Heartland Financial USA Inc (HTLF) 2015 Q1 法說會逐字稿

Greetings and welcome to the Heartland Financial USA, Inc. first-quarter 2015 conference call. This afternoon, Heartland distributed its first-quarter press release and hopefully you've had a chance to review the results. If there is anyone on this call who 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, 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 begin the presentation, I would like 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 the 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.

(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, Manny, and good afternoon. We certainly appreciate everyone joining us today as we discuss Heartland's performance for the first quarter of 2015.

For the next few minutes, I will touch on the highlights for the quarter and then I will turn the call over to Bryan McKeag, our EVP and CFO, who will provide additional color on Heartland's quarterly results. And then Ken Erickson, our EVP and Chief Credit Officer, will offer insights on credit-related topics.

Well, we certainly are off to a great start in 2015, reporting one of the best quarters in our 34-year history. In today's earnings release, we reported solid net income available to common shareholders of $15.5 million, more than double last year's first-quarter earnings of $6.7 million. Annualized return on average common equity for the quarter reached 13.58%, and return on average tangible common equity was 15.67%. Our tangible capital ratio improved to 6.52% for the quarter and that is the best level we've achieved on this major in several years and well within our target range of 6% to 7%.

On a per-share basis, Heartland earned $0.76 per diluted common share for the first quarter, again more than double the $0.36 per diluted common share earned in the first quarter of 2014. Book value and tangible book value per common share ended the quarter at $23.59 and $20.41, respectively. This exceptional quarter maintains the momentum we've been building over the last five quarters.

We continue to be happy with our net interest margin, which held up nicely at 3.9%. Our success in maintaining margin above many of our peers is a result of continuous pricing discipline on both sides of the balance sheet. Net interest income in dollars has also increased steadily for each of the last six quarters.

Loan growth of $367 million reflected the impact of the Community Banc-Corp acquisition, which closed in January. Organic growth leveled off for the first quarter, which is often seasonally slower. Growth in quality loans remains our number one priority and pipelines for Q2 look stronger.

Our credit quality means exceptional, with nonperforming loans to total loans holding at 0.64%, just one basis point above the previous quarter. In a few minutes, Ken Erickson will provide more detail on credit-related topics.

Now looking at the balance sheet, total assets increased during the quarter to $6.5 billion, largely attributable to the community Bancorp acquisition. Our securities portfolio now represents 25% of total assets and we continue to implement our strategy of converting cash flow from our securities portfolio into quality loans. Tax equivalent yield on our securities portfolio increased five basis points to 2.92%, while our duration shortened during the quarter from 4 years down to 3.8 years.

Now moving onto deposits, we saw $64 million in organic deposit growth for the quarter and continued to experience improved mix. Non-interest demand now represents 29% of total deposits, with 54% in savings and money market accounts and only 17% in timed deposits.

Heartland's residential real estate division, led by Paul Johnson, our President, experienced an excellent quarter, with originations of $320 million, an increase of 80% over the same quarter last year. The current purchase-to-refi ratio was 50%/50%, with the trend moving toward more purchase business. Benefiting from low interest rates, we have good momentum going into Q2 and Q3, which is traditionally the peak season for new loan originations.

Heartland's mortgage service portfolio continues to grow, reaching nearly $3.6 billion at March 31. We show $25 million of MSRs on our books, which is approximately $9 million less than our evaluation.

A key initiative for Heartland is to manage our non-interest expense as part of an overall effort to lower our efficiency ratio. To that end, we have implemented a variety of process improvement initiatives and efficiency projects which we believe will move heart Heartland's efficiency ratio down to 65% year-end 2016. For the quarter, our ratio increased slightly as a result of acquisition costs and in a few minutes, Bryan McKeag will address non-interest expenses in more detail.

Expansion of our banking franchise through both organic and acquired growth remains high priority for Heartland. On April 16, we announced a definitive agreement with Community Bancorporation of New Mexico, Inc, the parent company of Community Bank in Santa Fe, New Mexico. Purchase price is $11.5 million in cash and upon closing, either in the late third quarter or late fourth quarter, Community Bank, with $181 million in assets, will be merged into our New Mexico Bank and Trust subsidiary.

Presently, we see the possibility of announcing two more acquisitions yet this year. Building on our M&A experience, Heartland is in a great position to leverage new acquisitions and realize cost savings. Going forward, our M&A team is capable of completing two to three conversions a year.

