Lynn B. Fuller - President and CEO Bryan McKeag - CFO Kenneth J. Erickson - EVP and Chief Credit Officer.

Jeffrey Rulis - D.A. Davidson Michael Perito - Keefe, Bruyette & Woods, Inc. Andrew Liesch - Sandler O'Neill Jon Arfstrom - RBC Capital Markets Daniel Cardenas - Raymond James.

Greetings, and welcome to the Heartland Financial USA Inc., Third Quarter 2014 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 the copy, you may access it at Heartland's Web site at www.htlf.com.

With us today from management are Lynn Fuller, Chairman, President and Chief Executive Officer; Bryan McKeag, Chief Financial Officer; and Ken Erickson, 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 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 Web site or the SEC's Web site. At this time, all participants are in a listen-only mode. (Operator Instructions). As a reminder, this conference is being recorded.

At this time, I will now turn the call over to Mr. Lynn Fuller at Heartland. Please go ahead, sir..

Thank you, Scott, and good afternoon. We sure appreciate everyone joining us today as we review Heartland's performance for the third quarter of 2014.

For the next few minutes, I'll touch on the highlights for the quarter and will then turn the call over to Bryan McKeag, our Executive Vice President and Chief Financial Officer, who will provide further details on Heartland's quarterly financial results.

Then, Ken Erickson, our EVP and Chief Credit Officer, will give us further insight on credit-related topics.

I’m very pleased to begin this afternoon’s call with news that Heartland reported an excellent third quarter with net income available to common shareholders of 11.8 million, an 80% increase over earnings of 6.5 million in the third quarter of 2013.

On a per share basis, Heartland earned $0.63 per diluted common share for the quarter compared to $0.38 per diluted common share for the same quarter last year. At $0.63, earnings per share is the highest we’ve seen in the last six quarters.

Year-to-date, net income available to common stockholders of 29 million or $1.55 per diluted common share compared to 28 million or $1.63 per common share for the first three quarters of 2013. Heartland’s third quarter results were quite gratifying.

For example, our net interest margin held up well at 3.96%, down slightly from 4.04% in the second quarter. Net interest income in dollars was up significantly increasing over last year’s quarter and year-to-date periods. For the quarter, loans were up by 104 million growing at an annualized rate of 11%.

In the last five quarters, Heartland has experienced organic loan growth of 549 million. Considering our peers are reporting loan growth in the low-to-mid single digit range, we are very pleased to see that the investment we’ve made in sales management and sales training is paying off.

With loan growth as our top priority, we are very pleased with both the quality and quantity of loan growth and commend our commercial and retail banking teams for these excellent results.

While credit quality also showed continued improvement for the quarter, nonperforming assets ended the quarter at 51 million, down nearly 3 million from the second quarter and down nearly 30 million from the same quarter last year. That’s a 37% reduction.

The ratio of nonperforming assets to total assets dropped during the quarter from 90 to 85 basis points. In a few minutes, Ken Erickson will provide some color on the nonperformers along with other credit administration topics. Now moving on to the balance sheet. Total assets held steady during the quarter at 5.9 billion.

Our securities portfolio now represents 28% of total assets as we continue to pursue a strategy of converting cash flow from our securities portfolio into quality loans. Presently, the tax equivalent yield on the securities portfolio is 3.02% while our duration is down to 4.29 years.

Moving on to deposits, we experienced a nice increase in total deposits during the quarter of 85 million. We saw continued favorable shift in deposit mix with non-interest demand deposits increasing to 27%, savings and money market demand accounts holding steady at 55% and time deposits moving down to 18% of total deposits.

While in terms of capital, our tangible capital ratio improved to 6.06% for the quarter. That’s the best level we’ve achieved on this major in the last six quarters and into our target range of 6% to 7%. Book value and tangible book value per share ended the quarter at $21.74 and $19.30, respectively.

Annualized return on average common equity for Q3 was 11.86% and year-to-date was 10.21%. Annualized return on average tangible common equity for Q3 was 13.4% and year-to-date was 11.61%, which is slightly below our target range of 12% to 15%.

