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Heartland Financial USA (HTLF 0.94%)
Q2 2022 Earnings Call
Jul 25, 2022, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Greetings, and welcome to the HTLF second quarter 2022 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 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 up 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's website.

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

Bruce Lee -- President and Chief Executive Officer

Thank you, Latif. Good afternoon, everyone. This is Bruce Lee, president and CEO. Welcome to HTLF's 2022 second quarter earnings conference call.

We appreciate you joining us today as we detail HTLF's excellent performance for the quarter. For the next few minutes, I'll discuss our second quarter highlights and then turn the call over to Bryan McKeag, our chief financial officer, to provide additional information around HTLF results. Also joining us today is Nathan Jones, our chief credit officer, who can answer questions regarding credit quality, which continues to be quite strong. HTLF had an outstanding second quarter, reporting $49.9 million of net income and EPS of $1.17.

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Core EPS is $1.15 after both positive and negative onetime events, which clearly exceeded expectations. We are moving forward together. We have sustained our momentum as we continue to execute our strategy and drive results with strong growth in loans, deposits and revenue. In the second quarter, we delivered our best quarter ever for organic loan growth, increasing $552 million or 5% from the linked quarter, excluding PPP, and again, significantly exceeding our guidance of $200 million.

Deposit growth of $559 million from the linked quarter, our credit quality continues to be excellent with nonperforming assets holding at 34 basis points of total assets and delinquencies at historic lows. And total assets are a record $19.7 billion, an increase of $428 million or 2% from the linked quarter. Let's start with loan growth highlights. We saw continued strength across our commercial business with growth in every commercial loan portfolio.

From the linked quarter, commercial and industrial increased $245 million or 9%. Owner-occupied real estate increased $17 million or 1%. Nonowner-occupied real estate increased $160 million or 7%. Construction was up slightly by $3 million.

And our ag portfolio increased $70 million or 9%. In the second quarter, we added 322 new commercial relationships, representing $328 million in funded loans and $37 million of new deposits. Notably, all originations were of higher credit quality than the overall portfolio as measured by risk ratings and credit scores. And 66% of these loans have variable rate structures compared to 43% from last year.

Our investments in talent continue to deliver results. Our commercial pipeline remains strong at over $2 billion, consistent with previous quarters. And we expect to grow commercial loans by more than $250 million in the third quarter. I've had many conversations with our customers regarding the business trends they are experiencing and their outlooks.

While certain headwinds such as inflation, supply chain and staffing persist, our customers remain optimistic for the rest of the year and cautious about 2023. In our consumer loan portfolio, we saw strong growth of $37 million or 9% from the linked quarter. Residential mortgage increased $20 million or 2% from the linked quarter. Overall, each of our 11 banks had positive organic loan growth with Arizona Bank & Trust and Citywide Banks in Colorado leading the way.

We delivered another quarter of deposit growth. Non-time deposits totaled $16.1 billion, an increase of $534 million or 3% from the linked quarter. Total deposits grew to a record $17.2 billion, an increase of $559 million from the linked quarter and our 13th consecutive quarter of total deposit growth. We maintained our excellent deposit mix.

94% of deposits are in non-time accounts. 35% of total deposits are in noninterest-bearing accounts, positioning us well in a rising rate environment. Our deposit strategy continues to serve us well. Total deposit costs remained low at 15 basis points.

Our efficiency ratio decreased significantly to 57.7%, driven largely by both increased revenue as we executed our growth strategies and a reduction of core expenses. Competitive pressures remain for top talent, and we are executing an employee retention strategy that's been successful since implementation. This is an area we're closely monitoring as wage inflation and demand for top talent continue to be high. Turning to key credit metrics.

Our disciplined credit approach has delivered excellent credit quality across our portfolios. Delinquency ratio is at a historic low of 6 basis points. Nonperforming loans represented 59 basis points of total loans at the end of the second quarter, a decrease of 4 basis points from the linked quarter. Nonperforming assets as a percentage of total assets remained low at 34 basis points.

