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Heartland Financial USA Inc (HTLF 2.91%)
Q4 2019 Earnings Call
Jan 27, 2020, 5:00 p.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Greetings, and welcome to the Heartland Financial USA, Inc. Fourth Quarter 2019 Conference Call. This afternoon, Heartland distributed its fourth 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 Heartland'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 for 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 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.
[Operator Instructions] At this time, I will now turn the call over to Mr. Lynn Fuller at Heartland. Please go ahead, sir.
Lynn B. Fuller -- Executive Operating Chairman
Thank you, Jimmy. And good afternoon everyone. Welcome to our fourth quarter 2019 earnings conference call. We appreciate everyone joining us today as we discuss the Company's performance for the fourth quarter of 2019 and for the year. In the next few minutes, I'll touch on some of the year's highlights and then turn the call over to Heartland's President and CEO, Bruce Lee, who will go into more detail on our performance. Then Bryan McKeag, our EVP and CFO, will provide additional color on Heartland's results. Also joining us today on the call is Drew Townsend, our EVP and Chief Credit Officer.
Well, I'm very pleased to report that we had another record year and finished the year with a strong fourth quarter. I will be sharing with you a number of significant percentage increases in many of our financial performance metrics. So with that, fourth quarter net income available to common shareholders was $37.9 million or a $1.03 per diluted common share. And for the full year of 2019, net income available to common shareholders was $149.1 million, an increase of $32.2 million. That's 28% over 2018. And earnings per diluted common share was $4.14, an increase of 18% over 2018.
Heartland's strong performance was supported by our net interest margin, which on a fully tax equivalent basis for the quarter and year were 3.90% and 4.04% respectively. Return on average assets for the quarter and the year were 1.17% and 1.24% respectively. Return on average common equity for the quarter and the year were 9.56% and 10.12% respectively. And return on average tangible common equity for the quarter and year were 14.65% and 15.73% respectively.
Our book value and tangible book value per common share continued to increase during the year, ending the year at $43 and $29.51 respectively. And that's a 12% and 15% increase over 12/31/18. With respect to our efficiency ratio, we've made progress over the past year with the fourth quarter dropping to 60.69% and the efficiency ratio for the year dropped to 63.11%.
Moving onto the balance sheet. Total assets increased during the year by $1.8 billion. That's a 16% increase, ending the year at $13.2 billion. Our balance sheet is extremely liquid with very little in non-core funding. Our loan-to-deposit ratio is 76% and our investment-to-asset ratio was 26%. Asset growth for 2019 was largely attributed to the Bank of Blue Valley and Rockford Bank and Trust acquisitions. Now that said, we had exceptional organic non-time deposit growth. And organic loan growth during the second half of the year was exceptional. Bruce Lee will provide more detail on this in his comments.
Regarding M&A, expansion of our banking franchise through mergers and acquisitions remains a high priority for Heartland. Looking at 2020, we continue to evaluate several attractive opportunities. We continue to be focused on in-market acquisitions and remain committed to achieving our goal of $1 billion or more in assets in each state where Heartland operates. Currently seven of our 11 member banks have assets in excess of $1 billion and for 2020, our goal is to have at least eight of our banks over $1 billion in assets. Building on our M&A experience, Heartland is in a great position for additional accretive acquisitions.
With respect to our dividend, I'm very pleased to report that last week, Heartland's Board of Directors approved an 11% increase in our dividend to $0.20 per common share. The dividend will be paid on February 28, 2020 to stockholders of record on February 14, 2020.
In closing, I'm also pleased to note that Heartland has been recognized as a Forbes Best Bank for 2020. This recognition marks the fifth time Heartland has been included on the Forbes Best Bank list, which ranks the 100 largest publicly traded banks and thrifts based on growth, credit quality, efficiency and profitability. Overall, Heartland was ranked 40th in the nation. I'll now turn the call over to Bruce Lee, Heartland's President and CEO, who will provide more overview of the Company's performance and strategic initiatives. Bruce?
