Lynn Fuller - Chairman & Chief Executive Officer Bryan McKeag - EVP & Chief Financial Officer Andrew Townsend - EVP & Chief Credit Officer Bruce Lee - President.

Jeff Rulis - DA Davidson Steve Moss - FBR Nathan Race - Piper Jaffray Daniel Cardenas - Raymond James Damon DelMonte - KBW Andrew Liesch - Sandler O'Neill.

Greetings and welcome to the Heartland Financial USA, Inc. First Quarter 2017 Conference Call. This afternoon, Heartland distributed its first quarter press release and hopefully, you have 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.

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 website or the SEC’s website. 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, Darren, and good afternoon. We appreciate everyone joining us today as we discuss Heartland’s performance for the first quarter of 2017. For the next few minutes, I will touch on the highlights for the quarter. I will then turn the call over to Heartland’s President, Bruce Lee, who will cover progress on our key operating strategies.

Then Bryan McKeag, our EVP and CFO, will provide additional color on Heartland’s quarterly results, followed by Drew Townsend, our EVP and Chief Credit Officer, who will offer insights on credit-related topics. Well, I'll being my remarks this afternoon regarding the first quarter results which were somewhat mixed.

We experienced strong non-time deposit growth, a solid net interest margin, and an improved intangible common equity ratio. However, weakness in loan growth and lower mortgage activity led to earnings that were a bit short of our expectations.

Net income available to common shareholders was 18 million, a small decrease from last year's first quarter, and on a per share basis for the quarter $0.68 per diluted common share. Annualized return on average common equity for the quarter was 9.71% and return on average tangible common equity was 12.25%.

Among the more positive trends for the quarter Heartland's tangible common equity ratio increased by 22 basis points to 7.5% for the quarter, likewise book value, intangible book value per common share continued to increase ending in the quarter at $29.26 and $23.05 respectively.

Another positive for the quarter was our net interest margin, which reached 4.16% on a fully tax equivalent basis for the quarter reflecting our continued pricing discipline. Now moving on to the balance sheet, assets inched higher to $8.36 billion at quarter end.

Loan growth was positive for the quarter, with total loans increasing with the completion of the Founders Bancorp acquisition. That said organic loan growth remains elusive. Deposit growth continues to be favorable, with organic non-time deposits increasing during the quarter by 112 million which is an annualized growth rate of 8%.

In a few minutes Bruce Lee will address loans and deposits in more detail. Heartland’s securities portfolio currently represents 26% of assets. With our target at 20%, we still have room to convert cash flow from our securities portfolio into quality loans.

Currently our AFS portfolio duration is 3.5 years to 4 years, with the portfolio now yielding over 3%. Following several quarters of progress on our efficiency ratio this metric picked up for the quarter with a flurry of merger related expenses. Following Bruce Lee's comments Bryan McKeag will address noninterest expense in more detail.

Credit quality remains sound, with non-performing assets and asset quality ratios remaining consistent with the prior quarter, and in a few minutes Andrew Townsend will provide more detail on these and other credit related topics. So the first quarter of 2017 was very active on the M&A front.

In early February we announced the signing of the definitive merger agreement with Citywide Banks of Colorado Inc. parent company of Citywide Banks, headquartered in the Denver Metro market.

This will be Heartlands largest and most significant acquisition in our history, adding assets of 1.4 billion along with a highly respected and experienced management team.

We are enthusiastic about this pending merger as Citywide Banks and Centennial Bank and Trust will combine to create a premier community banking organization in Colorado with assets of 2.3 billion and 29 banking centers in one of the country's best growth markets.

The combined entity will operate under the Citywide Bank's brand, subject customary approvals, we anticipate closing the transactions early in the third quarter with systems integration planned for this fall.

We'll also in February Heartland completed its acquisition of Founders Bancorp, parent company of Founders Community Bank in San Luis Obispo, California.

Simultaneous with the closing Founders was merged into our Premier Valley Bank subsidiary becoming Heartland's fifth largest bank with assets over 850 million and nine banking centers serving the Central Coast and Central Valley of California. The successful systems conversion for Founders took place in March.

