago. Pre-provision net revenue was a record $72.8 million, a 5% increase from the linked quarter and an 11% increase from a year ago. And our strong results delivered another record quarterly net income available to common shareholders of $60 million, a 17% increase from the linked quarter and a 98% increase from a year ago.

Let's start with organic loan growth. Loans grew $288 million across our portfolio, excluding PPP, an increase of over 3% from the linked quarter and a 13% annualized. The $288 million of growth significantly exceeded our guidance for the quarter of $128 [Phonetic] million. We saw strength in each of our commercial loan portfolios. From the linked quarter, commercial and industrial increased $97.6 million or 4%, owner-occupied real estate increased $102.6 million or 5.6%. Non-owner-occupied real estate increased $20.2 million or 1%, construction increased $58.3 million or 7.3%, and our ag portfolio was flat.

We added nearly 170 new commercial relationships in the quarter, representing $90 million in loan growth. Our bankers are leveraging the expertise of our growing HTLF's specialized industry team. I want to congratulate our top-performing banks, DB&T in Iowa, FirstBank in Texas, Arizona Bank & Trust in Arizona, Citywide in Colorado and Premier Valley Bank in California. Our commercial pipeline remains strong. We're forecasting $200 million in commercial loan growth in the third quarter. I've been meeting with clients and bankers, and we share a cautious, yet optimistic outlook. Some headwinds remain, namely the impact of the Delta and other COVID variants, lingering supply chain challenges, workforce shortages, wage pressure and inflation. We're working closely with our customers on the forgiveness process for PPP 1 and PPP 2 programs. Currently, over 90% of our PPP 1 loans have been forgiven or are in the process of being forgiven. Many borrowers who participated in PPP 2 are now eligible to file for forgiveness. Bryan will provide more PPP financial details during his comments.

Growth in our core consumer-based loan portfolios, which encompass both commercial and residential mortgage loans were strong, increasing by $49 million for the linked quarter. 12% of these loans came from new customers, and 13% of loans originated using our new online capabilities. The strong growth in our core consumer based portfolios was partially offset by the continued runoff in our non-core legacy national residential mortgage portfolio, which we retained when we exited that business in 2018. Overall, core and non-core net growth for consumer and residential mortgage loans totaled $13 million. We expect continued strong performance and forecast $20 million of growth in core consumer-based loans in the third quarter.

Turning to deposits. Non-time deposits totaled $14.5 billion, an increase of $133.3 million or 1% during the quarter. We saw total deposit growth for the ninth consecutive quarter. Total deposits were a record $15.6 billion, an increase of $56.1 million from the linked quarter and $2.9 billion or 23% from a year ago. The growth this quarter was primarily from commercial customers. We've maintained our exceptional deposit mix. 40% of deposits are in non-interest-bearing accounts and 93% in non-time account balances. Total deposit costs remained low at 10 basis points, a decrease of 10 basis points from a year ago. Our efficiency ratio increased slightly to 57.1%. We are laser-focused on efficiency ratio and investing to support our growth while gaining efficiencies due to technology improvements and achieving scale.

We reduced FTEs by 40% during the second quarter. We are deeply invested in recruiting and retaining top-tier talent in each of our markets. Since the beginning of 2021, we have continued to execute our multiyear talent strategy, have installed four new bank presidents and four new heads of commercial banking. Our investment in talent also includes growing our specialized industry group and adding more than 30 experienced commercial bankers across our 11 banks. We have considerable momentum in talent acquisition and energy across our organization.

Turning to credit metrics. I am pleased to report that we continue to see stable and improving credit quality on our already strong results. Non-performing loans decreased to 85 basis points of total loans compared to 91 basis points in the linked quarter. Non-performing assets as a percentage of total assets also decreased to 50 basis points from 54 basis points in the linked quarter. Our delinquency ratio remains low at 17 basis points. Non-pass-rated loans decreased to 10.4%, a decrease of 1.1% for the quarter. And lastly, net loan charge-offs for the quarter were $3 million or 12 basis points of average loans.

Our growth and solid credit metrics are enabled by our unique model. Our bankers deeply understand our local markets and have strong relationships with customers. This insight helps guide our strategies and investments. We are on track to deliver more service enhancements in digital functionality that will enrich the customer experience. We'll be extending our video banking capabilities beyond our consumer customers to our wealth customers and commercial customers who use treasury management. We're expanding our document management capabilities to help reduce administrative burden for our customers and bankers.