Bruce K. Lee -- President & Chief Executive Officer
Thank you, Lynn. Good afternoon. As we head into 2020, Heartland Financial has never been a stronger franchise or better positioned. As Lynn shared, 2019 was a record setting year. Heartland delivered significant gains in earnings, earnings per share and dividends paid to our shareholders. I'm pleased to report that we followed a strong third quarter of organic deposit and loan growth with momentum, and Heartland teams delivered another strong quarter of organic growth.
In addition to our strong financial performance, we have made significant advancements in our strategic initiatives, including Operation Customer Compass and implementation of the best-in-class technology platforms, Salesforce and nCino. This afternoon, I will share key highlights of our performance. And then, I will turn the call over to Bryan McKeag, Heartland's Chief Financial Officer, who will provide more details on the financials.
Let me start by sharing a very strong quarter of organic loan growth, exclusive of acquisition activities. Following the third quarter's strong organic loan growth in our C&I and CRE portfolios of $163 million, we delivered $97 million of organic loan growth during the fourth quarter and $293 million of organic loan growth for the year in our C&I and CRE portfolios. This organic loan growth represents 6% annualized organic growth for the quarter and 8% annualized organic growth in the second half of 2019. Our ag portfolio decreased $12 million for the quarter and $27 million for the year. Our strong commercial growth came from a healthy mix of expansion of existing relationships and winning against competitors.
During the fourth quarter, we acquired 144 new commercial lending relationships. We have momentum and strong pipelines and we expect continued growth in these loan portfolios in 2020. Our residential and consumer loan portfolios decreased $41 million on a combined basis for the quarter and $167 million for the full year, primarily due to exiting the mortgage origination business in most of our markets and the current mortgage refinancing environment.
Turning to deposits. We had a stellar year and a strong quarter of organic deposit growth. This quarter, non-time organic deposit growth totaled $225 million, and we delivered an impressive $758 million in organic non-time deposit growth in 2019. The quarter's growth was largely driven by retail, which included a year-end deposit of $185 million from a longtime customer who sold their business. The entire amount of this deposit is not expected to remain. During the fourth quarter, we added more than 2,900 new consumer relationships. And in 2019, our targeted consumer acquisition efforts helped us increase the average balance in new consumer accounts to 19,000 compared to 9,000 a year ago. We are enriching our retail customer experiences in branch via phone and in our digital channels.
During the fourth quarter, we completed the implementation of technology that enables instant issue of debit cards in our banking centers. We upgraded our call center technology platform. And in addition to providing stronger authentication, we are delivering more convenient self-service options. Lastly, we continue to advance our digital capabilities, and we have added Apple Pay, Google Pay and Samsung Pay to our electronic payment capabilities.
Our deposit mix remains enviable with 32% in non-interest bearing accounts and 89% in non-time account balances. We continue to focus on deposit pricing and have realized quarter-over-quarter savings of 14 basis points. We will continue to be proactive, and we will be disciplined, yet competitive in our deposit pricing.
Turning to key credit metrics. I'm pleased to report that we continue to see stable credit quality. Our non-performing loans represented 96 basis points of total loans at the end of the fourth quarter compared to 91 basis points at the end of the third quarter. Overall, non-performing assets as a percent of total assets were 66 basis points at the end of the fourth quarter. Other real estate representing 60 with -- representing $6.9 million of the $87.6 million of total non-performing assets. The fourth quarter 30 to 89-day delinquency ratio was similar to prior quarters at 33 basis points. Non-pass rated loans improved to 6.6% from 7% last quarter. Net loan charge-offs for the quarter were $730,000 or 4 basis points. This is our best performance in the past several quarters. Lastly, representing a greater than 50% improvement from 2018, net charge-offs were 11 basis points for the full year 2019.