With respect to M&A we remain actively committed to pursuing only those deals that will be accretive to our current shareholder's earnings per share, produce a minimum internal rate of return of 15%, and a maximum earn back of three years.

We're also committed to achieving our goal to reach 1 billion or more in assets in each state where Heartland operates. Four of our 10 charters will have assets in excess of 1 billion in 2017 and expect six of 10 to exceed 1 billion in 2018.

Finally, related to Heartland approaching the 10 billion asset threshold we're confident that total assets will remain under 10 billion in 2017. That said we're certain assets will exceed that mark in 2018 as a result of organic growth and a deep pipeline of attractive M&A opportunities.

Knowing this we've been investing in both the talent and the technology needed for regulatory compliance as a 10 billion asset organization. And concluding my comments today I'm pleased to report that at its April meeting the Heartland Board of Directors authorized a dividend of $0.11 per common share payable on June 2, 2017.

I'll now turn the call over to Bruce Lee, Heartland's President who'll provide an overview of the Company's strategic initiatives.

Bruce?.

Thank you, Lynn. Good afternoon, today I will discuss first quarter 2017 results at the Heartland member banks and provide an update on our revenue producing business lines. I will begin my remarks with lending, where total loans increased slightly in the first quarter, though organic growth has been a challenge.

Loan growth at each member bank showed varied results, with Premier Valley Bank showing organic growth in addition to its newly acquired loans from the Founder Community Bank acquisition. Six banks had essentially flat loan growth and three banks had declines.

Of the three banks showing declines, two were largely the result of scheduled construction loan payoffs. Historically, our first quarter has typically been light in terms of loan growth.

In the field we're hearing optimism being expressed in the market and our bankers feel more confident as we head into the second quarter, however that optimism has not yet translated into stronger borrowing demand. We're dedicating more attention to sales and sales management as we continue to execute on our sales strategy for the year.

As a result we would expect loan growth to resume this quarter, but some uncertainty remains on the part of borrowers given the prospect of higher interest rates and the unknown associated with a new administration in Washington.

On the deposit side our focus on growing non-time deposits is meeting with success, during the quarter non-time deposits grew by approximately 112 million or 2% net of the Founders acquisition. Total deposits increased by 61 million during the quarter, also net of the acquisition.

And I'll add that again, first quarter deposit growth has been harder to come by historically, so we are pleased with this year's trend. We are delighted to see a continuing favorable shift in our deposit mix, toward non-time, with 88% of our deposits in that category, up from 83.5% one year ago.

Likewise, non-interest bearing demand deposits now constitutes almost 33% of the mix, up from 30% one year-ago. Moving to our mortgage business. Residential real-estate originations are down from the previous quarter similar to the trends exhibited by the mortgage market as a whole.

We saw mortgage loan refinanced demand fall dramatically in reaction to interest rates moving higher. In addition, the first quarter is seasonally slow for the purchase mortgage markets. The result of these two market factors led through a significant decline in our mortgage loan production in the first quarter.

In anticipation of these lower volumes, we implemented a series of workforce reduction during the second quarter, which will positively impact our results into the second quarter. Heartland's mortgage loan servicing portfolio continues to grow exceeding 4.3 billion on March 31st, an increase of our 200 million during the past year.

At March 31st, we show 32 million of MSRs on our books which have a fair-value of approximately 47.6 million or 15.6 million more than book-value. Moving on to service charges and fees where we continue to see solid results as this revenue stream has increased 2.3 million compared to the first quarter last year.

The increase reflects good deposit growth and the continued growth in commercial credit card volumes, with spend volume jumping 77% in first quarter of '17 compared to first quarter '16. We continue to see excellent opportunities for Heartland in the card payments space.

Serving a market dominated by large regional and national competitors that have overlooked the small and medium sized businesses we serve in our community banking niche. Our strategy is to approach this clients with a holistic solution that streamlines their business payments processes and adds value beyond reward points and rebates.

We recently enhanced our card payment solutions with the rollout of a more robust expense management service that will improve the efficiency of managing card based spending for us and give clients -- it gives clients yet another reason to process payments through their Heartland member bank.

Heartland's Treasury management teams are also finding opportunities to introduce value-added cash management tools and loss prevention services to newly acquired clients in our acquisitions. We project significant lift in 2017 in this area as we cultivate our new clients from founder's community bank and our prospective Citywide Bank's clients.