The acquisition of experienced talent to support Heartland's growth is another major priority for us. As Heartland continues its steady growth in assets towards $10 billion and beyond, we recognize the need to add specialized talent. We're excited about the new additions to the Heartland team and expertise we bring to our business and retail clients.

Recently, we were pleased to welcome new additions to our private client and wealth management teams and they include first, Nancy Tengler, who brings 30-plus years of wealth management experience. She's also held positions as President, CEO and CIO at a number of large investment advisory firms. She is also an author and recognized public speaker on investing. Nancy joins Arizona Bank and Trust as Wealth Advisory Services Market Manager in 2014.

Second, Patrick Schaefer, also with over 30 years of experience in the financial services industry and former Wells Fargo Wealth Management Regional Manager of Investments in Fiduciary Services. Pat is an attorney and certified trust and financial advisor and he joined New Mexico Bank and Trust as Wealth Advisory Services Market Manager.

And last, Rick Terry, another 30-year veteran is a CPA and former COO of BBVA Compass Wealth Management. Rick serves all of our Heartland member banks as Private Wealth Director. These individuals join Kelly Johnson, our new EVP of Private Client Services, who is charged with leading the growth of private banking and wealth management services across the Heartland footprint.

Now looking ahead to the next several quarters, the Heartland Management team is focused on six critical priorities to sustain and grow our enterprise. And these are, starting with number one, most importantly, quality loan growth. It is still our number one priority. Number two, running a more efficient organization.

Number three, continued emphasis on developing fee income through residential real estate, treasury management, wealth management and brokerage, and card services. Number four is growth in core DDA savings and money market deposits. Number five, successful integration of accretive acquisitions. And last, number six, talent develop, leadership training, change management, and succession planning.

In concluding my comments today, I'm pleased to report that at its April meeting, the Heartland Board of Directors elected to maintain our dividend at $0.10 per common share, payable on June 5, 2015. I'll now turn the call over to Bryan McKeag for more details on our quarterly results and then Bryan will introduce Ken Erickson, who will provide commentary on the credit side.

Thanks, Lynn, and good afternoon. I'll take a few minutes to discuss the main performance drivers of our results and provide updates on key operating metrics and then attempt to summarize a very eventful quarter. I'll start with the loan portfolio.

Loans held for sale increased $35 million to end the quarter at $106 million. This increase reflects the pickup we saw in mortgage activity during the quarter. Loans held to maturity grew $367 million this quarter, ending the quarter at $4.2 billion.

Excluding the $395 million added with the Community Bank Sheboygan acquisition, loans actually declined $28 million. This is the first quarterly organic decline in loans since the first quarter of 2013 and although we have a slight decline this quarter, organic growth over the past 12 months has been very strong at $271 million, or 7.6%.

Moving to deposits. Deposits increased $498 million this quarter, ending at just under $5.3 billion. The increase was largely due to the Sheboygan acquisition, which accounted for $434 million of the increase. Excluding the acquired balances, demand deposits grew $103 million, or 8% during the quarter, with all other interest-bearing deposit categories declining $39 million in total.

On the borrowing side, other borrowings declined $35 million during the quarter as we utilized some of the proceeds of last quarter's sub debt issuance to redeem $20 million of 8.25% TRUPs at the end of the quarter. In addition, we assumed $6 million of variable rate TRUPs in the acquisition of Community and did not renew another $23 million of 4.4% FHLB advances which matured during the quarter.

Shifting to the income statement, net interest margin contracted four basis points to 3.9% for the quarter, compared to 3.94% in the prior quarter. As Lynn mentioned his comments, investment yields increased by five basis points, but were offset by a six basis point increase in interest cost and an eight basis point drop in loan yields. More importantly, net interest income continued to grow, reaching a new high of $54.9 million this quarter, up from $52 million in prior quarter.

For some more color on the decrease in loan yields and increase in interest costs, I would add first that core loan rates were up slightly for the first quarter over last quarter. However this is more than offset by decline in loans fees approximately $700,000 quarter-over-quarter, primarily due to a large one-time fee booked in the prior quarter. As a result, overall loan yields were down eight basis points.

Second, rates on deposit declined quarter-over-quarter. However, again, this was more than offset by a full quarter of borrowing costs related to the $75 million, 5.75% sub debt that we issued in mid-December 2014, resulting in a six basis point increase in overall cost of funds.

