HTLF - Earnings call transcript Q3 2017 | Heartland Financial USA Inc

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Operator

Greetings and welcome to the Heartland Financial USA, Inc Third Quarter 2017 Conference Call. This afternoon, Heartland distributed its third 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 Heartland’s website at www.htlf.com. With us today from management are Lynn Fuller, Chairman and Chief Executive Officer; Bruce Lee, President; Bryan McKeag, Executive Vice President and Chief Financial Officer; and Andrew Townsend, Executive Vice President and Chief Credit Officer. Management will provide a brief summary of the quarter and then we will open up the call to questions from analysts.

forward-looking presentation, the like providing Commission. information under guidelines the that remind today begin by the of defined some management of we I and to would everyone falls the Before Securities as Exchange statements will be

part and must out projected. predictions and future forward-looking statements guidelines, of that the Company’s actual I presentation statements differ those during the this concerning these materially results hopes, of any As point made beliefs, from could expectations are

these obtained Additional from time, on in Company’s on this included information factors filings, to time-to-time At As sir. or the mode. a the Instructions] is XX-Q time, and I which reminder, Mr. website are all the [Operator like website. this Company’s on in XX-K SEC’s a call may at participants to ahead, be the Lynn turn go conference Heartland. Please is Fuller over this listen-only would being At recorded.

Lynn Fuller

today everyone and Tim XXXX. you, Thank third quarter for us good discuss of We appreciate Heartland’s performance the joining as afternoon. we

on into results and and billion the EVP pleased will third Then Colorado accomplished our McKeag, offer albeit I'm our credit touch We on and to is Well, Citywide Chief who my Heartland's somewhat this in will largest Bryan highlights insights Heartland's cover good largest I’ll quarter on the quarter. Bruce EVP operating Bank, quarter invested strategies. during which summarize, our topics. call acquisition considerable on effort turn Banks Heartland’s X.X Credit the in related very will followed acquisition we that charter. now assets few open I'll the had Townsend, and the integrating much the by to-date provide Heartland's was remarks completed afternoon to performance reporting noisy. additional our CFO Andrew color For for quarterly by Officer then who Lee, over progress the to minutes, key next President,

stable quarter, the see along ratio. organic growth was with and we're loans in the improvement credit and and quarter. an very was It were in quarter efficiency During busy we further delighted margin, All-in-all to accomplished. quality, with lot a pleased deposits interest a net increased our

considerable $X.XX year. compared were number shares XXXX. to per diluted $X.XX The of X.XX% on respectively. attributed XX.X% year-to-date and the common equity and tangible common for year-to-date X.XX% equity the quarter quarter were respectively. were X.XX% for year. earnings we share in diluted the And and and XX.XX% Year-to-date in last average income the EPS and a Return a said, year-to-date on and average flowing slightly Heartland in to to On XX.X common and substantially XX Citywide reduced will quarter months XXXX. expenses per the available available quarter. per was the merger increase share. third income third that were nine $X.XX diluted common associated of shareholders for new a earned through set Now quarter common with million, over the income statement this reduction X.XX% assets on were Return acquisition next Citywide of respectively. the return first and X% basis Nevertheless, can last the million net record XX.X of shareholders quarter, quarter Year-to-date Founders the net issued acquisitions earned increased million, average be share of share ahead be per to for

continue common of for the respectively. range equity book value the Book the current quarter quarter, to at midpoint X%. and our per X% of share common and tangible value $XX.XX ending increase X.XX% was $XX.XX near Our tangible target to

acquired billion reflecting the ended X.X in balance looking from Citywide. the at quarter Now sheet, X.X assets assets total at

XX billion XX to manage to of XXXX. strategically continue in the remain will the to balance closer sheet billion inch we under we remainder As assets, throughout

report to pleased very growing are zoomed we X.X% by or loan that annualized. the said, growth XX organic that quarter million during Now

growth and solid annualized organic deposit. growth or in million experienced also XX X.X% of deposit We non-time exceptional

