Heartland Financial USA (HTLF) Q4 2021 Earnings Call Transcript

Heartland Financial USA (HTLF -1.50%)
Q4 2021 Earnings Call
Jan 31, 2022, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Greetings, and welcome to the HTLF fourth quarter 2021 conference call. This afternoon, HTLF 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 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 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 website.

At this time, I will now turn the call over to Mr. Lynn Fuller at HTLF. You may begin.

Lynn Fuller -- Executive Operating Chairman of the Board

Thank you, Towanda, and good afternoon. Welcome to HTLF's fourth quarter 2021 earnings conference call. We appreciate everyone joining us today as we discuss the company's performance for the fourth quarter of 2021 and for the year. Now, for the next few minutes, I'll touch on the highlights for the year and the fourth quarter.

I'll then turn the call over to HTLF's president and CEO, Bruce Lee, who will cover business performance; and Bryan McKeag, our EVP and CFO, who will provide additional color around HTLF's results. Also joining us today is Nathan Jones, our EVP and chief credit officer, who will be available to answer questions regarding credit. Now, on to the financial highlights for 2021. So, I'm very pleased to report that we had an excellent year despite the headwinds we faced.

Net income available to common shareholders for the year was a new record high of $211.9 million and for the quarter, $47.6 million. Earnings per diluted common share for the year was a new record high of $5. That's a whopping 40% increase over 2020. For the quarter, earnings per diluted common share was $1.12.

Well, assets ended the year at $19.3 billion. And annualized return on average assets for the year was 1.19% and for the quarter, 1.03%. Annualized return on average tangible common equity for the year was 15.59% and for the quarter, 13.47%. The net interest margin, on a fully tax-equivalent basis, non-GAAP, was 3.33% for the year and 3.12% for the quarter.

Our efficiency ratio, fully tax-equivalent, non-GAAP, for the year was 59.48%. Bruce and Bryan will share more details on these items in their comments. Well, book value and tangible book value per common share continued to increase, ending the year at $49 and $34.59, respectively. That's a 5% and 7% increase over the year-end 2020, respectively.

Our tangible common equity ratio, non-GAAP, ended the year at 7.84%. But with regard to our M&A strategy, we continue to prioritize both in-market and larger transactions to build scale in our growth markets. We have a deep pipeline of attractive prospects, and a number of active discussions are taking place. Well, at this month's meeting, HTLF's board of directors approved a $0.27 per common share dividend payable February 25, 2022, to shareholders of record on February 11, 2022.

The board also approved a preferred dividend of $175 payable on April 15, 2022, to shareholders of record on March 31, 2022. 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. Bruce?

Bruce Lee -- President and Chief Executive Officer

Thank you, Lynn. Good afternoon, everyone. HTLF had tremendous success and growth in 2021. I'm pleased to share with you our solid results from the fourth quarter and the year as a whole.

We continue to make significant investments in talent and technology for our lending teams, which are already delivering results with strong loan growth and excellent credit quality. In 2021, we delivered record net income available to common shareholders of $211.9 million. For the quarter, net income available to common shareholders was $47.6 million. Total assets grew to a record $19.3 billion, up $1.4 billion or 8% from a year ago.

Assets increased $278 million from the linked quarter. Asset growth was driven by strong momentum in commercial and consumer loans, and we continued to see significant growth in deposits and service fees. Let's start with loan growth highlights. In the fourth quarter, loans grew $309 million across our portfolios, excluding PPP, an increase of 3% from the linked quarter, again, exceeding our guidance for the quarter of $200 million.

We saw continued strength across our commercial loan portfolios. From the linked quarter, commercial and industrial increased $106 million or 4%. Owner-occupied real estate increased $105 million or 5%. Nonowner-occupied real estate was flat.

Construction increased $42 million or 5%. And our Ag portfolio increased $69 million or 10%. We added 296 new commercial relationships during the quarter, representing $346 million in funded loans and $69 million of new deposits. The growth in our Ag portfolio demonstrates how we are executing our talent acquisition strategy.