We expect to get some relief on these borrowing costs going forward from the redemption of the $20 million 8.25% TRUPs and the non-renewal of the $23 million 4.4% FHLB advances, both of which occurred relatively late in the first quarter. In addition, we have another $90 million of FHLB advances and repos maturing during the second quarter at a blended rate of 2.15%. That should also provide some additional relief, primarily in the third quarter and beyond.

Non-interest income totaling $30.7 million for the quarter was up $9.4 million compared to last quarter, with higher security and mortgage banking activity accounting for nearly all of the increase. Gain on sales securities was up $3.1 million over last quarter as we took advantage of the decline in interest rates during the quarter to sell some longer-duration securities that gains and reinvested the proceeds into shorter-duration holdings, resulting in a duration of 3.8 years for the investment portfolio, down from four years last quarter.

Gain on the sale of loans increased $6 million, or 77%, from the prior quarter, as mortgage loan application activity was up 69% quarter-over-quarter. The service loan portfolio also continued to grow, adding $80 million this quarter. Ending in the quarter just under $3.6 billion, the portfolio has grown $491 million, or 15%, over the past 12 months.

Shifting to non-interest expense, total expenses were $59.6 million, an increase of $5.7 million from the prior quarter and included $4.4 million of added costs related to the acquisition of Community Banc Sheboygan this quarter. The most significant increase was in salary and benefit expenses, which increased $5.2 million over the prior quarter. Increases in retirement plan and medical benefits accruals, higher payroll tax withholdings, higher commissions and the acquisition all contributed to the increase. In addition, $500,000 of one-time acquisition costs were booked during the quarter in this category.

Professional fees increased $1 million from the prior quarter as $800,000 of one-time acquisition costs were booked during the quarter in this category.

Other non-interest expense was down $1 million from last quarter, due primarily to the $1 million cost of tax credits that was included last quarter's expenses. All other expense categories combined were up a net of $500,000 quarter-over-quarter, primarily as result of the acquisition.

As we expected, our efficiency ratio increased a little bit by 1% to 70.95% from 69.99% last quarter, primarily due to the $1.3 million of one-time acquisition costs we booked this quarter. Excluding those one-time costs, our efficiency ratio would've improved to 69.4%.

The effective tax rate was 32.6% for the quarter and did not include any historic tax credits. That's up from last quarter's 26% rate, which did include the impact of some historical tax credits.

To wrap up, I would add the following relative to our anticipated performance of the rest of 2015. Loan growth for 2015 is expected to average around 2% per quarter for the rest of 2015. Net interest income should continue to grow as we continue to grow loans, with net interest margin expected to remain between 3.85% to 3.95%.

Gain on sale of loans next quarter would normally be expected to show a seasonal pickup. However, due to the higher activity we saw in the first quarter, we expect in gain on sale of loans to in Q2 to be similar to Q1.

Expenses will likely remain flat next quarter as the one-time acquisition related costs we booked this quarter are replaced with new salary merit increases which took effect in April and a full quarter of Community Banc Sheboygan expenses. Expenses should show some reduction after we complete the conversion and integration of Community Banc during the second quarter.

Finally, the Community Bank Santa Fe transaction we announced earlier this month is a relatively small, all-cash transaction that likely will not be converted until the fourth quarter 2015 and therefore will have very little earnings impact this year and won't have much until 2016. With that, I'll 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 rising to 0.64% of total loans. The acquisition of Community Bank and Trust included $6.1 million of nonperforming assets, of which $5.8 million were nonperforming loans. The increase was slightly more than the reductions that occurred during the quarter.

There are only four nonperforming loans within individual loan balances exceeding $1 million. In the aggregate, these four loans totaled $7.3 million, or 27% of our total nonperforming loans.

30 day to 89 day to length fees] increased to 0.42%, primarily due to the acquisition of Community Bank and trust. Other real estate owned increased by $81,000 in the first quarter to $19.1 million. Nonperforming assets as a percent of total assets was reduced from 0.73% to 0.72% due to the increase in assets.

Other real estate loans owned continues to sell at or near book value. $2.2 million in cumulitve sales of 19 other real estate properties was recorded in the forth quarter, which represented 11.6% of the other real estate owned as of December 31.

Net loss on repossessed assets, which includes the gain on, or loss upon on sale of, those assets, was $361,000. Collection, ORE and repo expense was $465,000 for the quarter. Our existing portfolio of other real estate is made up of 18 residential properties, aggregating to $2.9 million, and 57 commercial properties that aggregate to $16.2 million.