Non-pass-rated loans decreased to 5.8% from 6.3% in the linked quarter. Lastly, in the second quarter, we reported net charge-offs of $700,000 or 3 basis points annualized of average loans. We are delivering against our ambitious and disciplined growth strategies which were developed by our management team and unanimously approved by HTLF board of directors. We have considerable momentum and are positioned for continued growth and progress against our goals of organic loan growth, new customer acquisition, attracting and retaining talent, controlling expenses, branch and geographic optimization and maintaining strong credit quality.

We will also achieve growth by consolidating our 11 separate bank charters into a single HTLF Bank charter in Colorado. This will create operational and cost efficiencies and unlock capacity that supports both -- growth both organically and through M&A. Our 11 banks will maintain their local brands, local leadership and local decision-making. In June, we successfully executed the first of 11 bank charter consolidations with Citywide Banks becoming a division of HTLF Bank.

We're pleased with the smooth transition and the progress on the project overall. Four other banks are slated to convert this year. We expect to finish charter consolidation by late 2023 and deliver $20 million of annual savings and capacity after the project is complete. We will also continue to optimize our branch network.

In the second quarter, we sold two branches and closed seven. Over the past 18 months, we have reduced our total number of branches by 21 from 142 to 121. This represents a 15% reduction in branches. Our strategy and accomplishments continue to be recognized by local and national media.

Nielsen report ranked HTLF among the top U.S. commercial credit card issuers for the seventh year in a row. We continue to demonstrate consistent strength in the commercial payments space as HTLF saw a 48% increase in purchase volume growth in 2021. Nielsen reports ranking reflects HTLF's innovative approach to digital technology products and providing excellent customer education and experiences.

Awards, recognition and strong performance result from the hard work and dedication of our employees. I want to thank them for their ongoing commitment to deliver strength, insight and growth to our customers, communities and investors. We move forward together because 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, and good afternoon. As Bruce outlined, this was another solid quarter for HTLF with earnings per share of $1.17, loan growth of $552 million, excluding PPP, strong revenue growth, improved expense levels and continued favorable credit trends. Included in this quarter's results were the following large items. Gain on sale of two Illinois branches was $3 million.

Gain on sale of a small insurance sub was $400,000. And a gain on the sale of our Visa B shares was $1.9 million. Against these gains were losses on the sale of securities of $2.1 million and charter consolidation restructuring costs of $2.4 million. Altogether, these items increased pre-tax income by just under $1 million and increased earnings per share by about $0.02.

I will cover these in more detail throughout my comments. I would also remind everyone that both our earnings release and second quarter investor presentation are included in the IR section of HTLF's website. So I'll start my comments, as I usually do, with the provision for credit losses, which totaled $3.2 million and was unchanged from last quarter. This quarter, the provisioning for loan growth was partially offset by favorable underlying credit trends.

More specifically, nonperforming loans were down slightly compared to last quarter and loan delinquencies remained historically low at 6 basis points of total loans. And net charge-offs were minimal at $714,000 this quarter. At quarter end, the allowance for lending-related credit losses, which includes both the allowance for credit losses on loans and unfunded commitments, increased $2.5 million to $119.1 million or 1.12% of total loans. In addition, at quarter end, unamortized purchased loan valuations on the balance sheet totaled $13.2 million or 12 basis points of loans.

Moving to other balance sheet items. Investment balances rose just over $80 million to end the quarter at $7.3 billion, representing 37% of assets with a tax equivalent yield of 2.46%, a modified duration between five and six years and producing monthly cash flows of $65 million to $70 million. During the quarter, we took the opportunity to reposition some of the portfolio by selling just over $150 million of securities that yielded 2.1% and used the proceeds to repurchase new securities yielding 4.3%. The loss on the repositioning was largely offset by the $1.9 million gain we realized on the sale of our remaining Visa B shares.

The tangible common equity ratio decreased 96 basis points to 5.56% at quarter end and reflects 115 basis points decline due to the decrease in market value of investments and some balance sheet growth. That was partially offset by a 19 basis point increase from higher retained earnings. HTLF's regulatory capital ratios remain strong with common equity tier one at just under 11.2% and total risk-based at 11.1%. So the balance sheet continues to be very strong and well positioned.

