Local Impact of the Recession
Despite the global noise of home valuations and the Great Recession, Dubuque (IA) was not impacted as deeply as many other cities across the country. “When Dubuque was in the bowels of the worst recession since the Great Depression, in 2008 and 2009, the highest unemployment rate we had was (7.8%),” said Rick Dickinson, CEO of Greater Dubuque Development Corporation. “Dubuque was relatively stable,” said John Schmidt, CFO/COO for Heartland Financial USA, Inc. “This was the period where IBM moved to town and, with it, its promise of 1,300 employees.” After the Recession, the U.S. Conference of Mayors named Dubuque as one of only 26 metros to completely recover jobs lost during the Recession.” “We didn’t see that crazy depreciation in value, and I think that is mainly because we didn’t see that crazy appreciation in value in the four to five years leading up to it,” said Jeff Hefel, the managing broker of Ruhl & Ruhl in Dubuque. While Dubuque experienced a few of the effects of the Recession, it was largely shielded from the deep drops due to a generally conservative, fiscal, Midwestern mindset.
One of the beacons of the Dubuque community is Heartland Financial USA, Inc. Born in 1935 as Dubuque Bank & Trust, the community bank grew to expand into and external to its Midwest footprint. From a competitive perspective, Dubuque is an interesting town. Chase, Wells Fargo, J.P. Morgan and other large, national banks have no footprint in the Dubuque market. As a town of 60,000 people (100,000 in Dubuque County), local relationships with bankers matter more than big bank resources. The success of the relationship-based business model led to, in 1981, Dubuque Bank & Trust acquiring a regional competitor (Galena State Bank) and Heartland Financial USA, Inc., a bank holding company, was formed.
Regional banks and bank holding companies were not immune from the Recession. Even banks that considered themselves well-capitalized could be next, as “in a financial crisis, no firm is ever as well-capitalized as it thinks.” Specific to Heartland, exposure to the drastic decline in real estate was driven by their member banks in the western states – Arizona Bank & Trust, New Mexico Bank & Trust, and Rocky Mountain Bank & Trust (Montana). Fortunately for Heartland, those three banks were among the three smallest in terms of assets. Thus, the ‘western’ impact was much less than other holding companies which maintained greater exposure in those markets. Also, Heartland was always a buyer for quality mortgage-backed securities and had kept their debt-to-income ratio low.
Heartland, like many other banks, was impacted by the decline in asset values, especially accelerated by their loans focused on land development. From a bank’s perspective, there’s not much to collect when housing development and construction stops.
In an environment of excessive land growth and speculation, these land development loans were completed in anticipation of future population growth, specifically in the Phoenix and Denver markets.
According to Janet Quick, the biggest challenge was in the Rocky Mountain Bank & Trust market, specifically in Gallatin County. Heartland had a branch in Bozeman, which is a community dependent upon tourism dollars. People escaped the coastal cities, especially Californians, for the ranches, ski resorts, and open air of Montana. However, when the Recession hit, the tourism industry took a major hit. “The tourism dollars were driving demand in real estate. When the Recession hit, we had about seventy percent of our problem assets located in that one county.” In looking at the local area, Gallatin County had a 29.0 percent decrease in construction for 2009.
For Heartland, “deposits were stable.” Yet, the concern was focused on the debt held by the holding company, as U.S. Bank and ABN LaSalle pulled Heartland’s lines of credit as a means of reigning in their own risk. For a holding company such as Heartland, the lines of credit were safety nets when the member bank dividends were not sufficient to provide liquidity and capital. With the safety nets being stretched, Quick described her daily feeling of “watching Heartland’s checkbook like it was my own.”
From a local interest perspective, how HTLF was impacted by the Great Recession is a relevant and interesting topic. HTLF survived and thrived because of its history of responsible loans and quality investments.
 Benjamin Fisher, “Economic leader: Dubuque County unemployment to top Great Recession, due to pandemic,” Telegraph Herald (March 24, 2020): https://www.telegraphherald.com/coronavirus/article_5ccb9582-2fee-519d-8ec4-9582e8ce6200.html  John Schmidt, interview by author, Dubuque, IA, April 14, 2021.  “One of 26 metros to completely recover jobs lost during Recession,” Awards & Recognitions – City of Dubuque (2012): https://www.cityofdubuque.org/73/Awards  Jeff Montgomery, “Area businesses rebounding 10 years after Great Recession, Telegraph Herald (September 30, 2018): https://www.telegraphherald.com/news/tri-state/article_8a4a3681-9519-56bd-9453-57e94cce84e8.html  Timothy Geithner, Stress Test: Reflections on Financial Crises (New York: Penguin Group, 2014): 237. Lynn ‘Butch’ Fuller, interview by author, Dubuque, IA, April 21, 2021.  Janet Quick, interview by author, Dubuque, IA, May 3, 2021. Janet shared that part of the reason – outside of geography – for why these development loans were so popular in these markets was due to the fact Arizona was a de novo, or new, bank. She said, “when you start a bank, you do real estate loans because they are big chunks.” With about “three years” to profitability for a de novo, there are always “lots of eyes watching the initial growth” for these locations.  Ibid. Betsy Cohen, “Economists: Missoula’s growth stalled for three years, will start slowly,” Missoulian (August 12, 2010): https://missoulian.com/news/state-and-regional/article_336bd058-a683-11df-9bd4-001cc4c002e0.html  John Schmidt, interview by author, Dubuque, IA, April 14, 2021. Janet Quick, interview by author, Dubuque, IA, May 3, 2021.