Provision expense was $1.7 million in the first quarter. $726,000 of this provision related to our consumer finance company, Citizen's Finance. The majority of the remainder was the result of modest changes in the qualitative component of our allowed methodology.

Provision expense was expected to be increase in future quarters as our loan growth begins to materialize. Net charge-offs were minimal at $1.3 million. $603,000 of this amount was taken by our consumer finance company, resulting in only $663,000 of net charge offs for the entire bank portfolio.

As shown in the earnings release, our coverage ratio of allowance per loan and lease losses as a percent of nonperforming loans and leases was 154.83%, down from 168.58% as shown at the end of December. The coverage ratio should continue to increase as nonperforming loans are reduced in future quarters and as loans currently covered by the valuation reserve migrate out of the purchase accounting pool and have an allowance established on them.

The allowance per loan on lease losses as a percent of loans and leases decreased from 1.07% to 0.99% this quarter. A valuation reserve of $17 million is recorded for those loans obtained in acquisitions. Excluding those loans would result in the ratio of 1.14%, which would compared to 1.13% for December 31.

As mentioned by both Lynn and Bryan, our loan growth occurred due to the acquisition of Community Bank and Trust. Excluding this acquisition, loans held to maturity were reduced by $28 million. Within the commercial and agricultural portfolio, new loan production resulted in $68 million of increased outstanding. 39% of the new loans production in the first quarter was in CNI and 38% was in commercial real estate, of which 55% of the CRE loans are owner occupied.

While we have been successful in moving some business from our competitors, 78% of the new money disbursed in the first quarter was for new projects or expansions. Offsetting our new loan production was over $100 million in unscheduled pay downs. $30 million were loans paid off by our competitors, twice the amount we took from them in the first quarter.

We also have $35 million that was unscheduled, but not unexpected, pay downs that resulted from some larger seasonal reductions and pay downs from customers using their excess cash. Another $10 million of the pay downs was the result of either collateral or business is being sold.

We also had $27 million in reductions of credits that have either been asked to leave or have been asked to reduce their level of indebtedness. Even though we had a slight decrease in loans excluding the acquisitions, our banks remains very positive that their annual goals are obtainable.

With that, our turn the call back to you, Lynn, and remain available for questions.

Thanks, Ken. Now we'll open the phone lines for your questions.

(Operator Instructions)

Jeff Rulis, D.A. Davidson

Thanks. Good afternoon. Bryan, just to further itemize the one-time nonrecurring merger cost, is that at $1.3 million for the quarter?

Correct.

And then, as you said, the expectation is that while those will roll off in Q2, other offsets will keep expenses flat sequentially?

Yes. I think so, at least for next quarter and then we'll have -- we should see the effect of the conversion and integration of Community after that.

Okay. Great. And then I missed the conversion of -- well, the expected conversion of the pending transaction.

Obviously, we're still got a lot of work to go, but I don't see that, that will happen anytime before the fourth quarter at the earliest.

Okay. Thanks. And then Butch, on your M&A outlook on two to three a year, if you could talk about what region, perhaps, that you are seeing more dialogue on the M&A side within your footprint. Is there any one region you are seeing more robust discussions occurring?

We've got activity across our entire footprint. I would say, Jeff, that most of what you are going to see from us over this year is going to be in footprint, but as I said in the past, if there is a very high-quality larger entity that is very strategic with high-quality management, a great earnings track record and very clean assets, that we could move to over $1 billion in total assets in a short period of time, much like we told you about moral Morrill & Janes Bank in Kansas City. We would take a look at that type of a transaction. But by far the majority of what we're looking at is in footprint. It pretty much spread across the entire footprint.

Okay. Is that -- getting granulator here, but the relative to year over year or conversations appear to be consistent, or any increase, decrease?

What you mean year over year?

In terms of, at this point last year were you engaged in more M&A discussions than what you are seeing today? Or less? Or similar?

I would say it similar. It takes a fair amount of time to be able to get the seller positioned to be able to really say, okay let's go forward. And so I would say that it's not uncommon to spend a year discussing the possibility of joining Heartland. In some cases, it could be less on a smaller transaction where the seller is really very motivated to sell and those are basically transactions where we just fold them into a current charter.

But some of these deals have gone on for years before we actually can bring them to close. As I said in the past, I tried to keep a pretty deep pipeline of somewhere close to 20 deals in some form of discussion. You just don't know until they're done which ones will come to close.

Okay, thanks. I'll step back.