Moving to the income statement, starting with revenue. Net interest income totaled $142.5 million this quarter, which was $7.8 million higher than the prior quarter. The main drivers of the increase were strong loan and deposit growth together with the impact of the Fed's short-term interest rate increases and a low level of deposit price increases. This quarter also included $2.5 million decline in PPP interest and fees to $1.8 million from $4.3 million last quarter.

We exited the quarter with just under $700,000 of unamortized PPP loan fees remaining on our books. The net interest margin on a tax equivalent basis rose 10 basis points this quarter to 3.22%. Due to the recent rate increases, investment yields improved 30 basis points and loan yields, excluding PPP, were 10 basis points higher while interest costs also rose 10 basis points. This quarter, the net interest margin includes 7 basis points of purchase accounting accretion, which is up 2 basis points from the prior quarter.

Noninterest income was flat compared to the prior quarter at $34.5 million. However, excluding gains and losses, core net -- noninterest income was $36.7 million, up almost $4.8 million and exceeded our projections. The main components were: first, a strong increase in deposit service fees of $2.8 million. That does include our usual annual Visa incentives of $1.3 million.

And other noninterest income was up $4 million due to a $1.8 million increase in commercial swaps and syndication fees and the previously mentioned $1.9 million gain on the sale of our remaining Visa B shares. These positives were offset somewhat by weaker wealth management fees and mortgage banking revenue due to rising interest rates. So core revenue trends were positive for both net interest income and fees, and we believe revenue can continue to trend positive through the rest of 2022. Shifting to expenses.

Noninterest expenses totaled $106.5 million this quarter. That's down $4.3 million from last quarter. Excluding restructuring, tax credit costs and asset gains and losses, our core expenses decreased $3 million to $106.8 million compared to $110 million last quarter and came in a little better than projected. Almost all expense categories were flat to down this quarter with the most significant improvement coming in salary and benefits expense, which decreased $2.1 million due primarily to a decline in FTE count of 121 for the quarter.

As a result of the strong revenue growth and core expense reductions this quarter, second quarter efficiency ratio improved significantly to 57.66%. While looking ahead, we believe second quarter results provide significant momentum that will continue into the back half of 2022. This is highlighted by, first, a loan pipelines, which as Bruce mentioned, remains strong and support our expected loan growth rate of 2% to 3% per quarter. Non-time deposit growth is expected to slow into the 1% range per quarter.

Assuming no additional Fed changes, net interest income is projected to grow in the mid-single digits on a percentage basis next quarter, reflecting continued loan growth and a full quarter impact from the June Fed rate increase with some offset from some lagging pressure on deposit pricing. The expected Fed increase of 75 basis points in July is projected to increase net interest income by $9 million to $10 million on an annualized basis, assuming our normal deposit ratio of about 40%. Provisions for credit losses should remain near current levels given the projected loan growth and assuming net charge-offs remain below historic levels for the rest of 2022. However, changes in economic projections could have a significant impact on future provisions should a stronger recession begin to materialize.

Core noninterest income, excluding gains and losses, is expected to normalize into the range of $32 million to $33 million per quarter with higher commercial deposits, swap and syndication fees helping to offset lower mortgage banking and wealth revenue as rates continue to rise. Core expenses are expected to decline slightly into the $105 million to $106 million range over the next two quarters. However, inflationary pressures, particularly wage inflation, remained challenging. Charter consolidation restructuring costs are expected to be in the $2.5 million to $3 million range next quarter.

And in total, we estimate $14 million to $15 million of remaining costs over the next two years. Consolidation benefits have already begun to layer in and will continue to do so over the next two years. We remain very 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 tax rate of 22% to 23%, excluding new tax credits, is a reasonable run rate.

And with that, I will turn the call back over to Bruce for some questions.

Bruce Lee -- President and Chief Executive Officer

Latif, we can open up the line now for questions.

Questions & Answers:


Operator

[Operator instructions] And our first question comes from the line of Damon DelMonte of KBW. Please go ahead.