also over and and a which lower more that to topics. ten by ratio moving efforts real net were ratios at will Our In few and improve represents XX.XX%. room in minutes, the team's detail securities our deposit deposits line percentage moment, mix in continues by will reported of quarter Heartland very asset we to deposit. X.XX% flow a to stands efficiencies from between in hold the with basis in target for increase range acquired best Citywide cash still a our solid in also record wide processes acquired on XX% quarter to the of into of identified interest X completed rate with to and headcount positive cost banks. saves margin with loans credit that points both realize at more commend Incidentally, quality streamline the delinquency Heartland Heartland years. I loans X.XX% ongoing our pleased Well perform deposits Heartland's available has is With discuss Lee closely and And which X falling duration more year-to-date. the non-performing for Bruce detail. related liability from position portfolio the XX% newly loans portfolio portfolio and stable noninterest Currently, now our for a is align convert projected over We asset interest Drew XX a scenarios. portfolio improved in with the portfolio increasing XX%, investment on a our better now securities previous restructuring and X.X another the demand credit margin, size. at previous sale increased currently years to Townsend assets. X.XX%. finally, have provide newly to total our yield from efficiency We've is will point this without of quarter

Bruce Following comments noninterest Bryan expense address Lee's McKeag detail. will more in

Citywide to the I'm conversion largest of the integration history Banks our on in moving into Bank mid proceeded And to in Now Trust systems Centennial report pleased completed smoothly. and M&A, October. we

well operations teams done. of have the systems and a Our I for science fine-tuned and job congratulate integrations art them

provide and pursue organic to see grow by the number meeting opportunities its to acquired more call this XX regulatory Bruce a strategic that and mitigate for announcements yet of both payable concluding XXXX. company's continue In report on overview of Through the the will of authorized assets on pleased mid-XXXX today, Lee, October I Directors potential to to share and my will is a X, Heartland's initiatives. impact to President adverse Heartland of We goal of comments Board to per over turn am crossing $X.XX revenue cost common growth dividend the Bruce? billion both December at have our now I'll the an year. billion the who XX compliance.

Bruce Lee

growth Thank their million growth growth grew community organic deposit you, ten of turned organic Heartland's loan seven and very a across approximately measures. in with the ten X% Good afternoon, six loan banks good portfolio annualized and balances $XX third deposits. Heartland total both Lynn. banks million of increased $XX representing quarter banks of of Collectively, ten

bankers spend time to cautious hear our optimism. and I express I customers markets, continue in As our

priority. third to agribusiness million loan positive our advances growth and accelerated in pipeline Also our relationship and increase advances commercial in quarter. eye increase that produce more seeking to that brand extremely on for enable point, portfolio million positive is to than organic advances they encouraging ensure customer in a loans with While with watchful the new remains portfolio. while quarter to quarter. they This in growth this relationships Last money new looking a optimistic reflects advance in that second loan clients keeping XX doubling growth we are fourth in the add of banks be new that the in borrowing $XX will The over the million funded the significant the are reported the I And this we'll sentiment. we're this economy. continued is quarter, high of in positive trend in will loan existing to and quarter, quarter. an healthy mention the $XXX also new strength XX% in quarter of new an trend new stability, last

in deposits. change as growth in Moving up organic quality positive from portfolio. deposits, to of Citywide exceptional our Heartland’s high a of just XX% our deposit deposits now represent banks, to non-interest total to Non-time strong the year had mix and XX% deposits, bearing non-time deposits total time ago. of at produced stated, demand deposit and significant growth for addition one quarter deposits portfolio experience XX% we The XX%. with deposit account now in continues Heartland

For year's basis just third is from expense interest quarter, basis quarter. the our deposit points, last points up third X total XX

with compared quarter the significant nearly new Heartland's XXX moving mortgage year's Now on on last XXX originating million in impact residential third sale. quarter, producing loan in net in loans to estate, slowed million gains a downward real third production

has mortgage are We plans results. disappointed unit that focus put profitable our on delivering this consistently into with performance and action

You $X balance over attributed of servicing The GNMA the in from largely a million servicing second sale on in $X quarter seven portfolio decrease our of of associated million mortgage rights. nearly servicing portfolio sheet. is $XXX significant billion will Heartland's $X the and a note and reduction to of corresponding rights the servicing million reduction the