Jon Arfstrom, RBC Capital Markets.

Thanks. Good afternoon, guys. A question for Ken or Butch on the pay down activity. It seems like from your loan growth guidance, maybe you are signaling that this level is more of an aberration in terms of Q1. Is that a fair way to look at it?

I would say so. We've had a fair amount of growth since April 1 and I think Lynn had in his comments that first quarter can typically be seasonal for us. We're in the Frost Belt for 60% of our assets, so construction activity and that kind of activity certainly slows down.

I think we had a lot of loans that did close in the fourth quarter last year. That might've taken a bit of the wind out of the sails for things that we're getting ready for the first quarter. I see a lot of activity in the pipeline. I've seen a lot of stuff already happen in the first couple of weeks of April. I think it looks like a one-time event off in the first quarter.

I would concur with that, Jon. Again, our loan growth can be lumpy. It's just not that even and a lot goes into it. We get some large pay downs or payoffs. We had an excellent year last year. As you recall, we had $380 million of organic loan growth last year. Some of that got built in. Didn't surprise me a lot that we were a little bit slower in the first quarter this year.

Okay, good. And just a couple more things. Maybe give us some updated thoughts on the ag portfolio. It seems it's gets relatively healthy, but maybe an idea of the demand and the puts and takes of lower commodity prices.

We're just getting to the renewal season right now. We did see that earnings were down a little bit from prior years across the row crop sector. I guess we're -- we've got a pretty healthy portfolio, so don't see a lot of significant stress in there at the current time. I don't see any real major changes in either our demand that we're having from the ag borrowers or from the credit quality through this year.

I would agree with that, Ken. Jon, our ag portfolio has been very high quality. It tends to be larger operators that are very well capitalized. Obviously, lower commodity prices are going to have some stress and it's taking a little bit of time for rentals to come down. I just don't see any major problems in that ag portfolio, even with lower commodity prices.

Okay good. And then I guess a couple more things. The mortgage number was obviously a positive surprise here. And you talked about your pipelines going forward. It looked like a pretty good mix, the 50/50 mix.

A little surprised by the magnitude of the reduction in the guidance, Bryan. Is that conservatism on your part or is there something else going on? How can you exceed what you did in Q4?

Probably is a little conservative on my part, I guess, but with the loan mark and the things that can move around, I'd get a little nervous about saying we're going to blow it past the quarter when we clearly exceeded we thought we were going to do. So far, going into April, the application volume has held up. We feel good about that. I just want to get too far out over our skis here with how sensitive the market can be to interest rates, if rates were to move a little bit, et cetera.

Okay good. And then securities gains was the other thing, I guess was a bit of a -- had an impact on the numbers. What are you thinking there?

We typically don't plan for gains and losses, although we tend to have some gains -- at least since I've been here, we've had gains every quarter. We don't have anything that we're looking at that we need to do. We did a pretty good job, I think, of really trying to pull back on the duration of the portfolio here when rates dropped this last time. And so unless we see a real unusual event, I think we're probably not going to see a lot this next quarter.

Okay, good. Alright, thanks for the help.

(Operator Instructions)

Andrew Liesch, Sandler O'Neill.

Hi, everyone. Just curious on the community deal. I think you mentioned the release about $1.5 billion non-interest income so far this quarter. How is that tracking relative to your initial expectations?

I think it's actually probably a tad bit higher, but not too far out of what we thought. One thing that did happen, I look back on what I had said last quarter. I think I said we thought it was going to be maybe $800,000, $750,000, $800,000 and then there might be some the following quarter. I think a we did a pretty good job of getting far enough along in the consolidation and integration process that we pulled all of that and I think we got most of it this quarter. I think it's pretty close to what we thought.

Okay, great. And then on the securities that were sold and then reinvested in something with lower duration, just curious; what was the yield on what you sold versus the yield on what you purchased?

I don't have that. I have some of the duration. I know that we were selling out of some longer bullet-type instruments that had a 5- to 7-year duration in the MBS portfolio. And Zack's been buying back some SBA floaters and things like that, that have much shorter duration. I don't have that in front of me. Sorry about that, Andrew.

That's all right. But the floaters, that probably positions you better for higher rates then, too, right?

That's exactly what we're trying to do. I'm should we give up some on rate to reposition into a shorter period, but again, the whole quarter security book actually had an uptick in its yield, so I think that's going to hold, at least as far as what we think we've got in the portfolio, unless rates really change again.