Damon DelMonte -- KBW -- Analyst

Hey, good afternoon, guys. Hope everybody's doing well today. Just wanted to start off with loan growth. Really solid quarter this quarter.

And the commentary implies that you're remaining on track and you have another good visibility into the pipeline and things look good. Could you just talk a little bit about what areas of the footprint are providing these opportunities? And kind of just what some of the expectations are for the drivers of the growth over the back half of the year, please?

Bruce Lee -- President and Chief Executive Officer

Yeah, Damon, we really had solid growth across our entire footprint. For the first time since I can remember, maybe since I've been here at HTLF, all 11 of our banks had organic growth. We did have sort of outstanding growth in Colorado, in Arizona and in California, and a fair amount of that California growth was attributed to the agribusiness group. But really, everybody was -- had very, very solid growth.

Our focus has been C&I activity, and that's why you saw that be the most significant segment. As you know, the agribusiness group is doing well as is real estate. And I also do want to point out our consumer group just had a really outstanding quarter as well with their growth. So we're really pleased that it's occurring throughout our footprint and in all loan categories.

And maybe the most important thing, the credit quality of our new originations, we're very, very pleased with. And that the originations are in -- we have flipped from -- flipped to more of a floating rate mix.

Damon DelMonte -- KBW -- Analyst

Got it. OK. And then, Bryan, just as it relates to the margin, the commentary kind of points toward continued rise in the margin. Do you think you could kind of replicate the amount of core expansion you saw this quarter? Or do you think that the cost of deposits kind of catches up a little bit with another 75 basis point rate hike and could kind of weigh in a little bit on the pace of expansion?

Bryan McKeag -- Executive Vice President and Chief Financial Officer

Yeah. I think it cut a little bit. I think if I went back and looked what I would have said last quarter for a 75 basis point rate increase, it would have been a higher number than the $9 million to $10 million I said in my comments. And that's because we are expecting the betas to be more normal.

However, we're going to try and do our best to keep those deposits within where the market is. But we'll see, it really is going to depend on what the market does. But there could be a little bit of lag, too. I think I mentioned we had really good -- that June looked really solid with the first 75 coming in.

We only got a few -- really, a few weeks of that increase. And some of our loan growth came toward the end of the quarter. So those couple, I really feel good that we can raise the core -- or raise the net interest income line by that mid-single digits over what we posted this year, or this quarter.

Bruce Lee -- President and Chief Executive Officer

Yeah, Damon, maybe just to add to Bryan's comments, our margin expanded in June more than it did for the average for the quarter. So that gives us some momentum. And then, also, we ended the period -- the quarter end period about $200 million more in loans than the average during the quarter. So just those two things alone give us a very positive feeling about expanding our margin in addition to the three quarter's rate hike that everybody is anticipating.

But as Bryan said, for the first time of all these hikes, we really think we're going to get into our deposit betas. We've done a great job of really holding our deposit rates down over these first couple of --

Damon DelMonte -- KBW -- Analyst

Got it. OK. Great. And then, just final question on the -- with regards to capital and the TCE ratio down to 5.56%.

I know a good portion of that is attributable to the AOCI impact and stuff. But does that have any -- does that provide -- present any concern for you guys as far as the pace of growth you're seeing with loans that maybe you need to slow it down a little bit because of that level getting into the mid-fivess? Or do you feel like it's truly a temporary item and it's not really going to be a constraining factor for you?

Bryan McKeag -- Executive Vice President and Chief Financial Officer

I don't think it's going to be a constraining factor on our loan growth. Certainly, we'll look at the investment portfolio and then how we reinvest the cash flows, and we'll see what deposit dollars flow in as well. I think if we could, we probably manage to a flat to slightly up earning assets, not hyper growth in the earning assets, partially because of the -- keeping the TCE under control. But we're not going to hold back on loan growth because of this.

This won't slow us down.

Damon DelMonte -- KBW -- Analyst

OK. That's the one I had. I'll jump back.