Next, I would like to share the significant progress we've made across our strategic initiatives. As we have discussed on previous calls, beginning in 2018, we initiated and completed several streamlining activities across the Company from which we realized over $24 million of gains in 2019. In addition, as you have also heard on previous calls, we have reinvested over half or about $14 million of those gains into a companywide initiative called Operation Customer Compass. Operation Customer Compass is focused on improving our people, processes and technology. The combination of these activities has enhanced our profitability, improved our efficiency and ultimately, provides superior customer experiences.
These initiatives, which began about 18 months ago, are now delivering significant operating leverage as evidenced by salary and benefit expenses have consistently been in the 59 -- in the $49 million to $50 million range for the past eight quarters. In 2019, they were up just 2%. Second, during this time frame, our full-time equivalent employee count has declined by 308 or 14% from a high of 2,216 in the second quarter of 2018 to 1,908 at the end of 2019. And third, occupancy and FF&E expense has consistently been in the $9 million to $10 million per quarter range over the last eight quarters and was essentially flat for full year 2019. All of this was achieved in the same time frame that we completed three acquisitions, we grew assets by $3.2 billion or 31%, we improved our efficiency ratio 435 basis points from 65.04% back in Q2 2018 to 60.69% this quarter, and we accelerated organic deposit and loan growth as evidenced by the strong performance in the second half of 2019. We have built momentum and operating leverage, and we'll continue to deliver strong organic growth and improve our efficiency ratio. We expect our efficiency ratio to move below 60% in 2020.
Next, I would like to give you an update on our initiatives to implement the best-in-class Salesforce and nCino technology platform. These new tools will significantly improve our ability to deliver exceptional customer experiences. They will enhance the sales process and improve the efficiency of our commercial sales teams, improve back-office functions and shorten sales cycles. Earlier this month, we successfully launched these new tools in two banks and will roll them out to the rest of the organization by mid-2020. We believe these significant investments in technology, combined with our outstanding teams and our organic and acquired growth strategy position us better than ever before to excel.
Before I turn the call over to Bryan McKeag, I would like to share that on November 30, Illinois Bank & Trust completed the acquisition of the assets of Rockford Bank and Trust. Next week, we will complete the systems conversion and Jeff Ubben [Phonetic] and Tom Budd will take the helm of Heartland's seventh bank to exceed $1 billion in assets and control the Number 1 market share in the Rockford MSA.
Lastly, I would like to welcome Dan Stevens, Executive Vice President and Chief Operations Officer and Jay Kim, Executive Vice President and General Counsel to the Heartland executive leadership team. These additions to the Heartland leadership team are a continuation of a multi-year comprehensive succession plan.
With that, I'll turn the call over to Bryan McKeag for more detail on our quarter and year-end financial results.
Bryan R. McKeag -- Executive Vice President & Chief Financial Officer
Thanks, Bruce, and good afternoon. I'll start my comments today by referencing the press release, which shows our reported earnings per share of $1.03 this quarter. For the quarter, non-core items consisted of a net write-off -- writedown of assets totaling $1.5 million, M&A related costs of $625,000 and reversal of loan servicing rights valuation expense of $668,000. Earnings were solid again this quarter, and financial trends and metrics were positive in almost all aspects.
Starting with the strong and liquid balance sheet, which grew $640 million this quarter and includes organic loan and deposit growth Bruce discussed in his comments and of course, the completed acquisition of Rockford Bank and Trust. As a result, these assets of these total -- as a result, total assets ended the quarter at approximately $13.2 billion with a tangible common equity ratio of just over 8.5% and a total and a loan-to-deposit ratio of 70%. Investments grew $298 million this quarter and comprise 28% of assets, with a tax equivalent yield of 3.03%, a duration of just under six years and generate over $35 million of cash flow per month. When combined with total borrowings of only $458 million or 3.5% of assets, Heartland's capital, liquidity and leverage positions all remain in great shape and provide great flexibility to pursue growth strategies and opportunities going forward.