Finally, I want to add a couple of thoughts related to our pending acquisition of city wide banks in Colorado. As Lynn mentioned the Denver and Boulder MSAs are very desirable growth markets. On the loan side Citywide Banks enjoyed at 11% growth trend with a large number of loyal long term commercial relationships.

On the deposit side Citywide holds an enviable franchise with 43% of its deposits in demand and 90% of total deposits in non-time. The combined entity will rank 11th in deposits in the Denver metro area and 13th in Colorado.

Adding to my previous comments, we are eager to rollout our various commercial card payment solutions, treasury management, wealth management and retirement planning products and services to our current and new clients.

The process of integrating our two companies is well underway, with senior bank leadership in place and ready to hit the ground running when the deal is completed. With that I'll now turn the call over to Bryan McKeag for more detail on our quarterly financial results..

Thanks Bruce and good afternoon. I'll begin my comments today with the tangible common equity ratio which showed good improvement again this quarter, increasing 22 basis points over last quarter to 7.5%. The increase includes an 11 basis points decline from the purchase of Founders Banks.

A slight increase in market value of investment portfolio added 2 basis points to the ratio with the remaining 31 basis points coming from retained earnings. Borrowings declined this quarter by total of 158 million as modest asset growth combined with strong deposit growth allowed us to reduce both short-term and other borrowings.

Moving to the income statement, net interest income totaled 73 million this quarter, down 2.1 million from the prior quarter. With average running assets down less than 1% and net interest margin up 2 basis points, the primary driver of the decrease was the two fewer calendar days in this quarter versus last quarter.

Net interest margin on taxed equivalent basis remained strong at 4.16%, which as I just mentioned was up 2 basis points from last quarter. Yields on loans decreased 3 basis points while investment yield increased 16 basis points and interest costs on deposits and borrowings ticked up 1 basis point compared to last quarter.

This quarter the net interest margin includes 14 basis points from the amortization of purchase accounting discounts which is comparable to the prior quarter. Non-interest income totaled 25.9 million for the quarter, up 1.4 million from last quarter.

When comparing to last quarter gain on sale of securities was up 900,000 and gain on sale of loans for the quarter was up slightly at 300,000; reflecting improved margins that more than offset, weaker mortgage loan application activity that was down almost 20% from last quarter.

Service charges and fees were also strong this quarter up 1.3 million reflecting strong deposit growth and continued growth in commercial credit card volume as Bruce mentioned in his comments. Switching to non-interest expense, total non-interest expense was 71.7 million this quarter, an increase of 1.8 million from the prior quarter.

M&A activity costs were 1.6 million this quarter, so excluding those costs expenses would have been flat quarter-over-quarter. Our largest expense category salary and benefits increased 2.7 million as compared to last quarter.

There were several changes in this area including cost related to our new Founders personnel, higher incentive, insurance and retirement plan costs due to quarter-over-quarter accrual changes that were somewhat offset by lower mortgage commissions.

Professional fees were up 1.1 million from last quarter as consulting other related costs to M&A activities were 1.6 million for the quarter and were minimal last quarter.

Other non-interest expenses were down 2 million over last quarter as last quarter included $1.1 million of additional write downs on partnership investments and tax credit related projects. In addition there were several smaller accruals last quarter that accounted for the bulk of the remaining difference or decrease in this line item.

For the quarter the efficiency ratio was 69.95% up from 66.29% last quarter as core operating revenues decreased 1.2 million primarily due to lower net interest income as previously noted and core operating expenses decreased 2.9 million primarily due to M&A related costs and increased salary and benefit costs compared to the prior quarter.

The effective tax rate was 23.49% this quarter down from 30.38% last quarter, primarily due to lower pretax income and the adoption of a new accounting standard which resulted in a tax benefit of 900,000 related to divesting of restricted stock awards this quarter. We believe a normalize tax rate of 30% to 31% is reasonable on a go forward basis.

To wrap up, I would add the following comments relative to our 2017 expectations going forward. First, net interest margin on a tax equivalent basis is expected to remain fairly stable, but will probably pull back a bit into the 4.10% range, as the impact from the existing purchase accounting diminishes.