Bryan McKeag -- Executive Vice President and Chief Financial Officer

And I would just add just to finish that off. We do have plenty of regulatory capital and I was told I may have misspoke, but our total risk-based capital is 15.1%.

Damon DelMonte -- KBW -- Analyst

Got it. Perfect. Thank you very much.

Operator

Thank you. Our next question comes from Andrew Liesch of Piper Sandler. Your line is open.

Andrew Liesch -- Piper Sandler -- Analyst

Hi. Good afternoon. Thanks for taking the questions. I know some of the focus lately has been on larger loans, and I'm just curious if that's kind of what drove the loan syndication fees to the level they were at? And how -- and I guess then similarly, like what was the average size of the loans that were added to the portfolio this quarter?

Bryan McKeag -- Executive Vice President and Chief Financial Officer

I think the average still was relatively in that $1 million-ish -- I'll look this up, but off the top of my head, I think it was around $1 million, give or take, which is slightly probably higher than our average.

Bruce Lee -- President and Chief Executive Officer

That's about double historically, our average, Andrew, but you've got to balance off some of those larger loans and the syndicated transactions with a really strong quarter in small business and business banking loans as well. We're really focusing on all of them, not just one area at the expense of another.

Andrew Liesch -- Piper Sandler -- Analyst

OK. That's helpful. So I mean, I guess, so what's your outlook for the syndication fees? I guess, what's the pipeline for the larger loans then?

Bruce Lee -- President and Chief Executive Officer

Yeah. We feel pretty good about the third quarter with what we already have either closed or what's in our pipeline. But the other area that we feel real good about the capital markets is on our interest rate swaps. So between those two, we feel that we can probably replicate maybe even another $1 million or so in the third quarter above where we were in the second quarter.

But as Bryan said, that's really offsetting some wealth fees as well as some mortgage fees.

Andrew Liesch -- Piper Sandler -- Analyst

Got you.  You covered all the other questions I had in your prepared comments. I'll step back. Thanks.

Bruce Lee -- President and Chief Executive Officer

Thanks, Andrew.

Operator

[Operator instructions] Our next question comes from the line of Jeff Rulis of D.A. Davidson.  Your line is open.

Jeff Rulis -- D.A. Davidson

Thank you. So yeah, just wanted to kind of get a sense for the process of the Citywide conversion. What do you think of the customer employee sort of reaction, if any? But just I think being the first one kind of as you got through that process, any takeaways from how it shapes, how you do successive conversions to come? I think you said you've got four left this year.

Bruce Lee -- President and Chief Executive Officer

Yeah. So Jeff, let me take a crack at this first, and then I'll let Bryan follow. So first of all, we've done a lot of M&A over the years. I mean, we've always felt that doing M&A as kind of a core competency.

That's really what we're doing here, except we're using all the same systems. So what we're doing here is really going from 11 different instances into one. We're going into one ABA routing number, which in Citywide's situation, their routing number didn't change because that's the routing number that we're using for HTLF Bank. Overall, we have about 22,000 duplicate accounts, which means 11,000 customers are going to need a new account.

There's a complete process in place to go through that. It includes the bank leadership, and that was really the first experience at Citywide and it went very, very well. The thing that we've learned over the years, Jeff, is you just have to communicate, communicate and then communicate more with both our customers and our employees. But what I would tell you is that the Citywide customers are very excited once we complete this project that they can utilize our branches in California and our branches in Arizona as they travel or vacation or winter.

So they are very, very happy about the expanded access to our branch network.

Bryan McKeag -- Executive Vice President and Chief Financial Officer

Yeah. And I would just add, Jeff, I think behind the scenes from what I can see, what I hear at least from my folks in finance and some of the operations folks is we got through pretty well. You always expect a couple of bumps, and I think there probably were a couple of bumps, but they were minor and they were very the type that we believe are going to be something we can cover in future ones. All that being said, as Bruce said, this first one is a little bit easier, right? It's the same charter and all of that.

The next couple are the ones we really have our eyes on. We feel good about it. Lots of planning going on. But I think the part that Bruce said about the customer communication and how we handle the duplicate accounts, if we can continue to have that work the way it did in Citywide, that will be a big positive because that's usually the biggest customer impact and we handle it well on this one.