Now I’d like to provide an update on the progress at our residential real estate division where we are making diligent efforts to increase production while seeking efficiencies in the back office. Year-to-date, we’ve originated approximately 766 million of loans with 74% of our volume in purchase transactions.

If the 10-year treasury remains around 2% or drifts lower, we may get a boost in refis, which would offset the historically slower winter production months ahead. Another area of focus is noninterest expense, which remained level as we implemented a variety of process improvement initiatives, efficiency projects and FTE reductions.

As a result, our efficiency ratio has continued to improve over the last five quarters down to 72.67% for the quarter. In a moment, Bryan McKeag will explain how adjusting for the impact of certain tax credit investments lowers our efficiency ratio to just under 71%.

We continue to identify and track a host of initiatives that will move Heartland’s efficiency ratio to 65% by 2016. Over the last three months, Heartland made three significant announcements; a new talent acquisition, a name change and merger of two subsidiaries and a major bank acquisition.

So first in August, Heartland announced that Kelly Johnson joined the company in a newly-created position of Executive Vice President Private Client Services overseeing trust, brokerage, insurance and private banking.

Kelly brings more than 25 years of experience in the financial services industry and most recently as Executive Vice President of Wealth Management at Umpqua Holdings, a 22 billion bank holding company headquartered in Portland, Oregon where he led trust services, wealth planning, investment services and private banking.

Kelly’s background in larger organizations will be invaluable as Heartland executes its expansion strategies. Second, Heartland announced the planned merger of our two Illinois charters. On January 23, 2015, Riverside Community Bank and Galena State Bank will join to form a newly named subsidiary, Illinois Bank & Trust.

The combined bank will hold assets of nearly 800 million bringing us another step closer to realizing our goal of at least 1 billion in assets in each state where we operate. We believe the common brand will support our expansion plans for Illinois while bringing the efficiencies of charter consolidation.

With this rebranding, Heartland will have captured state names at five of our ten community bank charters.

Our third significant announcement came just last week with the news that Community Banc-Corp of Sheboygan, Inc., a solid and profitable commercial bank holding company headquartered in Sheboygan, Wisconsin with assets of 525 million will be joining the Heartland family.

Community Bank & Trust is the deposit market share leader in Sheboygan County and they’ve been recognized as a leading SBA lender in the state for two successive years.

Now combined with Wisconsin Bank & Trust focus on government-guaranteed lending, we now have sufficient scale to map government-guaranteed lending across all Heartland member banks as a line of business.

Subject to shareholder and regulatory approval, we anticipate closing the transaction in the first quarter of 2015 with a systems integration planned for the second quarter. Upon closing, Community Bank & Trust will be merged into Wisconsin Bank & Trust subsidiary and add 10 banking centers to our footprint.

At that time, Wisconsin will become Heartland’s third state with banking assets greater than 1 billion. We continue to evaluate additional opportunities for expansion throughout the Heartland footprint. Our company is in a great position to leverage new acquisitions and realize cost savings.

As with Community Banc-Corp, these are expected to be primarily stock transactions. Our consumer finance subsidiary, Citizens Finance is also enjoying a successful year with net earnings of 1.3 million year-to-date compared to 1.2 million through the first nine months of 2013 and that’s an increase of 7%.

Leveraging a successful business model, Citizens opened its 13th office to serve the Des Moines, Iowa by 15th August. In concluding my comments today, I’m pleased to report that at its October meeting, the Heartland Board of Directors elected to maintain our dividend at $0.10 per common share payable on December 5, 2014.

I’ll now turn the call over to Bryan McKeag for more detail on our quarterly results and then Bryan will introduce Ken Erickson, who will provide commentary on credit topics.

Bryan?.

Thanks Lynn, and good afternoon. I’ll take a couple of minutes to share some details on the main performance drivers of our quarterly results and provide updates on some of our key operating metrics. I’ll start with the balance sheet.

The available for sale investment portfolio decreased 43 million during the quarter, while the held to maturity portfolio balances remained relatively unchanged at 255 million.