Obviously, this could be offset if additional rate increases materialize later in 2017. Mortgage production is expected to be seasonably better in Q2 and Q3, although not as robust as last year as production last year benefitted from the strong refi market which as we know is virtually non-existent in today's environment.

Other fee income areas are expected to show continued improvement as we increase the penetration of products and services into our expanded customer bases. Core expenses in total should remain well controlled as we work to improve the efficiency in each of our lines of business and in particular mortgage banking.

In addition to core expenses we will also see continued professional fees for M&A activities as we work to close and integrate Citywide during the last half of 2017. With that I'll turn the call over to Andrew Townsend, our Executive Vice President and Chief Credit Officer..

Thank you, Bryan, this afternoon I'll begin my credit related remarks by discussing the changes in Heartland's non-performing loans during the first quarter. During the quarter $10 million of non-performing loans in all loan categories were resolved.

Consequently, total non-performing loans decreased modestly by 645,000 which resulted in a one basis point change from 1.2% to 1.19% of total loans.

New non-performing loans identified during the first quarter equaled $14.8 million, of which 13.9 million were originated by the Heartland member banks and 900,000 from Citizens Finance, Heartland's consumer finance company.

The new non-performing loans by loan type included 7.9 million or 56%, attributed to the commercial loan portfolio and 6 million or 44% from the retail portfolios. As there were no new non-accrual agricultural loans identified during the quarter.

Within the commercial portfolio, Heartland wide there are only 4 non-performing borrowers with loans outstanding exceeding $1 million, an aggregate of at least 4 borrowers totaled 27 million or 42% of total non-performing loans.

In retail portfolios 14.2 million or 22% of total non-performing loans are repurchased residential real-estate loans from our service loans portfolio. These loans are FHA, VA or USDA guaranteed and our loss exposure is considered minimal. When reviewing Heartland's overall loan quality metrics during the first quarter.

As the company continued to demonstrate a favorable level of total sub rated loans, those risk rated, watch or substandard. At 7.14% the non-cash credits as a percent of total loans are in a level that compares very well to most quarters over the past several years.

With respected delinquency totals there are 30 to 89 days delinquency ratio is up slightly from 37 basis points to 44 basis points from the prior quarter. Although slightly elevated this level of delinquency remains consistent and within the range of those percentages reported in the last several quarters.

Other real-estate owned did increased to 11.2 million in the first quarter compared to 9.7 million in the fourth quarter of 2016. The majority of that increase was due to one commercial property for the limited number of other additions and sales of existing real-estate assets.

In total non-performing assets as a percent of total assets decreased from 0.91% as of year-end to 0.90% as of the end of the first quarter. Based on current information it would be our exception that additional improvement should be realized during the second quarter of 2017.

As we review the allowance for loans it is noted that provision expense was 3.6 million during the first quarter, an increase of 1.4 million from the 2.2 million reported at the end of the year.

It remains noteworthy that 939 million of loans from our most recent acquisitions still reside in the purchased accounting pool, and are covered by the valuation PCI reserves. As credit decision are made on those loans in future quarters, our provision expense will be necessary to establish the associated allowance for these acquired loans.

As shown in the earnings release our coverage ratio of allowance for loan losses as a percentage of non-performing loans was 86.29% in the first quarter, up from 84.37% in the fourth quarter of 2016. The allowance for loan losses as a percentage of total loans remained relatively unchanged, increasing slightly from 1.02 to 1.03 this quarter.

Valuation reserves totaling $25.2 million are recorded for the afore mentioned loans obtained from acquisitions. Excluding those loans covered by the valuation reserves would result in allowance to loan ratio of 1.22% as of March 31st unchanged if compared to year end 2016.

In summary non-performing assets as a percent of total assets showed slight improvement during the first quarter. The total sub rated loan level as of quarter end remained solid and at a level which is significantly improved from sub rated totals during the first half of 2016.

Finally, trends for various other asset quality metrics including delinquency levels, net charge offs and total other real estate owned remained generally stable and the overall outlook for improvement in credit metrics in the second quarter is considered to be positive.

That concludes my remarks, I will turn the call back to Lynn and remain available for questions..

