Decentralization remains central to Heartland's strategy

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Bruce Lee has visited all of Heartland Financial USA’s markets over the last 60 days.

To do so, he covered vast territory spanning a dozen states, from Illinois to California and from Montana to Texas.

The gesture made sense. After three years of priming, Lee is set to become the Dubuque, Iowa, company's CEO on June 1.

The well-telegraphed succession plan for Lynn Fuller, who has led the $11 billion-asset company since 1999, also sits well with those who follow the serial acquirer, which has 11 bank charters. Fuller will remain chairman, focusing on future acquisitions.

“Having met with Bruce numerous times, you can tell he has a good working knowledge of Heartland’s strategy,” said Damon DelMonte, an analyst at Keefe, Bruyette & Woods. “I think he’s going to be able to run day-to-day operations, as well as lead the organization with its multibank holding company structure.”

Lee recently discussed Heartland's future, including its increased size and continued dedication to a multicharter model that many other banks have abandoned.

Here are excerpts of the conversation.

What are your top priorities?
BRUCE LEE: The customer experience is our number one priority. Employee engagement and the culture are very important to us. We want to make sure we can retain that community bank culture, yet provide the products and services of a much larger bank. We do that primarily through technology solutions and being able to make investments that a $1 billion-asset stand-alone community bank would not be able to do.

As customer desires have changed ... we want to make sure we have a consistent set of channels around that customer experience. Whether they want to bank using their telephone, or the internet, or they want to talk to somebody in one of our call centers or branches — we want to make sure that the experience is a consistent one throughout each one of the channels. That’s what enables us to continue to grow organically and through acquisitions.

How dedicated is Heartland to having separate charters?
This was really a model and structure that was Fuller’s vision. It creates a unique model that allows us to focus on being a community bank in each one of the markets we serve under a separate brand. We believe having a local board, local management and local decision-making really creates a differentiation for our customers as we go to the market. And it’s certainly my plan to continue with that. We’ve been very successful not only growing organically in each one of those markets, but we believe it’s also an advantage in our acquisition strategy.

Heartland recently bought a bank in Lubbock, Texas. What makes that market attractive?
First of all, Lubbock is a community of about 250,000, so we like the size of the market. We don’t necessarily get lost in what’s going on [compared to] Houston, San Antonio or Dallas. FirstBank had really great market share and a great leadership team, which will remain in place. We are just providing them with additional products and services and more resources, particularly around technology. It’s also a regional hub for the medical industry, as well as a strong cotton industry.

Do you expect to make more acquisitions over the next few years?
We would like to look at acquisitions that would bring our banks up to at least $1 billion in assets. We currently have five of 11 charters that have $1 billion in assets, so in-market acquisitions would be our first priority. And then other parts of the country we like a lot are around the Pacific Northwest — the Washington, Oregon and Idaho areas. We do not have a bank up there, but that’s a part of the country that we like.

How are market conditions in the states you are operating in?
I’ve been in every one of our markets within the last 60 days. All of our bankers are upbeat and I visited with probably 30 customers over the same period of time and they are all feeling pretty bullish right now. I wouldn’t have said that six months ago. I would have said they were feeling the economy was pretty precarious, but right now with the tax cuts, relatively low interest rates on a historical basis, incredibly low unemployment — they are all feeling pretty optimistic. We're starting to see them invest again in their businesses through the purchase of equipment; they're expanding and almost everyone is hiring.

Would you like to see any adjustments to Heartland’s lending mix?
At our core, we're a commercial and business bank with products and services to meet consumers’ needs as well. We do not have a big consumer loan book and I don’t really see that changing. Our focus is on small business, business lending and commercial lending. I think you’ll see us stay the course there.

Are you looking to partner with fintechs?
We just entered into some relationships with fintech companies around our digital platform because we think that they're providing the best solutions today. They're much quicker to come to market and they can be a little more customized.

One of the things we have really changed is how we approach technology and the digital platform. Rather than having each one of our lines of business in a silo coming up with their own solutions, we have a team that’s working on digital solutions across all business lines. [We want to provide] a similar customer experience whether you're looking up your checking account, your home equity loan, your investment account or your mortgage balance. We want to make sure it’s one-click, one-sign-in access to all of those things. [We want] the look and feel of each one of those experiences to be consistent. We were unable to do that through our core provider, so we have partnered with a fintech. We're in the process of doing that right now.

Where do you see Heartland in five years?
We would continue to increase the number of $1 billion markets that we operate in. We’ve had a history of doubling our assets every five to seven years, so I think we will continue with that strategy both organically, as well as through acquisitions in markets that are attractive, or where we can add to our existing customer base.

In many ways, it’s steady as she goes, even though we do have a transition of leadership. I believe in the strategy we’ve had. My role is to make sure we continue on that path. We try to keep it as simple as we can and allow our 11 banks to focus on their customers and meeting the needs of their communities.

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