The total portfolio ended the quarter at just over 1.6 billion representing 28% of assets, down from 32% at the end of 2013 as we allowed the portfolio decline to fund a portion of loan growth.

Tax equivalent yield on the portfolio declined during the quarter to 3.02% and the duration of the portfolio also declined to 4.3 years from 4.7 years just last quarter.

Moving to the loan portfolio, loans held for sale grew slightly by $6 million to end the quarter at $93 million and loans held to maturity grew 104 million or 11% annualized this quarter ending the quarter at 3.8 billion.

Excluding the 417 million of loans added from acquisitions in late 2013, core growth has been very strong over the past 12 months at 480 million or 14%. Shifting to the income statement, net interest margin contracted 8 basis points to 3.96% for the quarter compared with 4.04% in the prior quarter.

This decline reflects the previously mentioned reduction in investment yields, flat liability interest costs and the 9 basis point drop in loan yields. However and more importantly, net interest income continued to grow reaching an all-time high of 51.5 million this quarter, up from 50.8 million in the prior quarter.

Although interest costs remained flat, there is some continuing opportunities in time deposits with about 100 million maturing next quarter at an average rate of about 1.1%. We anticipate a 40 to 50 basis point reduction in cost as these certificates mature.

Our interest rate risk modeling continues to show that we are asset sensitive, which we believe is appropriate given the current interest rate and economic environment. Ken Erickson will provide detail on credit quality including the provision for loan and lease losses, which totaled $2.6 million for the quarter.

Noninterest income totaled 20.2 million for the third quarter, down 500,000 compared to last quarter. The decrease is primarily attributable to a 400,000 or 4% decline in the gain on sale of loans from the prior quarter as loan application activity is down 3% quarter-over-quarter.

However, the volume of mortgage loans sold, which totaled 284 million for the quarter, was up 36% from the prior quarter. The service loan portfolio also continued to grow adding 164 million this quarter ending the quarter at just under 3.4 billion. The portfolio has grown just under $0.5 billion or 16% over the past 12 months.

We also benefited from lower losses on the sale of OREO, which declined 354,000 from the last quarter, driven by the continuous reduction in OREO balances, which dropped another 4 million during the quarter ending the quarter at 20.5 million. Switching to noninterest expense.

Expense performance, which on the surface looks unfavorable, actually was improved. Total expenses were 54.2 million, an increase of 300,000 from the prior quarter.

All expense categories were flat or down from last quarter except salaries and benefits, which increased $1 million quarter-over-quarter primarily due to higher incentive compensation accruals, which were increased to align with our improving financing performance. All other expense categories decreased by a combined 700,000 from the prior quarter.

Declines in these categories, which totaled 2.1 million were offset by 1.4 million in costs related to partnership investments with projects that qualify for historic tax credits.

Taxes for the quarter were significantly lower due to the realization of these historic tax spreads resulting in an effective tax rate of just under 20%, down from last quarter’s 28% rate. Excluding these tax credits, the effective rate would have been 28% for this quarter, which we believe is a good base rate going forward.

As a result of slightly higher noninterest expenses, the efficiency ratio this quarter increased to 72.67% from 71.75% last quarter.

However, when excluding the $1.4 million cost related to partnership investments with tax credits that are not included in the efficiency ratio calculation, our efficiency ratio would have been 70.7% or 1 percentage point lower than last quarter and almost 5 percentage points lower than the third quarter of 2013.

To wrap up, I would add the following relative to our anticipated performance for the fourth quarter of 2014. Loan growth for next quarter is expected to soften a bit to around $50 million. That would result in approximately 150 million for the last half of 2014, which is consistent with our comments from last quarter.

We plan to continue to fund a large portion of our loan growth with investment portfolio of cash flow. Net interest income should continue to increase as we continue to grow loans and with the net interest margin expected to remain between 3.9% and 4%.

Gain on sale volumes next quarter is expected to show the effects of the normal seasonal slowdown in purchased mortgage activity in Q4. However, due to the recent decline in interest rates, we could see some pickup in refi activity that would offset some of this normal seasonal slowdown.