We're adding more convenience features like online appointment scheduling and live chat. We'll offer P2P payments using Zelle. We are partnering with Temenos for robust 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. Based on changes in customer behavior, including increased adoption of digital channels, we'll continue to optimize our branch network. We expect a further reduction in the branch network of 10%. Our investments in integrated payments technology have been well received as customers move away from check payments and achieve improved cash flow and greater efficiencies.

We are proud to be recognized for the sixth consecutive year by Nielsen Report for Top Performance in Commercial Purchase Card Programs. While the purchasing fleet and corporate card industry was down overall for Visa and MasterCard last year, HTLF saw a 21% increase on our purchasing card, the fourth highest increase out of the top 50 card issuers. HTLF's mission is to enrich lives, one customer, employee and community at a time. In alignment, we are proud to invest in our communities and be a socially responsible corporate citizen. A few investments we've made include financing the development of low-income housing, the rehabilitation of historic buildings, and we've also invested in solar energy. We named Wendy Reynolds, HTLF's first Chief Diversity, Equity and Inclusion Officer. This new senior position reinforces our company's values and will lead our DEI efforts with the support from me, my executive leadership team and our Employee Diversity Advisory Council. In early July, we welcomed all HTLF employees back to the office, many choosing hybrid schedules. There's an energy to serve our customers and communities that we are experiencing in person again.

I am proud of how we've embraced change over the past 16 months. We've been agile, we've anticipated, and we've responded quickly, creatively and decisively. We continue to be well-positioned to benefit from increasing economic strength. I want to thank our employees for their continued dedication to deliver strength, insight and growth to our customers, communities and shareholders.

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

Bryan R. McKeag -- Executive Vice President and Chief Financial Officer

Thanks, Bruce, and good afternoon. I'll begin today by referencing our earnings release, which outlines our strong quarterly results, with earnings per share reported at $1.41, $288 million of non-PPP loan growth, improved credit metrics and continued deposit growth. But before I go into my detailed comments, I'd like to remind you that you can find additional information on the quarter in the second quarter investor presentation, which is available in the IR section of our website.

So I'll start my comments today with the provision for credit losses, which totaled a $7.1 million benefit this quarter, primarily driven by an improved economic outlook, and included the following favorable trends. First, as we've already noted, total loan balances grew $288 million ex-PPP. Second, I believe this is the first quarter since early 2019 that loan upgrades exceeded downgrades and at the same time, non-performing loans declined $6.5 million or 7%. Third, consensus economic forecasts have improved in the past two quarters. As a result, the economic outlook factors used to develop the allowance were upgraded to incorporate a portion of the forecasted economic improvement. But the factors still retain a measure of caution and uncertainty that management deems appropriate for lingering economic headwinds that are yet to be resolved. And last, net charge-offs were manageable this quarter at just under $3 million or 12 basis points of total loans. These charge-offs were on loans that had previously been identified and had established reserves and therefore had minimal effect on the quarter's provision.

So 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 $134.7 million or 1.35% of total loans. When the PPP loan balances are excluded, the total allowance stands at 1.47%. In addition, at quarter-end, unamortized purchase loan valuations on the balance sheet totaled $16.7 million or 16 basis points of total loans, excluding PPP.

Moving to the rest of the balance sheet. Investments grew $176 million this quarter and comprised just over 37% of assets with a tax equivalent yield of 2.27%, duration under six years and generate about $70 million of monthly cash flow. Borrowings decreased $66 million to end the quarter at $424 million or 2.3% of assets. The tangible common equity ratio increased 54 basis points to 8.08% at quarter-end. The TCE ratio rose 25 basis points due to the increase in market value of investments and gained 29 basis points from retained earnings, net of balance sheet growth this quarter. The HTLF's regulatory capital ratios also remained strong with common equity Tier 1 at just under 11.5% and total risk-based at just over 15%. So the balance sheet continues to be very strong and well positioned.