The addition of our Food and Agribusiness division in California has strategically added capabilities and expertise to service agribusiness customers in the Central Valley and complements our other HTLF specialized industries teams across our footprint. In 2021, we also extended our reach in several high-growth markets in the Midwest. We opened offices in St. Paul, Des Moines, and Cedar Rapids.

And in the fourth quarter, we opened two offices in the Western suburbs of Chicago. In total, we added 15 commercial bankers at these locations. Our commercial pipeline is currently 15% higher since the end of the third quarter, and we expect to grow commercial loans by $200 million to $250 million in the first quarter. We are winding down our PPP operations.

At year-end, we have fewer than 500 customers remaining to complete the forgiveness process. Over the lifetime of PPP, we processed nearly 8,000 loans totaling nearly $1.6 billion. As we start 2022, some headwinds remain. And customers are managing challenges from COVID, supply chain disruptions, workforce shortages and wage pressures, and inflation.

In our consumer loan portfolio, we saw growth of $7 million or 1.7% from the linked quarter. Residential mortgage decreased $11 million or 1.3% from the linked quarter, reflecting declining refinancing activity. We delivered another solid quarter of deposit growth.   deposits totaled $15.4 billion at quarter-end, an increase of $439 million or 3% during the quarter. For the year, nontime deposits increased $1.7 billion or 12%.

We saw total deposit growth for the 11th consecutive quarter with heavier deposit activity in December. Total deposits were a record $16.4 billion, an increase of $395 million from the linked quarter, a $1.4 billion or 9.6% from a year ago. Our already exceptional deposit mix improved even further. Ninety-four percent of deposits are in nontime accounts.

Forty percent of deposits are in noninterest-bearing accounts. Our deposit pricing strategy continues to serve us well. For the year, total deposit cost decreased to 9 basis points from 25 basis points a year ago. Turning to key credit metrics.

Our disciplined credit approach has delivered excellent credit quality across our portfolios. Nonperforming loans represented 70 basis points of total loans at the end of the fourth quarter, a decrease of 14 basis points from the linked quarter. Nonperforming assets as a percentage of total assets declined to 37 basis points from 46 basis points in the linked quarter. Other real estate decreased to $1.9 million from $4.7 million in the linked quarter.

Delinquency ratio decreased to 7 basis points from 12 basis points in the linked quarter. Nonpass-rated loans decreased to 7.4%, a decrease of 1.7% for the quarter. Lastly, in the fourth quarter, we reported a net charge-off position of just over $600,000 or 3 basis points of average loans. During 2021, we accelerated several of our strategic investments and initiatives to improve the customer experience.

Specifically, we enhanced commercial online account analytics, document management, and form availability. We completed improvements for customer service agents to access real-time transaction and account data. This increased first call resolution and improved customer service operational efficiencies. We improved loan document handling and improved loan administration processing time by up to 10%.

We continue to optimize our branch network. In 2021, we closed, consolidated, and sold 12 branches or 8% of our network. In 2022, we plan to close or sell 13 more branches or another 10%. We had elevated expenses in the fourth quarter as we began executing the consolidation of our separate bank charters into a single charter to drive long-term efficiency, improve agility, reduce expenses, and enhance scalability.

Bryan will provide more details on expenses in his comments. We intend to charter HTLF bank in Colorado, subject to regulatory approval. We plan to consolidate our 11 member banks onto this charter over the next year and a half, with Citywide Banks being the first in mid-2022. As I've previously said, our 11 banks will maintain their brands, local leadership, and local decision-making.

HTLF will maintain its strong and sizable presence in Dubuque, Iowa. Current HTLF operational and administrative functions will continue to be largely staffed and run from Dubuque. We expect charter consolidation to be complete by late 2023. As I look back on 2021, it's been a year of tremendous growth and accomplishment across HTLF.

We are executing on our growth strategy by investing in talent, expanding our capabilities, extending our footprint into high-growth markets, and implementing new technologies. We added HTLF's first chief diversity, equity, and inclusion officer to lead our DEI efforts and reinforce our company values. And we refreshed our branding to better reflect the company we are today and reinforce the strength, insight, and growth we bring to our employees, customers, communities, and investors. Together, we are HTLF.