With that, I will turn the call over to Ken Erickson, Executive Vice President and Chief Credit Officer..

Thank you, Bryan, and good afternoon. I will begin by discussing the change in nonperforming loans and other real estate owned. This quarter resulted in nonperforming loans remaining flat at 0.79% of total loans. There are only four nonperforming loans with individual loans balances exceeding $1 million.

In aggregate, these four loans totaled 10.1 million or 33% of our total nonperforming loans. Three of these totaling 6.3 million are expected to be resolved by the end of the year. No additional losses are expected on any of these loans. 30 to 89-day delinquencies remain low at 32 basis points.

Other real estate owned was reduced by 3.9 million in the third quarter, reducing it to 20.5 million. As a result, nonperforming assets as a percent of total assets was reduced from 90 basis points to 85 basis points. Other real estate owned continues to sell at or near book value.

4.3 million in cumulative sales of 16 other real estate properties was recorded in the third quarter, which represented 17.7% of the other real estate owned as of June 30. Net loss on repossessed assets, which includes the gain or loss upon sale of the assets, was 444,000 or 1.8% of the beginning of quarter balance.

Collection, ORE and repo expense was 215,000 for the quarter, down from 518,000 for the previous quarter. This reduction is the result of reduced levels of other real estate owned and the cost associated with carrying these properties.

Our existing portfolio of other real estate is made up of 15 residential properties aggregating to $2 million and 59 commercial properties that aggregate to 18.5 million. Provision expense was 2.6 million in the third quarter. 826,000 of this provision relates to our consumer finance company, Citizens Finance.

Half of the remaining provision expense reported the increase in the allowance for loan and lease losses as a result of our third quarter loan growth with the remainder used to cover smaller charge-offs taken during the quarter.

As shown in the earnings release, our coverage ratio of allowance for loan and lease losses as a percent of nonperforming loans and leases was 138.4%, down slightly from 140.64% as shown at the end of June. This is the result of the small increase in nonperforming loans during the quarter.

The coverage ratio should continue to increase as nonperforming loans see further reductions in future quarters. The allowance for loan and lease losses as a percent of loans and leases decreased from 1.11% to 1.10% this quarter. A valuation reserve of 3.6 million is recorded for those loans obtained in acquisition.

Excluding those loans would result in a ratio of 1.17%, which would compare to 1.21% for June 30, 1.21% for March 31 and 1.37% for December 31. As mentioned by both Lynn and Bryan, we had another quarter of good loan growth. Loans held to maturity increased by 104 million for the third quarter and 301 million year-to-date.

As shown in the earnings release, 57% of this growth, 59 million was in our commercial and commercial real estate portfolio. The other three loan categories also had solid growth as represented by 18.6 million in residential mortgage, 14.5 million in agricultural loan and 10.9 million in consumer.

Within the commercial and agricultural portfolios, 35% of the new loan production in the third quarter was in C&I and 29% was in commercial real estate, of which 34% is owner occupied.

32% of the production came from New Mexico Bank & Trust, 20% from the Dubuque Bank & Trust, 12% Riverside Community Bank with the remainder coming from our other seven banks. While we have been successful in moving some business from the competition, 74% of the new money dispersed in the third quarter was for new projects or expansion.

We have not made any changes to our risk tolerance to obtain this growth nor expanded our interest rate risk posture. The metrics of the loans booked in the third quarter near very closely the overall portfolio in regards to average weighted risk rating, loan to value, interest rate and fixed to variable balance.

We continue with the third phase of the installation of our Ambit custom lender workflow solution. The first phase was completed last year and allowed us to implement our small business lending center.

The second phase was finalized earlier this year, which enhanced portfolio management allowing our lending staff to more efficiently manage their portfolio from a single point of access. This third phase will create efficiencies in the workflow allowing for a streamlined straight through process and should be completed early next year.

Once implemented, it should eliminate many touches throughout the process reducing the amount of time it takes to underwrite documents and board a loan. These cost savings will be built into next year’s budgets. All of our banks completed their annual examination from the FDIC and/or the respective state examination teams during the past quarter.