Heartland's did significant the transaction As operations. on of stated a in earnings results have impact this release, not

or XX new sale our a million new point fair saw minute, good business. of and the account statement, of new good total checking As branches online our In opening. the treasury with Heartland Denver I offering on consolidated line deposit like improvement closed revenue openings the $XX via attributed of also of I now that charges metrics. a impaired discuss consumer we than from with impact million have performance, increases Bank's online rural banks Touching and are commercial for expected in management for few expect with value nearly quarter. market all the accounts a solid we Citywide in to fees closed of will million would three the XX capability. capture initial the this banks strong book Townsend the Drew on locations of also accounting to initial new want Heartland's more The to loan part online result minutes, show account is Back approximately originating in one With XX% on over value. GNMA and income division book with payments branch quarter retail and acquisition to consumer leading this a we sale, of channel XX% out results. service already books we the to during MSRs capability this time in that of mention

and Chief and improve our Team. the the joined to on Officer. conversion Hughes System. We Federal of brings Reserve member We physical number orchestrated growing continuously of In to today, as ago new flawless marketing and comments forward to a Executive a to welcome acknowledge members leadership including Banks services weeks Vice talented, my efficiency. banks effectiveness reviewing many to and with Quinn, our to President his member more McKeag look Citywide recently large our people Colorado. and make positions call after financial I valued Heartland who market it efforts. throughout detail I team Heartland we over to and delivering experience largest network will concluding to team J. company customers our Chase the pleased at family the Marketing Colorado and over nearly day their clients. acknowledge are their the with in work diverse marketing I two Bryan also engaged the to forward to $X.X turn by and and thank Executive Kevin for Heartland the I'm team Laura's by Citywide who Laura assets And the they company She financial proud want of Kevin years XX us company's Heartland our JPMorgan results. serve demonstrated quarterly am to look our is dedicated excellent to led future will so with that I that successes. in day billion on commitment transition. products celebrating in supporting and great the want and

Bryan McKeag

Thanks good Bruce afternoon. and

very it noisy was and a busy Lynn mentioned, As quarter.

points of basis comment points to yet changes retained X So basis market XX couple with investments equity points, deposits, reduced Starting try loans items. I’ll add X.XX%. small in by some will strong sheet the value increase a ratio the XX and was derivatives quarter. our only the offset clarity which of the partially tangible a Bruce already XX other balance at and from basis basis The have Lynn a commented earnings the from on to on so and point for by which I and Citywide bring ratio noise. remains the common declined acquisition

quarter and million core and result respectively increased as goodwill deposit First, XX transaction. this a XX of intangibles Citywide the million

increased borrowings Citywide’s existing our of million as other of Second, assumption a result XX [indiscernible].

income X equivalent Moving quarter. calendar which nicely and the net points attributable this a the and XX.X is was increase day tax totaled prior climbed basis to on XX.X statement, XX primary $XX.X point The to a higher quarter. offset increase points on investment basis X quarter, quarter. which from by costs basis Citywide also income X.XX% Loan improved million increased a this to up interest yields there the XX last borrowings, to million increased basis points last interest yields compared margin deposits the additional basis acquisition. of And increase Net one million interest driver quarter. was from

Service When and points quarter. gain the this over from million total of to the up million showing increased the basis sales net Banks. of system noninterest from related the million multiple of X.X points was prior quarter purchase noninterest primarily compares an on the XXX,XXX last expense, to income this inclusion to sale and expense discounts of the Noninterest accounting XXX,XXX from across million. M&A most for margin fees quarter XX.X addition with down charges was last and loans to last and from quarter increase the Citywide from conversion quarter, basis prior again the from this in quarter, down categories Switching XX X.X Banks. quarter, increases quarter last totaled XXX,XXX quarter, amortization costs increased expense XX second million This million quarter $X was compared are spread $X.X categories. XX to includes due almost the up which quarter. quarter, of Citywide gain securities on interest

category, employee a count driver of The this the benefits X%. increased equivalent expense added salary XX% was or last to of $X.X XXX. by or and Our increased largest increase Citywide, in compared million XXX full-time employee which count, The primary quarter. increase includes which higher addition

in Citywide level worse sale up and write to such leasehold due last assets last Citywide, to and on been lower the run combined both old assets costs signage were also employee write-off excluding XX and the quarter. included necessary Gains million, noninterest the or have would count rate inclusion that XXX,XXX up were the were XXX,XXX as valuation which X.X was X.X FF&E this and Occupancy M&A of of the costs by XXX,XXX over quarter, from from due XXX,XXX to Citywide of due to of acquisition. is a lease quarter buyouts the run this related costs run losses Professional category and the just conversion. rate and and was increases XXX,XXX quarter, Citywide Citywide quarter. So improvements Citywide particularly to expenses fees last similar increased includes Citywide’s equipment software quarter to rental million over rate. than again last of maintenance acquisition. as again Other related this offs conversion costs