The allowance for loan losses as a percentage of total loans increased 1 basis point for the quarter to 0.84%. As mentioned in previous quarters, we have $1.8 billion of loans from recent acquisitions that are covered by valuation and PCI reserves totaling $47 million or 2.6%. Excluding these loans from total loans would result in an allowance to loans ratio of 1.06%.
Moving to the income statement. Net interest income totaled $112.7 million this quarter, up $1.4 million compared to the prior quarter. The increase was primarily driven by strong non-time deposit growth, together with lower deposit costs. The net interest margin on a tax equivalent basis this quarter was 3.9%, which was at the lower end of the 3.9% to 3.95% range we indicated last quarter. The decline of 12 basis points from last quarter is primarily due to lower loan yields, which included lower purchase accounting accretion, offset by higher investment portfolio yields and lower interest costs on deposits, which decreased 14 basis points compared to last quarter.
This quarter, the net interest margin include 17 basis points of purchase accounting accretion, compared to 23 basis points in the prior quarter. The provision for loan losses was $4.9 million this quarter, down slightly from last quarter's provision of $5.2 million and is at the top end of the expected normal range of $3 million to $5 million. Non-interest income totaled $28 million for the past quarter, down $1.4 million from last quarter. Compared to last quarter, the gain on sale of loans was down $1.3 million and gain on sale of securities was down $1.5 million. We also recorded, as I mentioned, a $668,000 reversal on the valuation of loan servicing rights, which reflect lower prepayment speeds on our mortgages.
Moving to the net non-interest expense. Total non-interest expense was $93 million this quarter or flat compared to last quarter. This quarter, M&A and system conversion-related costs totaled $625,000 compared to $1.5 million last quarter. Core run rate costs that exclude M&A costs, tax credit costs and asset gains and losses were $87.6 million compared to $88.3 million last quarter or $700,000 decrease. This level of core cost was slightly above the 87 -- $86 million to $87 million range we indicated last quarter. More specifically, salary and benefits were flat compared to last quarter, as lower cost due to headcount reductions were offset by higher bonus and incentive accruals. Professional fees decreased $600,000, primarily due to M&A-related cost in this category that were $300,000 lower than last quarter. Other non-interest expense was down $500,000 with $400,000 related to lower M&A costs. The remaining categories and expenses were flat compared to last quarter.
The efficiency ratio improved 123 basis points this quarter to 60.69% from 61.92% last quarter, reflecting improvements in both revenue and expenses. The reported effective tax rate for the quarter was 11.99% compared to 18.66% last quarter. The reduction was primarily due to the release of $1.9 million of deferred tax valuation allowances for capital losses that were realized for tax purposes on the exit from two historical rehab partnerships during the quarter.
On a full year basis, the effective tax rate improved 43 basis points to 19% for 2019 compared to 19.43% for 2018. Next, I'll summarize some of our thoughts for Heartland excluding any additional acquisitions as we enter into 2020. Commercial loan growth is expected -- is projected to be in the mid-single-digits on an annualized percentage basis. Ag and consumer loans will likely remain flat or residential mortgages are expected to continue to decline. Non-time deposit growth is expected to be in the low to mid-single-digits on an annualized basis. The net interest margin on a tax equivalent basis is expected to begin to stabilize next quarter into the 3.85% to 3.90% range and then remain in the 3.80% to 3.85% range the rest of 2020. This assumes no rate moves by the Fed in 2020 and includes the continued accretion of the remaining valuation reserves on the $1.8 billion of acquired loans post CECL. Provision for loan losses under CECL are expected to decline and should generally range from $2 million to $4 million per quarter. Quarterly fluctuations reflecting the level of organic loan growth and assumes that both macroeconomic forecasts and credit quality remain stable in 2020.