I will now turn the call over to Bryan McKeag, HTLF's chief financial officer, for more details on our performance and financials.

Bryan McKeag -- Executive Vice President and Chief Financial Officer

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 $1.12, loan growth of $309 million excluding PPP, significantly improved credit metrics, and continued deposit growth of $395 million. There were several significant items that impacted the quarter, including a $3.1 million decline in income on PPP loans as PPP forgiveness slowed in Q4. A spike in mortgage prepayment speeds into the fourth quarter caused premium amortizations on our MBS portfolio to accelerate, reducing income by approximately $1.9 million this quarter.

Restructuring charges of $1.9 million were recorded relating to the commencement of the charter consolidation project. And write-downs totaling $424,000 were booked related to branch facilities identified to be consolidated or downsized in 2022. Some of these items lowered EPS by $0.13 per share. Before I go into more detail, I would remind everybody that you can find additional information on the quarter in the fourth quarter investor presentation, which is available in the IR section of Heartland's website.

I'll start my comments with the provision for loan losses, which was a $5.3 million benefit this quarter as underlying credit trends continued to improve, highlighted by loan upgrades exceeding downgrades again this quarter, nonperforming loans falling $13.3 million, loan delinquencies declining again to a new record low of just 7 basis points of total loans, and net charge-offs of only $637,000. 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. So, at quarter-end, the total allowance for related -- lending-related credit losses, which includes both the allowance for credit losses on loans and unfunded commitments, stood at $125.6 million or 1.26% of total loans. When the PPP loan balances are excluded, the total allowance stands at 1.29%, compared to 1.39% at September 30, 2021.

In addition, at quarter-end, unamortized purchase loan valuations on the balance sheet stood at $18.5 million or 19 basis points of total loans, excluding PPP. Moving on to other balance sheet items. Investments grew $79 million this quarter and comprised 40% of assets with a tax-equivalent yield of 1.94%, a duration of just over five years, and generate about $75 million of average monthly cash flow. Borrowings decreased $134 million to end the quarter at $504 million or just 2.61% of assets.

Tangible common equity ratio decreased 5 basis points to 7.84% at quarter-end and reflects a 14-basis-point decline due to the decrease in market value of investments and another 12 basis point decline due to the significant balance sheet growth this quarter. These are partially offset by a 21-basis-point increase from retained earnings. Heartland's regulatory capital ratios also remained strong with common equity Tier 1 at just over 11.5% and total risk-based at just under 16%. So, the balance sheet continues to be very strong and well-positioned.

Moving to the income statement. Net interest income totaled $137.2 million this quarter, which was $5.3 million lower than the prior quarter. Three main drivers of the reduction were: a $3.1 million decline in PPP interest and fees recognized this quarter to $8.1 million from $11.2 million in the last quarter. We exited the quarter with $6.5 million of unamortized PPP loan fees remaining on our books.

Second, accretion of purchased loan valuation discounts declined $900,000 this quarter to $2.4 million. As previously noted, we have $18.5 million of unamortized purchase accounting discounts remaining on our books at year-end. And third, due to the spike in mortgage prepayment speeds in the fourth quarter, premium amortizations on our MBS portfolio were accelerated by approximately $1.9 million this quarter. Just as an aside, with the rise in interest rates since year-end, prepayment speeds have already come back down to levels that should result in premium amortizations normalizing back to pre-fourth-quarter levels.

In total, these three drivers resulted in a $5.9 million decrease in net interest income. Excluding these components, net interest income would have been $600,000 higher than last quarter. The net interest margin on a tax-equivalent basis this quarter was 3.12%. That's down 22 basis points compared to last quarter, largely due to the three items I mentioned -- just mentioned: investment yields declined 23 basis points, loan yields fell 16 basis points, while net interest cost remains unchanged.