Thanks Drew, Erin will now open the phone lines for our analysts' questions..

Thank you, [Operator Instructions] our first question comes from Jeff Rulis with DA Davidson, please proceed with your question..

Couple of questions on the loan balances, I think the previous quarter you guys talked about some planned reductions in the commercial real estate bucket and even some de-risking out of some acquired portfolios or newer markets.

I guess -- I got the sense that that was largely completed and net-net growth would transpire I guess sooner than what's taking place.

Maybe if you could just engage with -- I understand the payoff activities a little tough to gauge, but is mid-single digit, I think you had referenced for the full year, is that still possible in the outlook for '17?.

Well I think we can probably in the quarters going forward, it might be harder to make up what we've didn’t get in the first quarter, but I think going forward if we can be in that range for the next three quarters, I think that will be pretty good..

I think the payoffs that we had typically the relatively large construction loans where, we anticipated those, unfortunately we didn't fill the bucket up to offset them. Again, we feel stronger as we talk to our member banks out in the field that there is some momentum going particularly around new customer acquisition.

I would say generally our existing customers, there's not a lot of growth going on there, so for us it’s all about new customer acquisition which is what we've been focused on really the last probably four to five months..

What were the three banks that had net run off?.

New Mexico, Centennial Bank which is in Colorado and in Rocky Mountain which is in Montana..

And then, maybe a couple questions on a cost side for -- I guess Brian touch on it a couple of times, but a couple moving pieces in there, I guess you've outlined maybe some M&A cost that are -- well I maybe I should -- first of all, is it all cost savings now that you've had the conversion of Founders, is that -- has that all been achieved?.

It has been now, but we didn’t do the conversion until mid-March, so we really didn’t get any of -- much, if any of those sales in the first quarter. So that will be a little bit of help in the second quarter. It's fairly small, but it will help..

Okay, and then if you coupled out with the work force reductions that you alluded to is that an immediate benefit in Q2, as well?.

Yes, it should be. Those were done throughout Q1, so we should get a full quarter of that benefit next quarter..

Okay, and then last piece would be, I think you cited some M&A cost this quarter, but you've got additional costs for the upcoming close of a deal, can you nip [ph] that all out, maybe the quickest way to get there, Brian is just, your comfort level on the run rate of operating expenses?.

Yes, I think the run rates -- so last quarter, as I said, last quarter I thought that -- we reported about 70 million and I thought we would stay about their ex any M&A cost. To back out those M&A costs, we would have been right back down to 70 million.

I think we should be somewhere between 70 million and 70.5 million on our run rate basis, given what I know today. So we will see..

And those M&A costs again were, what were those in the quarter?.

It was 1.6 million..

1.6, okay and the idea is that Q2 should more or less have similar levels?.

I think they should be a little bit lower in Q2, but the timing of those are sometimes a little bit tricky and we won't close the Citywide deal until right away in the third quarter. So some of those sit around the time of close and then in the time between close and conversion.

So we might get a little reprieve in the second quarter, but then third quarter will probably fairly active again, that’s what I would guess, based on what I know right now..

Okay, thanks. I’ll step back..

Hi Jeff, I might just add one thing as far as loan growth, we track on our Enact [ph] software all sales calls for our commercial and ag officers and about 42% of those calls made are on new prospects, something less than 60% would be on current customers.

So we have seen a nice improvement from a sales and sales management standpoint on getting good new prospect calls up to 40% plus of all calls made. So we think that that will start to pay some dividends and hopefully we get the loan growth back on track..

Okay, thanks for the color..

Thank you. Our next question comes from Steve Moss with FBR. Please proceed with your question..

I want to start on M&A opportunities here, you mentioned that a deep pipeline, I was just wondering has pricing -- seller's expectations have increased or have they remained made fairly stable?.

Yes Steve, you know the answer to that I think. Yes, [Multiple Speakers] thank god our stock price has been going up but, yes seller expectations have gone up and it bothers me a little bit to see the multiples.

Fortunately we have a very deep pipeline of prospects and I'll assure you we won't win every deal, we will get out-big on some of them, but if you look at Citywide, that transaction we felt was properly priced and again it helped true to the three metrics that we require which is, got to be accretive to current shareholders, earnings per share, it needs to give us a 15% IRR on reasonable or conservative estimates and we want a three year payback.