Service charges and fees growth is expected to be in the upper-single-digits on an annualized basis from recent post-Durbin levels as continued strong growth in credit card revenue and growth in non-time deposits is expected in 2020. Gain on sale of loans is expected to be slightly lower year-over-year on lower anticipated refinance activity and quarterly fluctuations will follow normal seasonal patterns. Core expenses are expected to increase slightly over 2019 and should help drive the efficiency ratio into the 60% to 61% range for the full year 2020. However, as you would expect, our Q1 2020 efficiency ratio will likely go into the 63% to 64% range, due to fewer business days in Q1 and various accrual resets that occur to start the New Year. Effective tax rate, excluding tax credit activities, is expected to be in the 6 --- in the 22% range.
Lastly, we have made significant progress on CECL and are nearing completion. However, we still have a few items to complete in Q1 2020 to finalize our implementation. With that in mind, our current estimate of the increase to the beginning allowance for credit losses from the implementation of CECL is in the 25% to 40% range. The range reflects some remaining uncertainty regarding three items. First, fine tuning of macroeconomic forecasts. Second, the impact of potential model validation refinements. And third and most significant, the impact of the recently acquired Rockford Bank and Trust loan portfolio. The two primary drivers of the increase relate to additions to additional allowances for unfunded lending commitments as CECL now requires an allowance for the expected utilization by borrowers over the life of those commitments. And second and most significant is the establishment of an allowance for the $1.8 billion of acquired loans, which did not have any allowance under the previous accounting rules. We expect a relatively modest net change to the current level of allowances on the remaining legacy loan portfolio. In addition, the increased allowance will result in a reduction to beginning retained earnings, net of deferred tax, in the $10 million to $18 million range and will decrease the TCE ratio 8 basis points to 14 basis points.
With that, I'll turn the call back over to Bruce for questions.
Questions and Answers:
Operator
Thank you. We will now be conducting a Q&A -- question-and-answer session. [Operator Instructions] Thank you. Our first question comes from Mr. Andrew Liesch with Piper Sandler. Please proceed with your question.
Andrew Liesch -- Piper Sandler -- Analyst
Good afternoon, everyone.
Bruce K. Lee -- President & Chief Executive Officer
Hi, Andrew.
Andrew Liesch -- Piper Sandler -- Analyst
Hi, Bryan, could you just walk us through a little bit more on the core run rate expense number? What exactly are you backing out there to get down there? Does that include some of the asset writedowns that may have come into that line and then what was the -- was there any sort of tax adjustment or tax amortization expense in operating costs?
Bryan R. McKeag -- Executive Vice President & Chief Financial Officer
Yeah, so in the operating costs, I back out the M&A costs. I referred to the $625,000, back out the $1.5 million of asset gains and then see the third item is the -- I think it's the tax cost of our credits and that you can -- we do have that in our -- I think it's a little over $3 million. If you look in our reconciliation of efficiency ratio, you can find that number.
Andrew Liesch -- Piper Sandler -- Analyst
Okay. Got it.
Bryan R. McKeag -- Executive Vice President & Chief Financial Officer
Those are the three items I back out.
Andrew Liesch -- Piper Sandler -- Analyst
Okay, that's helpful. And then, I know it's kind of picky just with classifieds basically being a little bit lower, but just the rise in non-performers, just kind of curious what drove that, and what do you guys are seeing in the agriculture space right now?
Andrew E. Townsend -- Executive Vice President & Chief Credit Officer
Sure. This is Drew. The first piece that impacted us a little bit here, Andrew, was we had $4 million slightly greater and over 90 days that it is right at the end of the year. I'm happy to report all of that is either have been paid or resolved down to a very minimal number. The second piece would be Rockford Bank and Trust. It wasn't a big number, a little north of $3 million I believe in non-performers and then we did have two larger credits, ag-related in our Wisconsin Bank that totaled in excess of $7 million. So those were the -- those are the three drivers. Again as I mentioned, the greater than 90 days has effectively been resolved already.