This quarter, the net interest margin includes 5 basis points of purchase accounting accretion, which was down 3 basis points from the prior quarter. Shifting to noninterest expense. Noninterest expenses totaled $115.4 million this quarter, up $4.8 million from last quarter. Excluding restructuring, tax credit costs, and asset gains and losses, core expenses increased $3 million to $11 million -- $111 million, compared to $108 million last quarter.

The increase is primarily attributed to a $2.3 million increase in salary and benefits costs that were related to completing the build-out of our Food and Agribusiness division, continuing wage inflation pressure, and higher temporary worker costs related to several in-flight IT projects that we have been pushing to get completed before we begin consolidating charters in mid-2022. Looking ahead to 2022, we believe HTLF will continue to deliver strong results, highlighted by loan pipelines that remain strong, leading to expected loan growth, expecting -- except PPP, in the 2% to 3% range per quarter as the economy normalizes and our new Agribusiness Finance group ramps up. Nontime deposit growth is likely to slow into the 1% range per quarter. Assuming no Fed rate changes, net interest income, excluding PPP fees, is projected to grow mid-single digits on a percentage basis year over year as earning assets grow and mix improves.

We estimate that two Fed 25-basis-point rate hikes in the first half of 2022 would increase net interest income approximately $16 million in 2022 due to our asset-sensitive balance sheet and assuming much lower-than-normal deposit betas. The 2023 full-year impact of these raises would be an additional $11 million over the 2022 increase. Provision for credit losses are expected to remain low for the next quarter or two and then begin to normalize with continued loan growth and low net charge-off levels as the economy stabilizes and COVID and supply chain issues subside. Noninterest income, excluding investment gains or losses, in total is expected to be flat next quarter at about $31 million to $32 million.

We expect year-over-year lift in core noninterest income in the 10% range next year. However, higher interest rates would likely drive mortgage and trust revenues lower. This also assumes no change to consumer NSF or OD fees, which were currently being monitored and assessed. Core expenses are expected to return back toward Q3 levels or in the $108 million range next quarter.

We are working to manage core expenses to minimal increases year over year in 2022 by rationalizing branches, slowing IT and other spending. And we should begin to realize some costs as we concentrate on charter consolidation -- some cost saves as we concentrate on charter consolidation. However, persistent inflationary pressures, particularly wage inflation, could be a difficult headwind. The remaining charter consolidation and restructuring costs are estimated at $17 million to $18 million and will be incurred over the next two years.

The consolidation will reduce run-rate costs, create operating leverage for future growth and present some treasury revenue opportunities. These benefits will layer in over the next two years, and we are confident that, in total, they will reach $20 million on an annualized basis when the consolidations are completed in late 2023. And finally, we believe a core tax rate in the 22% to 23% range, excluding any new tax credits, is a reasonable full-year rate. With that, I'll turn the call back over to Bruce.

Bruce Lee -- President and Chief Executive Officer

Towanda, I think we're now ready for questions from the analysts.

Questions & Answers:

Operator

Thank you. We will now be conducting a Q&A, question-and-answer session [Operator instructions] Our first question comes from the line of Jeff Rulis with D.A. Davidson. Your line is open.

Jeff Rulis

Thanks. 

Bruce Lee -- President and Chief Executive Officer

Good afternoon, Jeff. 

Jeff Rulis

On the spread income, I suppose -- I note the headwinds that you discussed. I was thinking maybe you might have a better quarter given the loan growth. Was that potentially with the growth? Was that pretty steady throughout the quarter? Was that pretty back-end loaded in terms of time?

Bryan McKeag -- Executive Vice President and Chief Financial Officer

Yeah. It was in the back half of the quarter. I think if you look at the average loans for the quarter and some of our tables compared to where we ended the quarter on a period-end basis, we were higher -- quite a bit higher at the end of the quarter. So, yes, it's back-loaded.

Jeff Rulis

OK. Got it. And then just one off on the charter consolidation. Colorado, the selection of that to kind of house the charter, is that kind of central to the geography, business-friendly state? Any kind of ideas of why that was selected?