If we can keep handling those well, I think we're going to have continued success here, which we expect to and we're planning to.

Jeff Rulis -- D.A. Davidson

Great. Switching gears a little bit. Just wanted to see if there was any update on kind of the May fraud events if there was any progress on recovery or any movement within that group of those two instances of any update on that front?

Bruce Lee -- President and Chief Executive Officer

Nathan, you want to take that one?

Nathan Jones -- Chief Credit Officer

Yeah. Absolutely, Bruce. Well, they were really -- we do look at them as onetime events. And we have continued -- we took a conservative stance and then quickly addressed them with the charge-offs.

But we do continue to work on them from longer-term resolutions and have several positive things that have occurred that we are working very hard at along the lines of capturing additional collateral and then also working with one of the customers to work their way out of it through the general business operations. So we do feel good about that. Just something at this point we can start to book any offsets at this point. Bruce or Bryan, do you think you'd like to add on top of that? I'm sorry, Jeff, go ahead.

Jeff Rulis -- D.A. Davidson

No, I didn't want to cut anyone off. But as a follow-on, Nathan, just wanted to kind of get a sense that through those situations, was there any procedural or structural changes that you've made? Or kind of -- you said they're one-offs, but did it kind of lead to any changes or revisiting any practices from that end?

Nathan Jones -- Chief Credit Officer

It has. We always use anything that occurs is to really sharpen our pencils to make sure that we're as clean as we can be from a credit perspective. So in both instances, we've used it as a learning opportunity to really improve our overall processes and hopefully help protect us from any future issues that are similar in nature. But we were able to use that as an opportunity to learn and grow from it and implement some enhancements.

Jeff Rulis -- D.A. Davidson

OK. Maybe one last one, if I could. Just real quick on the fee income run rate. I think Bryan mentioned 32% to 33%.

So that will exclude any securities gains or losses. Is that correct and kind of treat that as a 0?

Bryan McKeag -- Executive Vice President and Chief Financial Officer

Yeah, it does. I kind of took that with the 30, so let me just find my number here, so I can tell you how I thought about that. Yes, when you get to the core and then you back out the Visa B gain, so the core I was talking about was 36.7%, which excludes all gains and losses. But that Visa B gain was sitting in other noninterest income, which is a category I don't back out.

So if you back that out, that gets you to 34.8% this quarter. And if you take another 1.3% out because of Visa B share, while that's recurring every year, it doesn't recur every quarter. So if you took that out, you're in about the 33.5% range. And as Bruce said, we expect that the syndication fees can offset the downdraft we might see in wealth management and whatever.

So that's how I came to kind of 33%.

Jeff Rulis -- D.A. Davidson

OK. All right. Thank you.

Operator

Thank you. Our next question comes from the line of Terry McEvoy of Stephens. Please go ahead.

Terry McEvoy -- Stephens Inc. -- Analyst

Hey. Good afternoon, everyone.  Bryan, thanks for all your thoughts on the financial outlook, kind of run through my list there. The one thing that caught my eye this cycle was the specialized industries. It wasn't in the last quarter presentation.

So I'm just wondering how you manage the credit risk in some of those businesses, and some over the last, call it, three to five years have triggered some losses, really, across the industry, the franchise finance and healthcare in particular. So I guess maybe talk about the growth and more importantly, how it's kind of a smart growth for your shareholders.

Bruce Lee -- President and Chief Executive Officer

Yeah. Terry, I'm going to -- I'll take that first, and then I'll let Nathan follow up. So these are -- first of all, from our perspective, it's more kind of the middle market or lower end of the middle market. It's a specialized group that we brought in who -- this is what they've historically done and they play what I would call above where we've historically played at the bank level.

And so, we brought in people that do -- that are specialized in these various areas. And more importantly, we also brought in corresponding talent on the credit side to match it up. So we didn't just take our existing staff and say, we want to go after this market. We brought in people and we grew the area very specific, just like the agribusiness that we acquired where we acquired the staff out in California.