As it relates to ag, we were doing a little bit of discussion here. In 2019, 26% of our net charge-offs were ag-related and again by comparison, ag is about 7% of our total book. As -- and another metric to focus on, 31% of our NPAs right now are ag-oriented. So you can certainly see a disparity there. The last comment I would make is we have gone through the CECL process. We are seeing better expected commodity prices as we look forward and that's part of our economic forecast, but it remains a challenging space as we move into 2020.
Andrew Liesch -- Piper Sandler -- Analyst
Got you. That detail is very helpful. I will step back. Thanks for taking my questions.
Operator
Thank you. Our next question is from Mr. Jeff Rulis with D.A. Davidson. Your line is now open. Please proceed with your question.
Jeff Rulis -- D.A. Davidson -- Analyst
Thanks, good afternoon.
Bruce K. Lee -- President & Chief Executive Officer
Hi, Jeff.
Bryan R. McKeag -- Executive Vice President & Chief Financial Officer
Yeah.
Jeff Rulis -- D.A. Davidson -- Analyst
Bryan, so the $87.6 million core in expenses. And in your prepared, I think you kind of viewed that toward the efficiency ratio on a guidance, but could you -- anyway you could range bound what happens the core, that $87.6 million on a quarterly run rate?
Bryan R. McKeag -- Executive Vice President & Chief Financial Officer
Yeah, obviously looking on quarters, I think it's going to stay up just slightly for the year, when we get our BT and everything else going, but it's not going to go up a lot. I think next quarter, it should stay plus or minus, where it was; I would say between $87 million and $86 million. This is probably a good rain. Then, we do have some start salary start to go up and a couple of other things in the second quarter, but revenue should pick up then as well. So that's why I think, the efficiency ratio can improve as we go forward once we get out the first quarter, which is always kind of a challenge.
Jeff Rulis -- D.A. Davidson -- Analyst
Okay. So obviously the big number was the tax credit expense. And I guess if you exclude those one-timers, M&A, and asset gains, then you're back in that range. Got you. Thank you.
And then on the organic loan growth just in the quarter, drilling down a little bit, obviously you talked about C&I and CRE being outstanding and Bruce, I think you mentioned run-off in the ag portfolio, could we assume the other run-off was in the resi portfolio?
Bruce K. Lee -- President & Chief Executive Officer
The vast majority was resi. We actually grew our consumer portfolio in the fourth quarter slightly.
Jeff Rulis -- D.A. Davidson -- Analyst
And that dynamic of -- you led with the C&I, CRE in, I guess, mid-single-digits. Just something inside of that if you look at a flat ag and consumer and down resi would be something inside of that for a net growth for the full year?
Bruce K. Lee -- President & Chief Executive Officer
Yeah.
Bryan R. McKeag -- Executive Vice President & Chief Financial Officer
Yeah, I think net growth is probably in that mid-to-lower single-digits. But I would say mid...
Bruce K. Lee -- President & Chief Executive Officer
Yeah.
Bryan R. McKeag -- Executive Vice President & Chief Financial Officer
Probably because we're very heavily commercial loan-oriented. So I think those should be in that mid-single-digit area.
Bruce K. Lee -- President & Chief Executive Officer
We think that the C&I and CRE should really be similar range that we were in the back half of 2019. And again, we would expect consumer to be flat, ag realistically probably is going to be down as we continue to work through credits and the industry and the resi portfolio is really going to depend on what interest rates do whether we'll keep those on our books or they'll get refinanced out.
Jeff Rulis -- D.A. Davidson -- Analyst
Great. And then last one, I just want to make sure I had the right number, Bryan. On the margin if you had -- I think you reference is a core number at 3.73% [Phonetic] versus 3.70%, [Phonetic] does that align with [Speech Overlap].
Bryan R. McKeag -- Executive Vice President & Chief Financial Officer
Yeah. You got it right. Yeah. The 12 basis points were down. 6 basis points of it was in the purchase accounting. So other 6 basis points was in core. Yes.