Moving to the income statement. Net interest income totaled $141.2 million this quarter, which was $1.6 million higher than the prior quarter. The net interest margin on a tax equivalent basis this quarter was 3.41%, that's down 7 basis points compared to last quarter. During the quarter, investment yields declined 1 basis point and loan yields declined 13 basis points. These were offset by a 4 basis point drop in interest costs. The margin was positively impacted by a $900,000 increase in PPP fees recognized, primarily due to a full quarter of PPP 2 loan amortization and increased the net interest margin by 2 basis points over the last quarter. We exited the quarter with just over $23 million of unamortized PPP loan fees remaining on our books. Also this quarter, the net interest margin includes 9 basis points of purchase accounting accretion, which was down 3 basis points from the prior quarter.

Non-interest income totaled $33.2 million for the quarter, that's up $2.8 million from last quarter. Total mortgage banking revenue was down $3.1 million, but largely offset by security gains, which increased $3 million compared to last quarter. In addition, service charges were $1.5 million higher and trust fees were up $300,000, representing an 11% and 5% increase, respectively, compared to last quarter.

Shifting to non-interest expense. Non-interest expenses totaled $103.4 million this quarter, up $1 million from last quarter. Excluding acquisition, integration, restructuring and tax credit costs and asset gains and losses, our core expenses increased $2.3 million to $101.6 million compared to $99.3 million last quarter. The increase was primarily attributable to professional fees where automation and other digital technology project costs were higher. On the positive side, both employee and facility-related expenses were lower as FTEs declined by 40% and the remaining cost saves from our AIM integration were realized.

So as we look ahead to the second half of 2021 and start to develop some views about 2022, we believe HTLF will continue to deliver strong results, highlighted by strong loan pipelines, leading to an expected loan growth rate ex-PPP and the 1.5% to 2% range per quarter going forward as the economy continues to strengthen. Remaining round one PPP forgiveness will happen largely over the next one or two quarters and PPP 2 forgiveness will occur mainly over the next two or three quarters. We anticipate that PPP reductions will be replaced by non-PPP loan growth and some bridge investments. And as a result, modest growth in earning assets is expected going forward.

Non-time deposit growth is likely to slow and could even show some slight runoff in the back half of the year with low to moderate growth expected in 2020. The net interest margin will continue to be pressured, however, net interest income, excluding PPP fees is projected to grow 1.5% to 2% per quarter going forward as earning assets grow and our mix improves.

Provisions for credit losses are expected to remain low and could be negative again in the next quarter or two and then return to more normal levels if loan growth continues and the economy stabilizes in 2022. Non-interest income, excluding investment gains or losses in total is expected to increase modestly over the next two quarters from the $30.4 million this quarter.

Core expenses are expected to remain flat in the $101 million to $102 million range per quarter in the back half of 2021 as professional fees are projected to remain at current levels as we continue to invest in and complete projects and initiatives. We believe a 22% tax rate is a reasonable full year run rate, assuming we get no tax law changes.

And lastly, we expect the TCE ratio to climb back above 8.5% by year-end as we get about 25 basis points increase from retained earnings per quarter. However, a return to higher interest rates would weigh negatively on the ratio.

And with that, I'll turn the call back over to Bruce for questions.

Bruce K. Lee -- President and Chief Executive Officer

We'll now open the call up to questions.

Questions and Answers:

Operator

Thank you. We will now be conducting the question-and-answer session. [Operator Instructions] And your first question comes from the line of Jeff Rulis with D.A. Davidson. Your line is open.

Jeffrey Rulis -- D.A. Davidson & Co. -- Analyst

Thank you. Good afternoon.

Bruce K. Lee -- President and Chief Executive Officer

Good afternoon, Jeff.

Jeffrey Rulis -- D.A. Davidson & Co. -- Analyst

On the loan growth front, it kind of more than doubled your expectations. I just wanted to kind of see what happened in the quarter? Is it payoff subsided, new demand, a bit of timing? And then -- so that's kind of part one. And then part two, just if you could color that with any geographies that were particularly productive and/or kind of within segment? Thanks.