quarter, down the For from XX.XX% quarter. was ratio last efficiency XX.XX%, the

rate just ratio Although rate last quarter was improved impacted higher by the under inefficiencies level is tax quarter, believe and for a from revenue. forward tax conversion of We banking quarter costs, of mortgage basis. reasonable system negatively normalized XX% related Effective lower was this the M&A a to the going on and the XX%. around

be income do Core security show interest range. to expectations declines. that the for decline basis improvement. a and expected Lastly, fee is the rest to is Mortgage expected equivalent quarter tax GNMA in for servicing Heartland to fees to stay excluding net mortgage XXXX fourth due loan the margin would slightly seasonal results normal We production X.XX% our X.XX% of gains expect will be slightly on the to sale. continued due to down servicing the

be $X loan offset million Banks related controlled decline excluding starting in servicing the should per deposit We the well However, January more phased and than will quarter other cost fully XXXX. remain in should by million services be Citywide fee in in Core to expenses range. quarter about income. increases December savings costs per anticipate and XX of M&A

also to activities President long lastly, Citywide next and quarter lower over fourth quarter for with is core expected Vice And see system for to $XXX,XXX. the estimate we our we on Executive M&A the low-single Credit conversion addition expenses, costs and around an In annualized basis Chief will in be and turn deposit growth the percentage Townsend, to call which be Officer. And in I'll that digits. Drew

Andrew Townsend

the my loans. relatively related million. non-performing This Bryan. remain in at discussing by quarter loans in begin remarks unchanged I'll credit you, the XX.X Thank third Heartland's nonperforming changes Total eight afternoon

loans second the X.XX% at percent at However third. as quarter end the of reduced from a of total the end to X.XX% the

the During $X.X nonperforming categories of all million quarter, in loans were resolved.

X.X service to of X.XX% several quarter percentages delinquencies, favorable watch reported quarter the the non-performing delinquency our the last second The was remain million the nonperforming or between quarter quarters. which June X.XX% loans was ratio level the X.X of the in in banks third. amount XX% metrics company. XX million assets continued XX% In identified estate This the commercial Citizens and loans the portfolios, New are to new substandard. million Heartland's and of million type the sub-rated by or of decreased With eight total X.X the the quality as million came from lower finance as the aggregate, second the considered borrowing than or the owned credit anticipated as September well loan increased company from credit Citywide X.X nonperforming loan residential estate of X.X X.X In loans loans downward a and to in portfolio. are in acquired percent or outstandings risk third level stable business. in Bank. to result of reduced very the attributed originated bank X.XX% estate nonperforming member anticipated or Finance, their XX.X as sale due from during XX% X.XX% to total respect Heartland to these metrics this in were of all largely the the retail and to are loans, million million. loans to exposure XX.X Heartland to other of million It acquired portfolios quarter, over several the These wide X.XX% non-pass of loans repurchased nonperforming XX. million. levels minimal. the total servicing nonperforming prior from XX in the increase the flat is million loans ag portfolio compares book loan days the and Citywide included nonperforming assets Heartland XX.X At the number of retail a level Other reviewing real Heartland’s When loans quality there XX% created total to demonstrate GNMA In mentioned legacy guaranteed relationships loan totaled million estimated well delinquency years. overall based the quarter is the previously delinquency borrowers quarter. improvement the X.X total The portfolios. portfolio, trend as portfolio as X.X a very XX million legacy quarters the of past which of X were are current from assets real from government $X loan the total it quarter. somewhat Banks is recent from both of This only XX% with total acquisition This of loans. future are of solid by a upon million to the third portfolios eight or exceeding as third credits noted of of loss equaled as will in those is favorably during and from percent real be in consumer

provision loans, X.X quarter. pool As X.X loan noted Organic XXXX. purchase the to from during commercial for we it acquired review one Arizona identified compared relationships third most $X allowance for million million large contributing is at PCI factors and purchased from third covered previously Total newly provision expenses was loans allowance large the X.X and expense third Trust to quarters. noteworthy to is quarter million increase and the charge-offs Trust elevated of were charge-offs reserves. migration Bank one the being loans agribusiness It in the to The impairments were attributable previous recent the of pool, Bank two all credit billion quarter Dubuque by accounting third on XXXX commercial continued relationship million loan of primarily that growth, Heartland’s to pool related and reserved the the for and our of and reside from remains respectively. $X.X acquisitions valuation that accounting are of quarter