These examinations went well with no significant changes noted in classified credits or other significant weaknesses or recommendations noted. With that, I will turn the call back to you Lynn and remain available for questions..

Very good. Thanks, Ken. We’ll now open the phone lines for your questions..

Thank you. Ladies and gentlemen, we will now be conducting our question-and-answer session. (Operator Instructions). Our first question is coming from the line of Mr. Jeff Rulis with D.A. Davidson. Your line is now open. You may proceed with your question..

Thanks. Good afternoon..

Hi, Jeff..

Actually just a couple of housekeeping questions on the Sheboygan deal.

I guess what total anticipated intangibles from that transaction, your expected tangible book dilution and any loan markets [tip] (ph) on that?.

Well, in terms of the intangible that you might see out there, that’s a servicing asset that we are not backing out of the tangible book value. So it’s really total book value right now that you see out there is what we’re going to price off of. I think that’s just around $31 million to $32 million reported for June.

In terms of the tangible book value and what the transaction will do, we run various scenarios. We still have to get through all of the purchase accounting that would be required for accounting purposes.

So until all those marks are totally set – but we model a little bit of a hit to the tangible book value and it’s within our payback period of around three to four years..

Okay..

Thank you. Our next question is coming from the line of Mr. Michael Perito with KBW. Your line is now open. You may proceed with your question..

Good afternoon, everybody. Thanks for taking my questions. First, Bryan, just want to tax some – I just want to make sure I’m thinking about it the right way. So going forward, 28% is the rate and adjusted rate for the quarter was 28%.

So, is that – in the release the 1.8 million, if we take that out, is that the right way to think about kind of the core earnings number in the quarter or is there any offset in the expense line? Just having trouble kind of reconciling what you guys said in your prepared remarks?.

Yes, there’s 1.4 million that goes through other expenses. That’s in the expense category. The rest goes through the tax line. The net of those is about 350,000. That bottom line impacted those transactions..

Okay. All right, that makes more sense. Okay. Thanks. And then another quick question on the Sheboygan deal.

When I’m looking at your disclosures toward the end of your release about your various banks, it looks like Wisconsin is going to be your second largest pro forma once the deal’s completed or second or third depending I guess on your growth between now and then. But ROA looks to be a bit lower than some of your other larger banks.

I was wondering what you think the impact that you’ll have on that and what your expectation is for your profitability in your Wisconsin bank going forward?.

I don’t have the ROA off the top of my head or what that individual bank will be on a combined basis. Again, we believe that the transaction will be accretive, so it should help Wisconsin Bank & Trust as well, improve their profitability and should improve their ROA..

Is it reasonable – I guess how do you guys approach it? Is the goal to reach a similar level as Dubuque and New Mexico or is that further way off given your current build out?.

Yes, I mean we’re looking to get the various states to that $1 billion to get the scale. And so one of the things that – we did have one credit on that that probably pulled the ROA down just a bit in Wisconsin as well. So when you’re looking at our historical numbers, it may be a little low for Wisconsin as well because of that..

Okay, great. Thanks..

Thank you. Our next question is coming from the line of Andrew Liesch with Sandler O'Neill. Your line is now open. You may proceed with your question..

Thanks. Hi, everyone..

Hi, Andrew..

Just to make sure I’m looking at the expense number the right way, so if I take what you guys reported and back up the OREO costs and then back up the 1.4 for the tax offset looking at right around 52.5 million, is that a pretty decent run rate recognizing at least some expenses for growth as well as some cost savings?.

Yes, I think when I kind of did it even looking at last quarter and backing out the $1 million that we had that was one-time, I was getting somewhere between your number and 53. So I would say somewhere in that upper 52s to 53 is the right run rate number..

Okay, great. Thank you.

And then just curious on the respective deals, how comfortable are you or would you be if you found something in the near future having two of them outstanding at the same time?.

This is Lynn. As I said in prior calls that we run a pretty deep pipeline, so we’re pretty comfortable if we would be announcing one additional deal beyond Sheboygan this year. We’ll have to schedule them in for system conversions, but depending on the size of the deal, I’d pretty comfortable announcing one more deal this year.