Bruce K. Lee -- President and Chief Executive Officer

Yeah. Jeff, I think that we did in our minds, kind of overachieved what our forecast was, but it really was the culmination of our pipeline and a lot of those new relationships, which I referenced, about 170 new relationships. That's been our focus going forward and we're just very fortunate that we won new business and won market share almost across the board in all of our markets and we were able to get those loans closed during the quarter. But with that, we have a very strong and almost equal pipeline to what we had going into the second quarter. Some areas where we saw that growth, it was in core manufacturing, healthcare, distribution were key areas and we saw the growth really both in the Midwest and in the West. We especially had solid growth in Colorado, Arizona, California, Texas and in the Midwest, really, the Dubuque and Iowa kind of led that group. So it was very kind of consistent across all of our markets. And as I went through the various portfolios, we had solid growth really across the board.

Jeffrey Rulis -- D.A. Davidson & Co. -- Analyst

Got it. Thank you. And maybe I'll circle back. Bryan, on the expense line, you talked about professional services staying perhaps elevated. You talked about kind of the expenses flat to 101 and 102. What's the difference there? Did you have some one-time in the expense that we should back out?

Bryan R. McKeag -- Executive Vice President and Chief Financial Officer

Yeah. Well, I think obviously, projects and consultants are in there. So as we do projects, some of that moves around. But I think that line was higher than when I had given guidance in the last quarter. Part of that is we did think about upping our timing of some of our projects, moving things forward given that we had the fee income benefit that was going to come from PPP 2. So it will be a little bit higher than I thought for the last half of the year and we're still working on what it's going to be for next year. But we will continue to fund projects that we think good paybacks and work on digital technology and tools and applications. So maybe a little bit down [Indecipherable] next year than what we would spent this year, but we're going to continue to invest.

Bruce K. Lee -- President and Chief Executive Officer

Yeah. Jeff, this is Bruce. I would just say, and I mentioned several of the investments that are ongoing for us, we made a conscious decision to accelerate some investments that we had planned on in 2022 into 2021, and that's why we're seeing those elevated expenses, but I would say they're all around customer experience and improving how the customers interface with us from a digital perspective.

Jeffrey Rulis -- D.A. Davidson & Co. -- Analyst

Okay. And sorry, I just have one last one on the M&A front. You guys have been pretty active on the M&A discussions, and I think you've really signaled California was -- there was quite a few conversations there. Obviously, we've seen some deals. Just wanted to kind of check back in and see any territories in particular that you're eyeballing or seem to have some momentum?

Lynn B. Fuller -- Executive Operating Chairman

Yeah. Jeff, this is Lynn. We're seeing a lot of activity. Some of the activity we're just simply passing on because it's too small or it's not a good fit. And we've lost a couple of deals because where our stock is trading for a larger transaction, it's a little difficult to make those work and still stay committed to our financial performance metrics. But I mean we're still looking at deals in Colorado, Denver area and Arizona in the Phoenix area, Kansas in the Kansas City area. Texas, West Texas, specifically and California, and we'll be making a number of calls this week in California. And last week, I was in Montana. So there's no shortage of opportunities. It's just a matter of finding the right ones and kind of sorting through them.

Jeffrey Rulis -- D.A. Davidson & Co. -- Analyst

Okay, appreciate it. Thank you.

Operator

And your next question comes from Terry McEvoy with Stephens. Your line is open.

Terry McEvoy -- Stephens Inc. -- Analyst

Hi. Good afternoon, everyone.

Bruce K. Lee -- President and Chief Executive Officer

Good afternoon, Terry.

Terry McEvoy -- Stephens Inc. -- Analyst

Bryan, thanks for all the financial outlook. That's always very helpful. Maybe I'll start. The rollout of HTLF, was it in April? We talked about it last quarter. I'm just curious, three months into that, what's been the early feedback and are you hearing what you were expecting and has it been effective?

Bruce K. Lee -- President and Chief Executive Officer

Terry, this is Bruce. It met our expectations, I guess, is how we would say it. We think that HTLF is more contemporary. It's easier for some of our customers to understand. And every one of our markets uses the kind of financial strength of HTLF a little differently and some of our tag lines are Rocky Mountain Bank powered by HTLF, just try to explain a little better than we have historically the $18 billion of resources and assets behind each one of our member banks. And I think that we're starting to see that in a positive way as we've gone up market and attracted new customers from a commercial loan standpoint.