Got you. All right. You've covered the rest of my questions. Thank you.

Chris McGratty, KBW.

Good afternoon, everybody. Bryan, I apologize. Can you allocate the $1.3 million, I think, of one-timers in the quarter?

About $0.5 million was in the salary area, and then about $800,000 related to contract terminations, et cetera, and that hit in the professional fees area.

Okay. And then so I'm clear, the loan growth of 2%, that's in unannualized number? That would be an 8% annualized rate?

Yes.

That is helpful, thanks. On the mortgage, your gain on sale margins obviously gapped out quite a bit. Is anything unusual aside from kind of better conditions that may have led to the widening of the -- material widening in the spreads?

Not that I can put my finger on or that I've heard.

We're running about 300 -- we pretty consistently run around 300 BPs.

And the last question is on the margin, Bryan. I think you said 3.85%, 3.95%, but given the restructuring and then the deal coming through, is a fair thought upward bias to that number and then subject to the market kind of compression that we're all experiencing, subsequent to the back half of the year?

I think so. I'm always hesitant when it comes to margin, because there are so many moving pieces and you've got fees going through there, but if you -- I would characterize it the way -- I think could go up little bit this next quarter and then one thing we do have is that one of our acquisitions, M&J, some of that purchase accounting starts to wane off in the second half of the year. We may come back down a little bit because of that. It could go up a little bit then come back down. Having said that, there's a lot of things that could cause me to be wrong on that.

No, it's a guess. Thanks. I appreciate that. And my last question on the securities book.

Should we be thinking about the $1.6 billion, range given the yield environment and given the expectation for loan growth to kind of kick up in the back half of the year or should we assume some sort of moderation? I'm just curious about --

Moderation, you mean, in terms of its size, or the mark, or --

The outlook for the size of the investment book in dollars.

I think, and Lynn, you can jump in here, we're getting get to that under 25[%], so I don't think -- we'll continue to some of that cash flow to move it into the loan book as we can, but we're starting to get to a point where we're not going to force that to happen. Once we get a couple percentage points lower, we will probably stop and try to hold onto that portfolio. Once it gets to 20% or so, I don't think we're looking to drop it below that.

I would agree with that. The range that we have said in our Alco meetings is somewhere between 20% and 25%. Now, some of banks would be a bit less than 20%. Some of the way too high, yet. We have to work in terms of the charter, but we're looking Company-wide to be in that range of 20% to 25%.

Thanks a lot. I appreciate it.

(Operator Instructions)

Daniel Cardenas, Raymond James

Hey, afternoon, guys. Just a couple of quick questions, one on the housekeeping side. How should we think about your tax rate for the rest of 2015?

I think -- what I would do is, our marginal tax rate, I think, is in the high 30% range, so probably 38% or so would be our marginal rate. If you took pretax dollars from where we were this quarter, if you get more pretax dollars in your model you want to bring those in at 38%; if you get less, you would probably take 38% of that lower number. That's the way I think about it. I don't think that -- we've got -- we do have some historical tax credits that we continue to work on, but those, I never am sure when those a going to hit exactly. I think you should model that 32% off of the current number and then up and down at that marginal rate of 38%.

Good. And then a quick question on the M&A, and sorry if you've mentioned this before. When you -- in your discussion, are those -- and the companies you're having discussions with right now, would they typically be in that $500,000 to $1 billion range or are they typically smaller or larger?

Dan, they range anywhere from -- the smallest would be $100 million and they'd range up to $750 million would be a pretty good range. We can do more of those small deals, because they're in market and they're basically just folding the branch in. It's more like a branch purchase, almost. But the larger deals, we'll get up to $750 million. They take a little more work and if we're creating a new charter, of course, that is more work than if we're just merging them into one of our current charters.

Got you. Okay. Great. Thanks. That's all I have right now.

We have no further questions in our queue at this time. I would like to turn the conference back over to Management for any additional remarks.

Thanks, Manny. In closing, we're obviously very pleased with Heartland's solid financial performance for the first quarter of 2015. We're off to a great start and this excellent quarter, along with our five-quarter trend, is evidence of the commitment we've made to our master strategy of balanced profit and growth as we continue to pursue our historical goal of doubling both earnings and assets every five to seven years.

I would like to thank everyone for joining us today and hope you can join us again for our next quarterly conference call, which is going to be on July 27, 2015. Thanks again and have a good evening, everybody.

Thank you. Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time and thank you for your participation.