Jeff Rulis -- D.A. Davidson -- Analyst
Okay. That's all I had. Thank you.
Operator
Thank you. Our next question comes from Mr. Terry McEvoy with Stephens. Please proceed with your question.
Terry McEvoy -- Stephens Inc. -- Analyst
Good evening, everyone.
Bruce K. Lee -- President & Chief Executive Officer
Hi, Terry.
Bryan R. McKeag -- Executive Vice President & Chief Financial Officer
Hi, Terry.
Terry McEvoy -- Stephens Inc. -- Analyst
Bryan, if I could just start with the CECL question, does the credit mark on the -- no, I guess the PCD loans, does any of that migrate into the ACL post and is that captured at all in the outlook you discussed earlier on the call?
Bryan R. McKeag -- Executive Vice President & Chief Financial Officer
The reserve that we carry for PCI loans today we'll move over into the allowance. The other we believe will be -- that will remain to be amortized as we've been doing historically.
Terry McEvoy -- Stephens Inc. -- Analyst
Okay. And a question for Bruce. It's tough for us as outsiders to see the progress on Operation Customer Compass. You talked about the 144 increase in new commercial relationships last quarter and I guess, could you put that in perspective, is that number higher than in prior quarters. And is any of that a reflection of Salesforce and nCino and what you're doing to strengthen and build out that platform?
Bruce K. Lee -- President & Chief Executive Officer
Yeah, I would say two quarters have been very strong in that 144 [Phonetic] number would fit into that. For us, anything at north of 100 is pretty strong from a new relationship standpoint and really what's driven that in the last half of this year has not necessarily been Salesforce or nCino yet, it's really been the sales management process that David Prince has put in place as well as a much more targeted calling effort as opposed to kind of a shotgun approach. It's been very targeted in most of our markets, and we're starting to see the benefit of that where -- we will see the benefit longer term, of Salesforce and nCino will give us.
We think an extra couple of basis points, a couple of percentages of growth because we believe long term, it will shorten the sales cycle. About 20%, which for us is four to five days. So that speed-to-market between the initial contact through underwriting, through approval and through documentation, we think that time frame will be shortened up with the new technology that enables us to have a better 360 view of the customer and have more people working in the technology at the same time.
Terry McEvoy -- Stephens Inc. -- Analyst
Perfect. And then, I'll ask the M&A question. Could you just comment on level of conversations, pricing expectations among some of the parties that you're talking with. I guess, thoughts in the first half of 2020 on announcing another bank acquisition?
Bryan R. McKeag -- Executive Vice President & Chief Financial Officer
Yeah, we're close to a couple of deals. As you know, the multiples on the buyers stock are what drive the prices. Fortunate for us, we've been able to work with banks that we've had relationships for some time that would like to be part of Heartland in our model, and they like our financial performance over time. So yeah, I really think you'll be happy as we go through the year with the announcements of new partners for Heartland.
Terry McEvoy -- Stephens Inc. -- Analyst
Thanks everyone.
Bruce K. Lee -- President & Chief Executive Officer
Thanks, Terry.
Operator
Thank you. [Operator Instructions] Our next question comes from Mr. Damon DelMonte with KBW. Please proceed with your question.
Damon DelMonte -- Keefe, Bruyette & Woods, Inc. -- Analyst
Good afternoon guys. How is going today?
Bruce K. Lee -- President & Chief Executive Officer
Good Damon.
Damon DelMonte -- Keefe, Bruyette & Woods, Inc. -- Analyst
Good to hear. So first question, if I could just circle back on the margin real quick, Bryan, I think you said you're looking for 3.85% to $3.90 range here in the first quarter and then down to 3.80% to 3.85% as we progress through 2020. How much of that is from lower accretable yield versus core compression?