Terry McEvoy -- Stephens Inc. -- Analyst

Thank you. And maybe ask a question on slide 13, which is the HTLF digital strategy. Somebody put a meaningful amount of time into that slide. Bruce, what's the key takeaway from that slide? And then from an expense standpoint, there's still a lot of work-in-progress icons there. Where are you and maybe use the baseball analogy, what inning are you in it in terms of the expense side to then kind of checking all those boxes off, so to speak?

Bruce K. Lee -- President and Chief Executive Officer

Yeah. I'm going to let Brian take the kind of what inning we're in. But I think that the big takeaway here is that we are focused on the customer and the customer changes or their behavior. We're trying to get out in front of what the customer expectations are. Clearly, our industry is being disrupted on many, many fronts and we want to become one of those disruptors and make it easier for all of our customers to do business with. As I mentioned, when I was talking about the consumer loan growth, I think it was 13% of all the loans that we originated were done online. A year ago, we didn't have that opportunity for us. So those investments are beginning to pay off for us and that's what's enabling us to prune our branches as well as attract a different type of commercial customer than we ever have [Indecipherable].

So, Bryan, from an inning perspective?

Bryan R. McKeag -- Executive Vice President and Chief Financial Officer

Yeah. I would say we're probably in the middle innings here. I think we've got lots of things that you can see that are under flight that we're working on, a few we've got ticked off. And I think the ones just generally on the top part of that page are the ones that we're excited about. Those are going to really help our growth in our account acquisition. So more to go, which is why I think I probably -- when we talked last quarter, probably didn't have this factored in correctly and why our expenses are up a little bit, and some of these will go into next year as well. So they're not short just quick-hit projects. These are bigger projects that have -- going to take a little bit of time. We're excited about them, and I think we're really committed to them and it really enhance our capabilities.

Bruce K. Lee -- President and Chief Executive Officer

And Terry, I think Brian said it right. The top half, those two are really, again, customer-facing. The bottom half is much more about infrastructure necessary to support the top half. And one of the reasons those consulting expenses went up is, internally, based upon what we already had in flight, we were pretty much at capacity, we wanted to accelerate these. So we had to bring outside resources to help accelerate them.

Terry McEvoy -- Stephens Inc. -- Analyst

Great. Appreciate the color. Thanks guys. Have a nice day.

Bruce K. Lee -- President and Chief Executive Officer

Thanks Terry.

Bryan R. McKeag -- Executive Vice President and Chief Financial Officer

Thanks.

Operator

Your next question will come from Andrew Liesch with Piper Sandler.

Bruce K. Lee -- President and Chief Executive Officer

Andrew, are you there?

Operator

Andrew, your line is open.

Andrew Liesch -- Piper Sandler & Co. -- Analyst

Hi. Sorry. Oh my God. I apologize for that. My phone was on mute there. Sorry, you've covered most of my questions. Just one on the utilization rate on page 27 or slide 27. Obviously, trailing five quarters been depressed, just given the environment. But where can that eventually get back to? And any sort of timing on what you expect it could return to?

Bruce K. Lee -- President and Chief Executive Officer

Yeah. I think --

Bryan R. McKeag -- Executive Vice President and Chief Financial Officer

Was it line utilization, is that your question?

Andrew Liesch -- Piper Sandler & Co. -- Analyst

Yeah, the 28% in the second quarter. I mean the trailing five quarters only goes back to 30%, but that's kind of early on in the pandemic. So I guess what would it have been before the pandemic hit and any expectation on your timing and why it could get back there?

Bruce K. Lee -- President and Chief Executive Officer

Yeah, I think we would have been in the mid- to upper 30s, if you would go back and look at, say, the end of 2019. And honestly, Andrew, this has been one of the things that we've been, I guess, wrong on in the last couple of quarters, because we thought that commercial balances in particular would not necessarily continue to grow. We would start to see some additional utilization, but that's just not the case right now. So I don't know that we can give you good guidance on when it's going to start going up. We do think that we've sort of hit bottom. We don't think it will continue to trend downward.

Andrew Liesch -- Piper Sandler & Co. -- Analyst

Got it. Okay. So then presumably, it sounds like a lot of this -- any commercial growth you have going forward is going to be continued market share gains?

Bruce K. Lee -- President and Chief Executive Officer

Yeah. That is true.

Bryan R. McKeag -- Executive Vice President and Chief Financial Officer

Yeah.