So I think we'll still be able to do deals because we do as a very deep pipeline, we just won't win every deal..

And then with regard to turning to the margins just wondering if you were to get another rate hike in June or July what could the potential benefit to the margin be?.

It depends on what deposit rates do. If we can hold again on deposit rates, we'll be getting about probably 5 or 6 basis points help on each quarter that we've moved. We still have loans that are sitting at their floor or in the money, so we've got, one, probably two turns to get fully through that.

But that’s been kind of coming off as each of these 25 basis points have come in here recently. If our betas are right and we have to move up deposit rates you will probably see something more in the 2 basis points lift from a 25 basis point increase from the Fed [ph]..

And are you assuming a 50% deposit rate or --?.

Ours are between 40% and 50%..

And then my third question here in terms of just the purchase accounting accretion -- is that four ten number for the second quarter or is that a little further on in the year?.

There is lots of variables, I like to be -- hopefully maybe a little conservative, I don’t think it's going to come all next quarter, but that number is fairly sensitive to how loans re-price on a quarterly basis out of that pool.

So whatever matures, whatever comes in for refinancing, but I think we could be a little bit better than the 4.10 [ph] this quarter and then down around 4.10 in the third quarter. Once the Citywide comes in the third quarter, than we're going to see a bunch of things change again.

So I think it's probably over the next two quarters, I would say it will come down to that 4.10 range..

Thank you. Our next question comes from Nathan Race with Piper Jaffray. Please proceed with your questions..

Want to start with due, if I could. The provision of 3.6 million, I think it was a little higher than I think some of us were looking for, and in your prepared remarks you mentioned the purchase accounting margin coming over every time credit renewals.

I was just curious how much of an impact that was this quarter? And how much of an impact wasn’t just -- the new nonaccrual loans that permitted during Q1?.

Good question Nathan. It was pretty limited, actually related to the purchase accounting this quarter.

It was a wide variety of things, there was not any one new big credit, necessarily we had one existing non-performer that we did add an additional 300,000 for and quite frankly the balance of it, a lot of it had to do with our own methodology and our allowance methodology did not change, it's consistent, it just -- there's a variety of things, both quantitative and qualitative that had some adjustments that attributed to the majority of the increase..

And so were some of the qualitative factors that increased the provision this quarter a function of what's going on the ag sector and can you just kind update us on what you're seeing within the ag space across our banks?.

You're correct, we did have 250,000, it was a qualitative factor relative to ag. With that said, again it was obviously an identification, the commodity prices are continuing to be maybe at less favorable levels.

So looking forward, I would say though in total we did not see -- we're now getting through the cycle of the majority of our ag portfolio in terms of updated financials, we've not seen a lot of additional deterioration. Quite honestly we've seen some movement in both directions, up and under the watch list.

But ag was certainly a component of it, but in the totality so far the portfolio feels like it's weathering the current cycle very well..

This I Bryan, I would just add we did have the same methodology that we've used all the quarters and as we look back it was really had to pinpoint any one particular item.

I know it looks like a big number on a percentage basis, but when you have a $50 million reserve and $4.5 billion and $5 billion loan portfolio, a $1 million move in a quarter of the provision really isn't that terribly vague..

Understood, so is it fair to expect this kind of provision run rate to persist in 2Q and up? And then 2017 do you kind of expect it to step down from here?.

I think it's probably going to be somewhere in the range of where it has been to where it was this quarter, unless we get a lot more loan growth or unless we get a surprise, it's probably going to be -- should be in that $2.5 million to $3.5 million range, give or take, maybe just a little bit. But I think that's a good normalized range..

And then can you just update us on your -- on the expected timing of the acquisition close in Colorado?.

That should close in early third quarter and then we're hoping to get the systems converted in early to mid in the fourth quarter..

Thank you. Our next question comes from Daniel Cardenas with Raymond James. Please proceed with your question..

Just a couple of housekeeping questions here, in terms of the 1.6 million in M&A expenses, was that all in the professional fees or was some of that maybe in personnel expenses?.