We acquired both on the origination side, the underwriting side and the credit side. We feel that if you're going to go into a new area, you need the new expertise across the board. Also, these larger type of customers are buying more of our fee services, whether it's in treasury management, whether it's retirement plan services, interest rate swaps, the ability to do syndications. So they're really [Audio gap] for our corporate card business, which was up pretty dramatically on a year-over-year basis.

So we feel that that is a segment of  the business that grow. We'd love about a third of our business to come from sort of traditional bank activity, about a third from the specialized group and about a third from the agribusiness group until that group builds its portfolio and then that would slow down. Nathan, you want to maybe address how you supported it on the credit side with additional analytics and talent?

Nathan Jones -- Chief Credit Officer

Yeah. Absolutely, Bruce. And as Bruce kind of noted, we do have a dedicated credit team within our organization that's really dedicated against our HSI, our Specialized Industries group, and they are some of our strongest talent and most experienced. But even on that, we've really gone through and done very, very exacting and detailed work to make sure that we have a really strong supporting guidance and then providing the necessary support and analytics to make sure from what we feel is really top quartile.

So we're really not leaning in hard from a credit perspective, but more on making sure we're getting that top quartile. So we're not taking significant credit risk there. And then, what we're taking, we have pretty significant analytics of support behind it along with a strong, strong credit team that's able to evaluate and make sure that we understand the risk we are taking.

Bruce Lee -- President and Chief Executive Officer

Yeah, Terry, the other thing I'd mention is the risk rating of that portfolio and those originations, the quality of the credit is better than the rest of our portfolio. And that's really part of the strategy. We wanted to go upmarket a little bit. And part of our origination is not ignoring anything else that we do.

We want to do -- really do it all. But the credit quality is the key along with the dedicated credit staff that Nathan described.

Terry McEvoy -- Stephens Inc. -- Analyst

And then, Bruce, a follow-up. Where do you need to be in the charter consolidation before you seriously look at any M&A opportunities? I know M&A is in the company's DNA, but also once the conversion is complete, as you talk about, there's just increased capacity to really drive that future growth.

Bruce Lee -- President and Chief Executive Officer

Yeah. I mean, the reality is with where -- with the uncertainty in the economy right now, I think any M&A is really a 2023 type scenario. However, what I would say is that the way that we have built the charter consolidation is that any strategic M&A that we would have that would be on the bank side, not a fee business of some sort, we could stop the charter consolidation and work on the M&A and then go back to the charter consolidation. So I mean the reality is we're going to be halfway through it by the start of 2023.

And if an opportunity came up, we would be ready to do it in 2023, an M&A transaction, Terry.

Terry McEvoy -- Stephens Inc. -- Analyst

Thanks again. Have a nice night. Thank you.

Operator

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

Bruce Lee -- President and Chief Executive Officer

Thank you, Latif. The HTLF board of directors has approved a quarterly cash dividend of $0.27 per share on the company's common stock, an 8% increase from a year ago. The dividend is payable on August 26, 2022. HTLF is moving forward together.

We have momentum. We're executing our strategies, which are delivering excellent results. In the second quarter, organic loan growth increased $552 million or 5%. Total deposits increased $559 million to a record $17.2 billion.

Total assets are a record $19.7 billion, an increase of $428 million. Our efficiency ratio decreased significantly to 57.7%. Our strategic investments in acquiring and retaining talent are delivering strong organic growth and excellent credit quality. And we continue executing charter consolidation to deliver efficiency and unlock capacity for future growth.

Thank you for joining us. Our next quarterly earnings call will be in late October. Have a good evening, everyone.

Operator

[Operator signoff]

Duration: 0 minutes

Call participants:

Bruce Lee -- President and Chief Executive Officer

Bryan McKeag -- Executive Vice President and Chief Financial Officer

Damon DelMonte -- KBW -- Analyst

Andrew Liesch -- Piper Sandler -- Analyst

Jeff Rulis -- D.A. Davidson

Nathan Jones -- Chief Credit Officer

Terry McEvoy -- Stephens Inc. -- Analyst

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