Andrew Liesch -- Piper Sandler & Co. -- Analyst

Got it. Cool. Yeah. You covered everything else. Thanks so much.

Bruce K. Lee -- President and Chief Executive Officer

Thanks Andrew.

Operator

[Operator Instructions] And your next question will come from Damon DelMonte with KBW.

Damon DelMonte -- Keefe, Bruyette & Woods, Inc. -- Analyst

Hey, good afternoon guys. Hope everybody is doing well today.

Bruce K. Lee -- President and Chief Executive Officer

[Speech Overlap]

Damon DelMonte -- Keefe, Bruyette & Woods, Inc. -- Analyst

Great. Most of my questions have been answered, but just kind of curious on the outlook here for the reserve level going forward. I think, Brian, you had mentioned that it could be potentially negative or very low for the upcoming quarters. I think you're at 1.47% right now, 1.47% right now. What's a comfort level for you guys? How far down would you let that go?

Bryan R. McKeag -- Executive Vice President and Chief Financial Officer

Well, I guess I would answer that if you kind of look and I don't know what page it is in our deck. But if you look back, when we implemented CECL day one, we were at about 115 basis points and that was, as you might recall, under really good economic circumstances. We haven't kind of hit COVID. COVID was still only in Japan, we really -- or China, we hadn't really had any big impact here.

Then if you look at the next quarter, it was coming in. Yeah, it's on page --

Bruce K. Lee -- President and Chief Executive Officer

34.

Bryan R. McKeag -- Executive Vice President and Chief Financial Officer

34. And if you look at the first quarter, when we started to have -- give impact to that COVID and the economy was starting to have some worries, that bumped up to really 135 basis points. Bruce and I and Nathan, and Nathan you can jump in, I think we're thinking somewhere in the range of ex-PPP, we should be in the 130 basis points to 125 basis points-ish range under pretty decent economic conditions.

Damon DelMonte -- Keefe, Bruyette & Woods, Inc. -- Analyst

Okay. Great. That's helpful. That's good color. And then just one other kind of question here. I think, Bruce, you may have mentioned about longer-term reduction in branches of around 10% over-time. Was that like a hard and fast decision you guys have made already or is that something you're just saying, in general, given the usage trends of customers, you could see yourselves reducing branches by another 10%?

Bruce K. Lee -- President and Chief Executive Officer

I'll answer it two ways. We definitely feel that we will be reducing by 10%. We do have a process that's ongoing, and we expect to have it completed here in the third quarter on sort of specifically how many and we should be able to provide you guidance at the end of the third quarter on exactly how many and when.

Damon DelMonte -- Keefe, Bruyette & Woods, Inc. -- Analyst

Got it. Okay. That is helpful. That is all I had. Thanks a lot guys. Appreciate it.

Bryan R. McKeag -- Executive Vice President and Chief Financial Officer

Thanks, Damon.

Operator

Thank you, speakers. As there are no further questions at this time, I would like to turn the call back over to Mr. Lee for the closing comments.

Bruce K. Lee -- President and Chief Executive Officer

Thank you, Peter. In closing, HTLF had a record second quarter. We delivered a record $1.41 earnings per share. We delivered record net income available to common shareholders of $60 million. Pre-provision net revenue was a record $72.8 million. Total deposits were a record $15.6 billion, and we ended the quarter with total assets of $18.4 billion. We see growth everywhere in commercial loans, consumer loans, deposits and fees and our dividend to shareholders, which we've raised twice this year. We have momentum. We're attracting and retaining top talent and driving growth. We're well positioned for the rest of 2021 and beyond.

I'd like to thank everyone for joining us today. Our next quarterly earnings call will be in late October. Have a good evening.

Operator

[Operator Closing Remarks]

Duration: 45 minutes

Call participants:

Lynn B. Fuller -- Executive Operating Chairman

Bruce K. Lee -- President and Chief Executive Officer

Bryan R. McKeag -- Executive Vice President and Chief Financial Officer

Jeffrey Rulis -- D.A. Davidson & Co. -- Analyst

Terry McEvoy -- Stephens Inc. -- Analyst

Andrew Liesch -- Piper Sandler & Co. -- Analyst

Damon DelMonte -- Keefe, Bruyette & Woods, Inc. -- Analyst

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