I think it was almost all in the professional expenses, Dan..

Good and then maybe as you look at your markets right now, it doesn't sound like you're getting a lot of pressure on deposit pricing, but maybe if you could give us some color as to what you are seeing, if there is any one market in particular, or any one region in particular that maybe starting to show signs of pressure on the deposit side?.

I would say, across our entire franchise we are not seeing pressure on the deposits. And as you can tell from our pretty robust deposit growth that was wide spread and we are not feeling it. We are anticipating potentially the next round of rate hikes, we might get a little pressure, but we haven’t felt it yet..

[Multiple Speakers] I would just add Dan that, that it's a large bank, so we compete within the metro markets certainly are not increasing deposit pricing and if we see any pressure at all which we don’t feel the pressure, but if we see it, it's generally coming from smaller community banks and credit unions..

And tends to be CVs versus non-maturity deposits?.

The only exception to that my understanding is that I think it was BMO Harris had a 18-months special out in California, but we're not following those rates up..

And then in terms of the FTE reductions there are you guys pretty much done with that right now or could we expect additional in Q2?.

If our mortgage volume grows the way we anticipate it to here in the second quarter we're done with that..

And I think there might be a few from that are at the end of the quarter in the founder's numbers that could come down in the second quarter, it won't be real big, but if it's comes down a little bit from there..

Alright. I think that's all I have for right now. I'll step back. Thanks guys..

Thank you. Our next question comes from Damon DelMonte with KBW. Please proceed with your question..

Thanks for all the color so far on the call.

Just a question on the loan service fee income this quarter and I think it was around 1.7 million, which is pretty meaningfully higher than what we've seen in previous quarters, can you just talk a little bit about that?.

Yes, the big driver on that is, with rates picking up, the amortization of the existing MSRs is slowing down and that gets netted in that number. So that's the biggest thing.

The other thing is our loan book has continued -- or our service book has continued to grow a little bit, so there is a little bit of revenue growth, but the biggest thing is refi is slowing down and therefore amortization being much less..

Okay, so based on your outlook would we kind of expect a similar level going forward?.

I would think so yes. It should be somewhere in that ballpark, unless rates were to drop and we would see refis pick-up, that would be I think the only thing that would cause us to materially go in the other direction..

Okay, great. That's going to be all that I had, again, thanks for the good color on all the questions. Thank you..

Thank you. Our next question comes from Andrew Liesch with Sandler O'Neill. Please proceed with your question. .

Just one follow-up question for me just on the service charges and fees, it sounds like and I know you guys have done a really good job with the card services and implementing those into acquired and in the new customers.

But this 9.5 million here seems pretty good, is this a good run rate to build-off for the coming quarters?.

Yes, I would say it will probably level off a little bit. Second quarter should be okay. We just saw a such a nice work in the first quarter, if we could repeat that and maybe up just little slight will be happy, but I think it should be in that ballpark..

Okay and then, just remind us the Citywide, how much did they have cards services revenue?.

Hardly -- virtually none, because they are not a -- I guess two things, they are not a retail shop as much as we are and they didn’t have the credit card products..

So this will be a new product that we'll be introduce to their client base..

Okay, very good, thank you so much..

There are no further questions at this time. I would like to turn the call back over to Mr. Fuller for closing comments..

Thank you, Darren. In closing, even though everything were a bit lighter than we had expected, margin remained very strong, and organic non-time deposit growth was solid, that combined with successful M&A activities really positioned our company for continued profitable growth.

We we'll begin the second quarter with a stronger balance sheet and our tangible common equity starting at 7.5%. To maintain and enhance our continued success management and the board have organized our key strategies around the following five pillars.

Starting at number one, accountability for sales and sales management; number two, organic and acquired growth; number three, enhanced customer experience; number four, employee engagement and last number five, operating efficiency.

And last, I want to remind our stock holders and analyst that our Annual Meeting of Shareholders will be held next month on Wednesday May 17th, 6:00 PM Central Time at the Grand River Center in Dubuque and we certainly look forward to seeing you all there. I would like to thank everyone for joining us today.

And hope you can join us again for our next quarterly conference call which will be on July 31, 2017. Have a good evening everyone..

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation..