What happened

Heartland Financial (HTLF 3.94%) saw its stock price drop 10.4% this week, as of 10:50 a.m. ET on Friday, according to S&P Global Market Intelligence. The stock was trading at about $32.30 per share as of Friday morning, down 30.7% year to date (YTD).

In contrast, the markets were up slightly this week, as the S&P 500 gained 0.6%, the Dow Jones Industrial Average was up 0.6%, and the Nasdaq Composite climbed 0.8% this week, as of Friday at 10:50 a.m. ET.

So what

The catalyst for Heartland Financial's drop was its first-quarter earnings, released on Monday, April 24. Heartland, the Denver-based holding company for HTLF Bank, missed revenue and earnings estimates.

But overall, it was a pretty good quarter for the bank, considering the troubles that many smaller and regional banks had. Net interest income rose 13% year over year to $152 million, while overall revenue gained 11% year over year to $185 million. Also, net income was up 24% to $51 million. In addition, total deposits were up 1% from Dec. 31 to $17.7 billion.

The bank took several steps to shore up its liquidity amid the March banking crisis, when deposit runs resulted in two collapsed banks. Among these moves, Heartland reached out to more than 1,000 large depositors and helped facilitate additional FDIC insurance through Insured Cash Sweep (ICS) products and Certificate of Deposit Account Registry Service (CDARS) products.

Also, bank officials increased deposit pricing in a highly competitive deposit environment, as well as increased access to available sources of liquidity by $1.7 billion. Heartland increased borrowing capacity through various programs, including the Bank Term Funding Program, to $2.8 billion, of which no balance was drawn. Further, a retail deposit campaign resulted in over 8,000 new accounts.

Heartland's common equity tier 1 ratio is 11.28%, well above the 6.50% regulatory requirement.

President and CEO Bruce Lee said:

Conservative liquidity and capital management are fundamental to our strength and stability. During the quarter, we enhanced our liquidity and built our regulatory capital ratios, which substantially exceed the well-capitalized thresholds. We believe our regulatory capital ratio buffers would withstand any changes in regulatory rules that require the inclusion of unrealized losses in our total investment portfolio and remain well capitalized. 

Now what

Heartland saw a few analysts lower their price targets, citing, among other things, slight margin compression, as the net interest margin fell to about 3.4% from roughly 3.6% on Dec. 31.

For example, Piper Sandler lowered its price target from $49 to $44 per share but maintained its overweight rating. However, that is still a 36% increase over its current price.

Despite the drop this week, Heartland navigated the banking crisis very well, better than most banks of its size. Economic headwinds and regulatory uncertainty remain for small banks, but Heartland is one for investors to keep an eye on.