Bruce Lee -- President and Chief Executive Officer

Yes, Jeff, I'll take that one. This is Bruce. Several factors went into it. One of them was that Colorado does have experience with multistate banking operations.

So, that was one of the benefits. They also have experience handling charters of our size, not only today but in a future state. It is centrally located for all of our brands. Clearly, it emphasizes our growing presence in the West and the Southwest.

And Colorado has very favorable GDP growth. So, there are a lot of factors that went into it.

Jeff Rulis

OK. Got it. And last one on the costs associated with the benefits of the consolidation. I guess it's a two-year process, that $17 million to $18 million in costs.

Is there a point where maybe the end of '22, you start to -- it's kind of a wash in terms of the saves versus the upfront expenses? Or just kind of looking for the timing of both expenses. Is that front-end loaded and the savings sort of in the second half? If you could comment on just the timing of that.

Bryan McKeag -- Executive Vice President and Chief Financial Officer

Yes. I think there may be a little bit of front-end loading on the cost, obviously, to get the project going in the first couple. But I think we will get some cost saves also as we work through this, and we make some decisions of what the organization will look like down the road. So, I think it's probably relatively even.

Actually, the two amounts are pretty close as well. So, we've kind of viewed this as if we can get this done and we can have a run rate that's got a one-year payback to what it cost us to get this done, we think that's a pretty good consistent save going forward for the cost.

Bruce Lee -- President and Chief Executive Officer

But we do expect to be able to get some of the expenses out during 2022. We won't be able to get all of them out, but we will be able to start to. It's not like we're going to have all of the expenses incurred in the charter consolidation, and then we don't get any expense relief until the very end. That's not the way it will be.

Jeff Rulis

Got it. So, it sounds like, you know, get over the hump at the initial part, and then additional expenses seem to be offset by saves, and it would be pretty minimal impact going forward, and then you begin to outstrip on savings?

Bryan McKeag -- Executive Vice President and Chief Financial Officer

Yes. And then assuming we can continue to grow, we'll get to a point where we believe we'll be more efficient given that one charter and not have to do the redundancies, so we can leverage future growth when we get toward the end of this a lot better.

Bruce Lee -- President and Chief Executive Officer

Yes. So, as we did when we did some of our customer compass work, we believe that we'll add capacity through this as well. As Bryan was mentioning, as we grow, we won't have to add additional FTEs to support that growth.

Jeff Rulis

Got it. OK. Sorry, one last one. Just the -- I got the sense -- did you pull forward some of the tech spend and other projects that you have going that may have led to -- I mean, maybe just an update on where those costs are.

If you look at the checked items on that slide, you've got quite a bit complete. So, I'm trying to get a sense for where you sit on the expenses that might be embedded in your guidance, but just kind of wanted to update specifically on where you are with the projects.

Bryan McKeag -- Executive Vice President and Chief Financial Officer

Yes. I think we're making good progress. We still have some that have not what we call landed yet to get on the deck before we start consolidating. But those are -- based on a meeting even as late as this morning, are progressing as planned.

And I think you'll see these costs that we have, both the consulting costs and the temp people we've got in helping us get these done faster, those costs will come down a little bit. And some of them will then shift, and their focus will be onto the charter consolidation, which will start flowing through the recurring line. And then when that's done, they should go away. So, that's kind of the thought of how expenses should kind of work through here.

Jeff Rulis

OK. Thank you.

Bruce Lee -- President and Chief Executive Officer

Thank you.

Operator

Our next question comes from the line of Terry McEvoy with Stephens. Your line is open.

Terry McEvoy -- Stephens Inc. -- Analyst

Hi. Good afternoon, everyone. 

Bruce Lee -- President and Chief Executive Officer

Hi, Terry.

Terry McEvoy -- Stephens Inc. -- Analyst

Maybe start a question for you, Bryan. I guess when you think about the outlook for '22, and I appreciate your thoughts earlier, do you think you can grow revenue faster than expenses? It sounds like mid-single-digit growth in net interest income, flat fees. But on the expense side, you seemed a little bit cautious given wage inflation and just pressure overall.

Bryan McKeag -- Executive Vice President and Chief Financial Officer

Yes. I think ex-PPP, again, because that's pretty much done now, I think when you take that out and you look at the core revenue growth, it can grow faster than expenses. Again, my biggest worry, and you heard me say it, is unless we get this inflation that just will not go away. But I think even with that, we can get positive leverage.

Terry McEvoy -- Stephens Inc. -- Analyst

OK. And then just looking at the average balance sheet, you know, C&I yields ex-PPP really came down to 4.33 to 4.02 and kind of quite a bit of pressure on loan yields overall. Specific to the C&I, is that the ag -- kind of food, ag business that kind of was added to the balance sheet? Or is that just kind of market, market pressure?

Bruce Lee -- President and Chief Executive Officer

Terry, I think it's a fair amount of market pressure, but also, I think that we are bringing on a better quality of customer. So, the pricing is having -- is lower, and we're seeing it reflected in our ALLL funding. So, I think it's quality of customer. It's market conditions. 

Bryan McKeag -- Executive Vice President and Chief Financial Officer

And I think it's also, Terry, where some of the lower amortization for purchase accounting discounts are coming through there as well. I was just trying to --

Bruce Lee -- President and Chief Executive Officer

Yes, that as well.

Bryan McKeag -- Executive Vice President and Chief Financial Officer

I'm just pretty sure that that's a part of it as well.

Terry McEvoy -- Stephens Inc. -- Analyst

OK. And then just last question here. Fifty-basis-point increase in rates. If I take $16 million plus $11 million, does that equal $27 million in annualized net interest income? Is my math correct there, Bryan?

Bryan McKeag -- Executive Vice President and Chief Financial Officer

That would be the annualized amount, and that's what you'll see in 2023, assuming no other changes. They were just -- yes, you're correct.

Terry McEvoy -- Stephens Inc. -- Analyst

Perfect. OK. I appreciate that. Thanks, everyone.

Operator

Our next question comes from the line of Andrew Liesch with Piper Sandler. Your line is open.

Andrew Liesch -- Piper Sandler -- Analyst

Hello, and thank you for taking the question. You've actually covered most of what I wanted to go over. But just on the loan pipeline and the loan growth, I'm just curious, what are your customers telling you? And what's driving some of the struggles, the market share gains? Is there any new borrowing yet from clients? And then are there any locations that are doing better than others?

Bruce Lee -- President and Chief Executive Officer

Yes. I would say a lot of our growth this quarter, as well as what's in the pipeline is coming from our Western and Southwestern markets. They're growing a little bit faster than here in the Midwest. Also, the agribusiness group has a fairly significant pipeline.

But it's gaining market share, but also our customers are starting to spend. We're seeing a fair amount of capital expenditures now going on. Some of that is because they see their increased demand. They feel it will be consistent.

It's not just a spike up and then back down. So, they're a lot more confident in capital expenditure spending. We really haven't seen much in the way of line of credit utilization increases. It was like up 1%.

I mean, just a little bit. So, it's not really on the utilization side. We haven't seen that yet.

Andrew Liesch -- Piper Sandler -- Analyst

Got it. And then so it would be safe to say like the loans out West with the pricing is more competitive than what you're getting elsewhere just after we look through and see how far some of these loan yields fell in the quarter.

Bruce Lee -- President and Chief Executive Officer

Well, we touched a little bit on that, and Bryan, jump in here. But as we are going upmarket a little bit into really more of a middle-market space, whether it's in the West or the Midwest, the pricing is much more competitive. We are getting a little better pricing out West but not like it is on the, say, loans, $5 million and below.

Bryan McKeag -- Executive Vice President and Chief Financial Officer

Yes. I think what I'm looking at, at least the last month, so I looked at December, I always look at that right before the meeting here, it's interesting the Midwest, the pricing seems tighter. The West has a wider range. And I think that these larger, maybe better credit qualities are tending to get pricing at or even slightly below what we see in the Midwest.

But then there are some, the normal stuff that we've always done for years, it seems to have a little bit higher price. So, there's a wider dispersion that we're seeing in pricing than we maybe had historically.