expense decisions for credit a quarters, provision be acquired to the loans. establish in will on allowance future associated these made are these loans necessary As

the again loans reserves XX. million are with to September acquisition loans as second coverage total as of in for in allowance a was in XX loan losses the of a loan June shown quarter, mainly due newly Valuation XX.XX% ratio our loans as by loans The of to the reserves X.XX% our losses nonperforming evaluation opposed of acquisitions. to-date total quarter. X.XX% as for aforementioned the being almost percent decreased addition the the third of XX.XX% $XX.X covered This As all obtained largest up acquired allowance allowance. to of the percent from for of is release, earnings from as recorded from these

of outlined. total allowance slightly the decreased XX Excluding loans X.XX%. result as third X.XX% in to would down reserves the the assets, by quarter, assets, non-performing quarter the summary, end June In third ratio of of covered from previously the valuation at percent of during a of X.X loans billion as as

to trends loan as continued of to other the very delinquency improvement metrics, considered is levels, quality company for results. in continued demonstrate levels various quarter asset rated for sub credit end including favorable Overall, show quality total Additionally, stable.

quality and support additional or rating the banks the of for That collectively or third risk this Heartland during were examinations. classifications our and concludes recently of The back changes material completed providing issues results of the the Finally, were significant quarter questions. identified. at my the conducted results banks member I regulatory credit exams no with Lynn the favorable will remarks. available turn to remain for were assessment call

Lynn Fuller

Thank from We’ll Drew. you, now our open the analysts. phone questions lines for

Operator

[Operator of question Rulis Instructions] Our first Davidson. comes the DA Jeff of from line

Jeff Rulis

of by performance the growth the was coming to on Kind loan just loan acquisition. if segmented from Citywide tough and growth the pull could. by out segmented comment with you where region maybe category Any

Bryan McKeag

Jeff. bit we looking and down from specific ago, here at it was just Yes, nailed little of banks were data came -- many it was not our the a It any in industry.

growth. I as showed actually loan the Bruce. have of Bruce it mentioned, may banks seven was think

Bruce Lee

the are that is Yeah. the & banks The and Bank Bruce. Illinois Bank Trust & quarter growth three Trust. Bank during & Jeff, most this Arizona had loan organic Wisconsin Trust,

growth also as really was well & Bank was real spread including some very broad some healthcare. agribusiness, nice Minnesota and Mexico organic New many across manufacturing. There as it was had categories, estate based. Trust It and

Jeff Rulis

of the the, and ’XX to QX, that talked in but gain maybe then item. Bryan expectations I you about on sequentially be the on how And your it down outlook was, balance some line about sale on think seasonality,

Bryan McKeag

Yeah.

now. our right on We’re working budgets

be we slightly see to be better than probably ’XX, catalysts I whole at don't going but lot. a where in ’XX, think looking I up market the to hope the market's again, any we're

to So be don’t fight if you. I and share our continued I Bruce, think a again to going market it's grow know

Bruce Lee

in is the to haven't grow markets, this those our of primarily Jeff, Yeah. business, Colorado in disappointed we're say and in acquisitions business way our of in both the traction mortgage performance, We're performance anticipated. the both going take the residential that XXXX gained we out only would California there. that to recent is I the advantage most to again. Bruce exceed

are markets. So we're mortgage the our really business and hard look a opportunities our taking at where entire in

Jeff Rulis

just provisioning I slow are credit vetting it's on maybe Thanks. think better. stage early thoughts talk the NPA, about maybe delinquency nine And the those a they aren't quarters last in the for Drew, been you if consecutive the perhaps in numbers as one two, on were front, I and guess quality the up the on the any one kind return trending as of growth a quarter? expense, lumpy in provision we're portfolio, charge-offs this if to on creep

Lynn Fuller

Yeah. Bryan and I have discussed this.

down one little how probably harder space deals it's legacy risk and move process credit from That's conversation we’ve amount, back other. the average three well a and the first to a believe range in to think thing we peg. we’re truly identified probably year about some Again, the I is valuation you'd think with to pause the banks I have kind the in of that X.X that together, of through of quarterly. reserve quarters at depending Obviously, good on kind put land having or feel when move which the X the is X.X pace those. nailing you have in I causes the we that billion variable,

thoughts. anything be to have know that – So would my if don't you Bryan, I

Bryan McKeag

think that's I reasonable. pretty

Operator

line Our next question Nathan Jaffray. comes from of Race the of Piper

Nathan Race

couple core yield Bryan, margin excluding can over these after between sense going any core X.XX but you the also core of of can up quarter appreciate forward, of kind new nicely last maybe you but quarter us Obviously, the where terms X.XX to give kind starting pricing X%, color on reported around on of the it’s here. ecommerce and for here, with the provide guidance you where accounting, margin. goes the loan purchase and in a from pricing portfolio relative you rate deposit I of hikes. is margin provided of

Bryan McKeag

you I say in Bruce, and there couple there. guys and Well, jump can is in. questions of would a Lynn

been I the type Xs at depending to think, loan range, probably upon maybe low products. pricing in has of the our the upper mid Xs,

been to has our in good. terms is a that's small I X% of pretty pricing, -- hanging Deposit book in think maintaining So our of point, this variable. margin. X% there We've got to

but moves competitors the price with we moves market, it from So big rest been to pretty are as no that of upward slow with move has who the it our market. in

the we've So, little three had moves deposit prices or judge, move, haven't two bit next moved. given where that's harder to here a that

So change how don't I up much pent is know. there, pricing

The the those points or the X.XX the basis terms X.XX are things basis we're in from quarter, last it, Fed points. X been X of we at from or getting about, I We've about move. moves going there. to with So think, of this so I looked had as the six struggling came couple the that core,

that next of because a deposit may move get than would I be with wouldn't along So, pressure we it. bit more think that little

So a what amortization I going be. we is the have basing to think, why hard time that's

don't it's in. I with Citywide now points I think was XX this it higher basis to quarter. think going go

and So we is a hedge say, number X.XX bit that's little think, probably why X.XX I between and the margin. reasonable a for

Lynn Fuller

get credits. and we in than high pricing been these, out to tight pricing we quality said, What see I we’re the getting Midwest. see better have large, west historically get in able That on

deposit And see lot to to that continue credits. million we've deposit very deposits. getting not we priced on pressure And can improve rates fortunate credits lot So been tighter you mix. to side, are XX smaller on XX a high our a that the to again, that in are very quality interest million of have increase than

So, get for that may to rate on if Fed we'd rates create will if which us quarter, help another increase It December hike the to chooses more us. pressure another a little we to in see like deposits. hike,

Nathan Race

contributed like and going guys forward, of sound growth too XQ. to growth gears going much doesn't And just it the back Bruce, in on here the you had Colorado changing outlook

loan are if kind early off indications what curious just for forward? in of what one So that the out have [indiscernible] terms book of you going guys kind of growth and of expectations any

Bruce Lee

Centennial is that the There would to and in very I to Citywide portfolio credit organic was we're want growth, their basically ours. pleased similar that continue is policy credit Citywide nothing the new appetite to do and we banks, flat would that Yeah. type say that their quarter, not the with for relationship actually quarter. consider of attract the pretty combined for we their

conversion given pleased Citywide Centennial with coming and staff everything of we're the in pretty with on that. both our going So the new

be in So them in to quarter growth mid-single going we and fourth the digit expect forward. the

Lynn Fuller

Citywide, saw that on been deposit. the was a able to retain, it the I to XX.X%. side we today deposit we've just think, XX.X% a of was report close announcement, It From since very

very retaining be been the at going that expense, we conversion through great that once contributor earnings. they're get to we've our bank to good and a business of So

Bruce Lee

in did they deposit quarter. the And organic have third growth

their financial the roughly months, with been in than that So we're even months Heartland short, a little three they've contribution, pleased of less just three family. very the part

Nathan Race

in if can process just Drew, to wondering of within terms growth the credit are we're help you and just early what back through renewals and how XQ. forward us guys know ag kind going conversation, as well in portfolio migrations as expect well. XQ going occurred Migration But the classifieds. in as going I criticized for this XQ XQ early may was of into criticized and of I how ag within the indications that you impact of of and terms And still credit kind any understand in quarter just

Andrew Townsend

back quick a look quarters. here did seven over I right. the last All

Our concluded aggregate not been portfolio third of at growth pace here the growth of has been million. concluded XXX XXX. XXXX relatively high. The quarter We We the has nominal. at

now. the in in hanging XXXX. have at It's the portfolio it's right is X% in up. largely It end sub far at been about XX We XXXX, But experienced. flat XXXX of of million the so end total XX% to the XX brain and portfolio of at been year that watch XXXX, total was

just crops think yields are farmers. be dairy the good. will our -- to one of speaking I was I outlook So,

I lenders. think we’re

I think challenged overall, production still is good, prices are though.