I can’t guarantee that can happen, but I’d be comfortable with that..

Right. All right, thanks for taking my questions..

Thank you. (Operator Instructions). Our next question is coming from the line of Jon Arfstrom with RBC Capital Markets. Your line is now open. You may proceed with your question..

Thanks. Good afternoon, guys..

Hi, Jon..

A question for you, Lynn, just on the borrower mood. One of your peer (indiscernible) said there’s a disconnect between the media and the clients and that optimism is growing among the borrowers.

Is that something that you are seeing and feeling in your markets or do you think that’s just too optimistic at this point?.

You’re saying that bank borrowers, our commercial clients are getting more optimistic?.

Yes..

Yes, I think it depends by region and I think it depends by the industry type. We do see optimism in some of the medical areas, in some of the manufacturing areas, but there are certain sectors in manufacturing that are not as optimistic. Those industries that rely heavily on international sales may not be quite as optimistic. It just kind of depends.

I can tell you probably I’ve been halfway surprised that New Mexico has done as well as it has because that market is still pretty slow, it’s heavily reliant on government expenditures and they just seem to – they come into the recession late and they get out late.

I mean most of our markets are really doing quite well, but again compared to what? So I think if I were to share with you what I hear most often, yes, things are okay. We’ve adjusted to meet the current sales activity. It seems like there’s a lot of risk out there in the environment. The economy is going to bump along the bottom, but we’re doing okay.

And I see that in our credits as well that most of the credits are doing fine, but one of the things that we watch out for is that at these interest rate levels and what the cost of borrowing as low as it is, it’d be hard not to do well.

We shock our credits for up rates and if rates were up 500, it could put some stress on businesses unless the economy picks up substantially. So I don’t see that happening right away. But I think people are generally okay, but I don’t think anybody sees this market as being real robust..

Okay, that’s helpful. Just a few category questions touching on New Mexico. Was there anything specific there? You said it was a bit of a surprise. I guess it surprised me too, but it’s a couple of quarters in a row..

Yes, it’s a surprise to the upside. New Mexico’s mix in their commercial portfolio has a lot of small business in it. And when we started the small business unit, we were able to take a lot of small credits off of our best commercial bankers, freeing up their time to go call on prospects that we wanted to bank.

And so I think that’s helped a lot the sales management, sales training and then shifting to those smaller credits to a business bank basically of our best commercial bankers to go hunt good credits. So when I said I was surprised how well they’re doing relative to the economy down there, it was a surprise for the good side not the bad side..

Yes, okay.

Ken, could you share any thoughts on agriculture health? It looks like you’ve had some decent growth there and I understand some of it is seasonal, but what’s stronger or what causes you a little more maybe not concern but you’re watching a little closer?.

Jon, some of that growth this year has come in the dairy industry where we’ve added a couple of nice dairies in the Wisconsin market. Certainly, some farmers have concerns with the lower crop prices that they’re coming into this year, a lot of that and forward contracts has enabled to sell at higher prices than what in the field price is.

But that’s certainly going to put some strain on 2015. In time, it will drive down the cash ramps that usually trail below that. It may not trickle down in 2015 as much as it probably should, but that will start to have some impact on cash ramp and ultimately ag real estate prices.

We have always been a lender at production value versus appraise value on ag real estate, so I would say we don’t have exposure in our portfolio there. I don’t know any lenders that do. There’s an awful lot of ag ground that’s owned free and clear, so there’s just not a lot of leverage on the dirt itself out there.

But I think in general, there’s been some very, very profits from the ag sector over the last couple of years in almost every business line; in hogs and cattle and dairy and crop production.

Usually all of those don’t trend high at the same time, so I think in 2015 we could see that cycle down some and maybe beginning with some of the real crop production..

I think the key, Jon, is that we’ve been very careful to keep the leverage low on our good ag credits. They tend to be larger credits and the basis in their planned and the debt against that land is pretty low even though they maybe had to pay up a little bit for neighboring farmers.