Andrew Liesch -- Piper Sandler -- Analyst

Got it. So, some of these new ones are coming out for pricing, are you able to get more like treasury management and card services along with that to help the profitability?

Bryan McKeag -- Executive Vice President and Chief Financial Officer

Yes. And I think that also -- and Bruce can jump in here. I think capital market fees are going to also be a little bit more for us.

Bruce Lee -- President and Chief Executive Officer

Yes. So, that's been our overall strategy, to go a little bit upmarket, better quality. And then it will increase our ability to cross-sell into the products that we have, whether it's treasury management, whether it's cards, whether it's interest rate swaps. So, I think over time, you'll see us improve our fee income from those customers.

Andrew Liesch -- Piper Sandler -- Analyst

Got it. OK. Thanks for taking the questions.

Operator

Our next question comes from the line of David Long with Raymond James.

David Long -- Raymond James -- Analyst

Good afternoon, everyone. Hey, Bryan, thank you for the update on the 50-basis-point impact. Within that guide for your net interest income, what type of deposit beta are you assuming? And is that deposit beta for your whole deposit base or just your interest-bearing deposits?

Bryan McKeag -- Executive Vice President and Chief Financial Officer

So, it is just for the interest-bearing deposits. Typically, our nonmaturity deposits, so take CDs out, which is pretty small for us anyway, I think our normal is probably 40% to 45% beta as rates go up. So, 40% of the Fed move is what our rates will go up. Because of our strong base and because we're starting at such a low point, we assumed relatively no beta the first 25 basis points.

And I think we assumed 15% -- or 15 beta on those deposits, the reason being we do have some small portion that's indexed. And so, as rates go up, we will -- those will have to go up, but much less than what we normally would model in that 40% to 45% range.

David Long -- Raymond James -- Analyst

Got it. OK. Great. Thank you.

And then with the -- talking about the expense side, and I think you mentioned you expect it to come back down closer to the third-quarter level for the next few quarters, and that is exclusive of the charter consolidation expenses, correct?

Bryan McKeag -- Executive Vice President and Chief Financial Officer

Yes, that would be correct.

David Long -- Raymond James -- Analyst

OK. Great. That's it for me. Thank you.

Appreciate it. 

Bryan McKeag -- Executive Vice President and Chief Financial Officer

Thank you.

Operator

Our next question comes from the line of Damon DelMonte with KBW. Your line is open.

Damon DelMonte -- Keefe, Bruyette and Woods -- Analyst

Hey, good afternoon, guys. Great. Just to kind of continue on the expense topic here, you mentioned that probably another 13 branches or 10% of the footprint looking to consolidate in 2022. Is there any timing around that and any potential financial impact we could kind of factor in?

Bryan McKeag -- Executive Vice President and Chief Financial Officer

Yeah. I think the timing for that is probably going to be late in the second quarter, into the third quarter, just with regulatory filings and everything else we've got going on. We did those -- some of those branches, as I mentioned, one of the things we did is we did move them for -- to held-for-sale. So, what that does is it starts to slow down some of the depreciation on those buildings.

We pulled the mark of the value then. That's whatever we mark them or the book values -- we didn't have to mark them, so we can get them sold. So, there's a little bit of expense that came out relative to what our run rate was coming in, but the biggest thing will be late second quarter, early third-quarter timeline.

Damon DelMonte -- Keefe, Bruyette and Woods -- Analyst

OK. And then is there a way like -- is there a projected cost savings associated with that? Or will those savings be reallocated to other areas of the operations?

Bryan McKeag -- Executive Vice President and Chief Financial Officer

No. I think we'll try to hold on to those cost saves. You know, I don't have the exact number here, but typically, we save probably $300,000 to $400,000 per branch. It depends on the size.

It depends on a lot of things. But that's probably an average. So, you'll start to see some of that come in, like I said, later on in the second quarter. Hopefully, more -- bigger piece in the third quarter.