So, using the news We the our good think, portfolios. typically have guarantees. equities I good rated, solid about land in in very we sub FSA are,

significant So degree. stress, showing loss exposure don't even the of is though big is to portfolio any more the level I a elevating think

Lynn Fuller

are which add up, very into getting their is They're we're we're production our area year to is this through what and most are livestock, beans, more lending acre. good. feed seeing the that we on improving, though per to bushels raising and improving. guys the of that milk lower livestock And prices are corn even would I prices, seeing that's prices cattle so and go hogs just

So coming even if okay. your still out they prices are a are bit lower,

again. ’XX so tough crops worse. over things got I got see we've So more little corn getting and carrying that going supply area I would hope think much be much They're demand. we've to don't is I in have plus because than of we our supply beans

we supply the it's because in see going issue to on of demand. ’XX to prices are just crops, So where less an and going low it’s be I heavy think

Operator

of of Our Steve the next line Moss question comes from FBR.

Steve Moss

you're back pipeline, as where wondering just seeing loans to days. detail loan Circling demand these the for the to the

Lynn Fuller

we that footprint. it seeing third the there's I our The demand seeing of those here now. then would medical, it's demand and some We're is some of real four markets ag. we're estate say demand seeing mixed. sort seeing Most the quarter. seeing demand, right the to originated very we're also what are some across some similar our are in areas pipeline and We're in the in manufacturing

Steve Moss

acquisitions. I Drew, then the acquired end your as or about we how ’XX, are loss by excluding higher wondering reserves the loans reserves year think runoff. should renewed And was about comments heard I loan turning

Andrew Townsend

the depends I guess take larger a I it to answer say, relationships, that the by source the I more bit there, they're the -- its construction financing provide with to bank. financing I in Citywide, would way, what end have construction question. may really mean the Oftentimes, they pace mean be of and does on handled is to outside deals. portfolio

with longer greater But renewal. annual the be sizable and year terms and potentially loans, other that of think regular little a the into more unlike have some in reserve out recent in movement will may of pace had And that I of the tenured purchase so weigh acquisitions maybe would portfolio the the of would have component the in allowance. those do that well C&I their I end said, is they will C&I, be through and guess in the as way a working that other

see lot be my more XX XXXX, I That -- some as whole So a half in I start number larger move expect doubt we days, take. the a over of the of would see to but we'll transfer. impact through first next we that would

Bryan McKeag

should Yeah. ’XX under start Steve in can additional board. mentioned in deals this I'll acquisitions. roll the we're off, We -- a you to my that loans won’t Steve, year. loans going on add be expect offset we'll Drew. comments this stay impact asset acquired extent I coming Citywide great some by that additional to additional banks additional from size, have additionally year close the the billion to to but as XX because announcements

would hope to see I offset. some So that

Steve Moss

it smaller a deals, But on M&A, of going of forward, I thinking are two to here acquisitions terms is be more large one or was couple wondering likely just in deals. you

Bryan McKeag

It a and ones. smaller mix larger be of would

my total get As XX billion organic said I to acquired in in goal by comments, our assets mid-XXXX. growth and through to is both

So number to we're of XXXX. in have boarded to have a going good those

Operator

line question KBW. Damon next of Our comes from the of DelMonte

Damon DelMonte

question, down through be if First I of the that of some walk through just would the some again but charges. just that got you us you them, run Bryan, merger again, could helpful. details could on

Bryan McKeag

second. a Just

Let get sheet my here. me

about through went fees. was -- this XXX We or So through professional that There's XXX that in had million. X.X the quarter there's so another occupancy. went total my comments,

assets There's that I benefits. the And small to would added down. that off up and those didn't the are to was another on I then related went X.X balance gain think pieces but component had X.X. that I don't all all know I have very the kind through I here, of went if do of math, in read salaries the I gone -- loss sale million related the XXX think or about to on X million acquisition. was through other. through of other written them

Damon DelMonte

would be Yeah. close. Yeah. pretty That

comes outlook to Durbin, like you correct? by ’XX, then with for are And is I that think in, you'd that, impacted whenever be guys Okay. the saying which regards that mid

Bryan McKeag

it was XX pretax X million billion. at We've Yeah. figured going be to

be So billion or probably when if we billion, X cross, there when we get should XX we're it X to million around sorry.