But as long as you keep the leverage low enough on these larger operations, they can stand the swings in commodity prices. They won’t necessarily be as profitable as they had been when commodity prices were very high, but they’ll be able to survive the change..

Okay, good. That’s helpful. And then just one more on mortgage. I don’t know who wants to take this, but you’ve alluded to the fact that if rates stay here, refis may pick up.

Have you started to see that yet or is it too early?.

We have seen a little bit of a pickup in refis. But whether that will be enough to make a difference, time will tell..

Okay. All right, thanks for the help..

Thanks, Jon..

Thank you. Our next question is coming from the line of Daniel Cardenas with Raymond James. Your line is now open. You may proceed with your question..

Good afternoon, guys..

Hi, Dan..

Just a quick question on the loan production that you put on this quarter, can you give me a sense as to the average loan size?.

Yes, very, very few were large credits. Give me just a second, Dan. I think our very largest one in there was in the $6 million range. It was fairly granular. When I look at the list, I would say the average size was in that $2 million to $3 million..

Okay.

And then just quickly going back to the ag portfolio, are you guys taking a hard look at reserved allocations to that portfolio or not necessarily so?.

Not necessarily. We do look from the qualitative factor side in our allowance. We look at those as a standalone in each of the lending environments. So we major all of those specifically on the ag portfolio and those are probably slightly higher than the commercial over the last quarter or two..

Okay, great. And then just one quick housekeeping question. I think you mentioned that you had some deposits re-pricing this quarter.

I missed that amount and what the reduction in pricing is, the impact was going to be?.

Yes, it’s about 100 million coming due this next quarter of CDs that are priced at about 1.1 and we should get 40 to 50 basis point release as those mature..

Great. Thanks, guys..

Dan, that’s on the CD portfolio. I still think we’ve got room across the member banks to reduce deposit cost elsewhere. So that is a focus in our [ALCO] (ph) area. So I think we got to spend a little more effort on making sure that our deposits across the board aside from just the CDs are priced appropriately..

And you haven’t seen any wholesale pickup in competitive pricing on deposit side yet I take it?.

Not in all markets. I would say that Dubuque and Galena seem to be our more competitive markets right here, but we ask our management teams if they’re getting much pressure and we just don’t hear that there’s much pressure out there.

I think this last rundown on the 10-year kind of spooked everybody and if we stay down in the 2% range on the 10-year, there are going to be a lot of banks struggling on their margin and only place you really have left to go with is to continue to reduce deposit rates. We’re going to do that and I do think we got some room..

Okay, great. Thank you..

Thank you. (Operator Instructions). There are no further questions at this time. I would like to turn the floor back over to Mr. Fuller for any closing comments..

Great. In closing, I’ll summarize we were extremely pleased with this quarter’s results and really excited about year-to-date and where we’re going from this point forward and I’ll kind of recap those. Loan growth was excellent as we talked about increasing by 104 million. We’re on an 11% annualized rate.

And over the last five quarters, organic loan growth of nearly 550 million. Margin held steady just under 4% and if we can continue to grow our loans, we should be able to stay in that range. Nonperforming assets to total assets at 85 basis points is the lowest level we’ve seen in several years.

Our TCE increased to 6.06% and our year-to-date return on tangible equity is getting very close to our target range of 12% to 15%. We remain focused on a variety of initiatives that would drive efficiencies, revenue growth and continued earnings improvement.

And through consolidation and both organic and acquired growth, we move closer to our goal of 1 billion in assets in each state where we have an operation. Finally, we’re well positioned and eager to pursue additional acquisitions that are accretive to earnings and meet or exceed our M&A criteria.

So in short, I feel very good about Heartland’s performance and continue to see excellent opportunities ahead. I’d like to thank everybody for joining us today and hope you can join us again for our next quarterly conference call, which will take place on Monday, January 26, 2015. Have a good evening, everyone..

Ladies and gentlemen, this concludes today’s teleconference. You may disconnect your lines at this time and thank you very much for your participation. Have a great evening..