Damon DelMonte -- Keefe, Bruyette and Woods -- Analyst

So that's kind of what's helping you keep that like $30 million to $31 million level then, pretty much?

Bryan McKeag -- Executive Vice President and Chief Financial Officer

Yes.

Damon DelMonte -- Keefe, Bruyette and Woods -- Analyst

Sorry, $31 million to $32 million level?

Bryan McKeag -- Executive Vice President and Chief Financial Officer

Well, that's the fee income. That's on the expense side, Damon. So, that will help us --

Damon DelMonte -- Keefe, Bruyette and Woods -- Analyst

I'm sorry, I looked at the wrong side of that. Yeah. Sorry.

Bryan McKeag -- Executive Vice President and Chief Financial Officer

We need some of that because, obviously, if the first quarter is $108 million, we've got to get the remaining quarters to come down to be able to get our year-over-year to be that minimal increase that I talked about. So, there's some work to be done on the expense side to get there.

Damon DelMonte -- Keefe, Bruyette and Woods -- Analyst

Got it. OK. Great. And then with respect to the reserve level now, I think you said it was 1.29 ex-PPP at the end of the quarter.

With all this growth that's coming on, how do we think about the provision level going forward?

Bryan McKeag -- Executive Vice President and Chief Financial Officer

Yeah. And Nathan can jump in here, too. I think we are at 1.29, assuming that the economy holds together, and we get kind of past COVID, and we get to maybe a little bit more stable place, we think that our probably normalized run rate is probably in the closer to 1.20, maybe 1.22 to 1.23, somewhere near. Between 1.20 and 1.25 of loans ex-PPP.

So, we have, I think, probably, call it, 8, 9 basis points to come down. And that would be coming out of what we're holding in the economic component of the reserve. So then, once you get past midyear, assuming that that happens and we kind of hold together, then you'll start seeing loans have to be provided for because they don't have the coverage. And normalized, that's probably $3 million to $6 million a quarter depending upon -- we believe charge-offs will stay low.

And if we can continue to grow $2 million to $3 million -- $200 million to $300 million a quarter, that's probably the range of what normalized would be.

Damon DelMonte -- Keefe, Bruyette and Woods -- Analyst

Got it. OK. That's helpful. And then I guess just lastly, with the agribusiness, could you just talk a little bit more about some of the types of loans that they're making and the size of them and just give a little bit more kind of color on this new business line?

Bruce Lee -- President and Chief Executive Officer

Yeah. So, I would say, you know, the size is anywhere from $5 million to, say, $25 million. We do have some growers, but we also have processors. And so, it's not just pure kind of ag.

I mean, it's truly agribusiness. And it's a combination of nuts, berries, leafy vegetables. I mean, it's sort of what you would expect coming out of the Central Valley of California. It's a wide range.

Damon DelMonte -- Keefe, Bruyette and Woods -- Analyst

OK. That's helpful. That's all that I had. Thank you very much.

Operator

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

Bruce Lee -- President and Chief Executive Officer

Thank you, Towanda. In closing, HTLF had a solid fourth quarter and a strong year. In 2021, organic loan growth was $689 million or 7.6%. Organic nontime deposit growth was $1.7 billion or 12.3%.

Forty-two percent of our deposits are in noninterest-bearing accounts, positioning us well in a rising rate environment. We strategically invested for growth through our talent acquisition strategy, and we began realigning the organizational structure of the company through charter consolidation. Our momentum continues into 2022, and we're well-positioned to continue driving growth. I'd like to thank everyone for joining us today.

Our next quarterly earnings call will be in late April. Have a good evening.

Operator

[Operator signoff]

Duration: 49 minutes

Call participants:

Lynn Fuller -- Executive Operating Chairman of the Board

Bruce Lee -- President and Chief Executive Officer

Bryan McKeag -- Executive Vice President and Chief Financial Officer

Jeff Rulis

Terry McEvoy -- Stephens Inc. -- Analyst

Andrew Liesch -- Piper Sandler -- Analyst

David Long -- Raymond James -- Analyst

Damon DelMonte -- Keefe, Bruyette and Woods -- Analyst

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