Andrew E. Townsend -- Executive Vice President & Chief Credit Officer
I would expect probably 50% of each if I were to -- kind of that's what happened this last quarter, I would say that's potentially what will happen. Purchase accounting, we can have a little bit more turnover in that portfolio, can bump up and then come back down, but I think what I've seen and what and Bruce you guys can jump in. But when I looked at loan pricing, if I went back to mid-June, that loan pricing is down 40 basis points to 50 basis points from where it was half a year ago, but if you look at our deposit price, it's only down about 25 basis points. So we've got to really work on the deposit side. Even if we do that, it's still going to be hard to maintain the margin.
So I think there is going to be a little bit of erosion there and probably a little bit on the purchase accounting side as that naturally runs away. And we won't replace nearly as much on future acquisitions under CECL. There is an opportunity because we are so liquid, Damon with the 75%, 76% loan-to-deposit ratio, if we can be effective of generating more loans, I mean, we're still earning just a little under 3% in our bond portfolio on a fully taxable equivalent basis. But if we can convert into loans, that will certainly help us hold margin. And we will have to be diligent as Bryan said on continuing to reduce our deposit cost.
Damon DelMonte -- Keefe, Bruyette & Woods, Inc. -- Analyst
Got it and then kind of along those lines with that liquidity, the securities portfolio did increase this quarter. So can we expect it to not get much bigger than this or do you, would you look to put more leverage on?
Bryan R. McKeag -- Executive Vice President & Chief Financial Officer
Yeah. We wouldn't leverage to put anything in the investment book. The only way the investment would grow is if -- as Bruce said, we don't get the loan growth and we get the deposit growth, so otherwise, I don't think you'll see any bigger. It should come down as we're able to go the other way hopefully.
Bruce K. Lee -- President & Chief Executive Officer
Yeah, I don't think, Damon, that you'll see us put leverage on through the investment portfolio. We -- based upon what we think our pipelines look like as well as that one large deposit, which we don't believe that will maintain. We should be able to increase our loan-to-deposit ratio over the next couple of quarters.
Damon DelMonte -- Keefe, Bruyette & Woods, Inc. -- Analyst
Got it. Okay.
Bryan R. McKeag -- Executive Vice President & Chief Financial Officer
And the other thing, Damon, I would just tell you that we're thinking is given where the loan -- where the investment portfolio yields today, if we drive our deposit rates down and slow that deposit growth a bit if that happens. We may choose to take on a little bit of leverage because we have so little rather than sell off the investment portfolio take gains today to give up higher yielding assets. So kind of have to wait and see how it plays out, but we really rather not put on the leverage in rather just grow the core customer base.
Damon DelMonte -- Keefe, Bruyette & Woods, Inc. -- Analyst
Got it. Okay. That's all I really had. Most of my other questions have been answered, so thank you.
Bruce K. Lee -- President & Chief Executive Officer
Thanks, Damon.
Operator
Thank you. And speakers, there are no further questions at this time. I would like to turn the floor back over to Mr. Fuller for closing comments.
Lynn B. Fuller -- Executive Operating Chairman
Thank you, Jimmy. As mentioned earlier, we are going into 2020 with great momentum in all of our business lines. Our commitment to our strategic priorities and key areas of focus will continue to guide us as we build on the many accomplishments and successes achieved in 2019. I'd like to thank everyone for joining us today, and hope you can join us again for our next quarterly conference call in late April. That said. Everyone have a great evening.
Operator
[Operator Closing Remarks]
Duration: 44 minutes
Call participants:
Lynn B. Fuller -- Executive Operating Chairman
Bruce K. Lee -- President & Chief Executive Officer
Bryan R. McKeag -- Executive Vice President & Chief Financial Officer
Andrew E. Townsend -- Executive Vice President & Chief Credit Officer
Andrew Liesch -- Piper Sandler -- Analyst
Jeff Rulis -- D.A. Davidson -- Analyst
Terry McEvoy -- Stephens Inc. -- Analyst
Damon DelMonte -- Keefe, Bruyette & Woods, Inc. -- Analyst