Damon DelMonte

you've that seen? the with California, then, been the in has banks impact we've And any acquired wildfires there with that

Bruce Lee

or that the were our not of none did wine operations country. -- They No. no had employees not impacted into up or were quarter. into during at all impacted. up We We go customers

Bryan McKeag

it near did Yosemite. didn't was to bank This latest mid-year any We close I branch of earlier that around close was the have have homes was we vicinity we for, to not damage to an think fire fire, three the branch. days, the that or had the in the but

Operator

O’Neill. question comes Sandler Our Liesch Andrew line of the next from of

Andrew Liesch

me question Just one for Bryan. follow-up

X saves Just December. the XX you of the think expenses, million with in here fourth in I cost quarter said in coming million

So is should year? a start to -- next that rate $XX just to clarify, million run

Bryan McKeag

expenses in would that be the to would close say billion. that should I for is only crossing We XX add we thing ballpark. go continue against that to some

that, there would but So, quarter, a might be we first should to little the add say I enter.

of get the other Now, do tends we accruals get some year. on we some the resets we is our thing one happen -- that to for that

see should So where next we our probably would to rate go we year. XX.X% say, is should XX% into be, I run we as

Operator

from question James. of Cardenas of the line Daniel comes Our next Raymond

Daniel Cardenas

quick one question. Just

in more mean franchise the part mix well. is western good M&A your you or seeing I are that outlook, of of the your of opportunities terms a it Midwest In or as more is

Lynn Fuller

West. Minnesota in lot Midwest to opportunities and We opportunities. in not see Wisconsin Illinois Dan or of and out Arizona. this But, in left lot Iowa an at then a mix we're seeing we time. west, a It's There's awful buy or don't are seeing

pretty currently quiet opportunities west. in So there elsewhere there New that's but and Mexico, are out nothing

Daniel Cardenas

plus build each state consider current in to going assets? your or of really the would kind just kind X And it's goal up you right outside to do now of billion footprint

Lynn Fuller

to quality have if very, have state, new very have they in that in we're four neighboring now over opportunities X management has the would made and them In a banks our current to states they're great XXXX, billion, where get bank now. have That's a to of located to of team. we first go going of the high were states great that We're we'd look picky hope in. We've past, if already see very a We're a charters going X said in plus. assets. quality we've sense of X each our going question. got the X would billion is great to and but at to strategic It we a very into to earnings loan priority good Yeah. deal always I to be of to

footprint, you as a know, outside your more go you up so risk footprint. So there's end picky going lot of be the if outside very we when of we'd

Operator

from follow-up the Race line question of a Jaffray. of We have Nathan Piper

Nathan Race

on just tax Bryan, rate. the

XX%. forward? XX% guided range I that the past, to you’ve in to going Is good think use still a

Bryan McKeag

would earnings to hopefully some say quarter, fourth it with year. probably might I the next bump better maybe XX for XX Yeah. you

Operator

conference. are the for would conference questions now like the portion management back the turn I audio over further of remarks. to to There no closing over

Lynn Fuller

recap the annualized. Great. loan results am performance. Thanks, quickly, were Tim. and deposit Well, and to quarterly organic, just emphasize our X% as with in happy closing, real And rate well organic as Heartland’s I year-to-date going very we was growth to

up credit improvement pick good non-performers and again. delinquencies. maintained was solid loan see the that to in So quality organic growth We and

years, best remarkable. net that the Our X.XX% company seen continues and in is to interest pretty margin its enviable at ten we've level an maintain

the level we at as remainder and number will for acquisitions managing a revenue efficiencies reduced and Durbin we realize cost and additional takeouts of our result M&A XX cost talked as is sheet to Our efficiency impact the improving which the asset remain we XXXX, the compliance. in operations adverse of strategically for mitigate balance while prospects, our of total XX.X% our about are in ratio billion advancing eventually a of that increased regulatory under

for other scheduled us for today our conference and January quarterly join as in we improvement us to see Heartland again like call, thank closing, acquisitions to in hope and joining you next we'll which Citywide can the assimilate I’d organization, XXXX. our continue is everyone into earnings. for XX, So

have with a So evening. that, everyone, good

Operator

your This participation. concludes today's Thank for conference. you

a at lines your Have disconnect rest your of wonderful this time. may You night.

Heartland Financial USA (HTLF) 30 Oct 172017 Q3 Earnings call transcript