Heartland Financial USA, Inc.
Q2 2013 Earnings Call Transcript

Published: 30 Jul 2013

[Operator:]

Greetings, and welcome to the Heartland Financial USA Incorporated Second Quarter 2013 Conference Call. This afternoon heartland distributed its second quarter press release, and hopefully you've had a chance to review the results. If there is anyone on this call who did not receive a copy, you may access it at Heartland's website at www.htlf.com. With us today from management are Lynn Fuller, Chairman, President and Chief Executive Officer; David Horstmann, Executive Vice President and Interim Chief Financial Officer; and Ken Erickson, Executive Vice President and Chief Credit Officer. Management will provide a brief summary of the quarter and that 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 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.

[Lynn B. Fuller:]

Thank you, and good afternoon. We certainly appreciate everyone joining us this afternoon as we review Heartland's performance for the second quarter of 2013. For the next few minutes, I'll touch on the highlights for the quarter and will then turn the call over to Dave Horstmann, our EVP and Interim CFO, who will provide further detail on Heartland's quarterly financial results. Then Ken Erickson, our EVP and Chief Credit Officer, will offer insights on credit-related topics. So I'm pleased to open my remarks this afternoon with news that Heartland reported a good second quarter, with net income of $9.6 million or $0.54 per diluted common share. We were up against Heartland's best quarter ever last year, in which the company earned $14 million, or $0.77 per diluted common share. Year-to-date, net income of $22.1 million or $1.25 per diluted common share compares with $26.8 million or $1.48 per common share for the first half of 2012. Year-to-date, return on common equity was 13.19% and 14.68% on average common tangible equity. Return on average common equity for the quarter was 11.28%, which falls slightly below what we consider to be our acceptable range of 12% to 15%. Book value and tangible book value per share ended the quarter at $18.51 and $16.56, respectively. Net interest margin continues to hold up at 3.71%, albeit down slightly from the previous quarter. We do not anticipate a substantial change from this level in the near term. Nonperforming assets decreased $3.8 million, or 5% since year-end 2012, albeit up slightly from the previous quarter after several quarters of improvement. We don't believe this small increase represents a trend. In fact, we view the overall direction of nonperformers to be favorable. And in a few minutes, Ken Erickson will provide some color on our nonperformers, along with other credit administration topics. Moving on to the balance sheet. Total assets ended the quarter at $5 billion, reflecting a small increase over the previous quarter. After a $32 million decline in loan outstandings during the first quarter, we recovered all of that and more, bringing year-to-date loan growth to $11 million. Quality loan growth remains our highest priority. And as we enter the third quarter, the pipelines look strong at each of our Heartland banks. With our securities portfolio still representing 32% of total assets, our objective remains to convert cash flow from our securities portfolio into quality loans. We're devoting significant resources to the development and management of our commercial, business banking and retail sales forces. As you will recall, Heartland is a participant in the U.S. Treasury Small Business Lending Fund, and as of the 30th, qualifying loan balances continue to exceed our goal, which hold the dividend rate on our preferred shares at 1%. Moving on to deposits, we continue to see improvement in deposit mix. We're especially delighted with the growth in noninterest demand deposits, which represents 27% of total deposits and, for the first time, exceeding $1 billion. Noninterest income, year-to-date, is strong, at $51.3 million compared to $51.7 million last year. We're seeing increased revenues from service charges, trust, brokering and insurance, which offset the decline in security gains. Year-to-date loan servicing income, plus gain on sale of loans, was unchanged from the same period last year, with the increase in loan servicing offsetting the decline in gain on sale of loans. It appears the residential refinancing boom is winding down and, in anticipation of this, our Heartland Mortgage unit continues to increase its production capabilities both within and outside our current footprint. We are currently in the process of expanding our mortgage loan services into the Portland, Oregon and Seattle, Washington markets, and are excited about the possibilities of expansion in the Kansas City, Kansas market. In a moment, I will comment further on our entrance into Kansas with the acquisition of Morrill Bancshares. Year-to-date mortgage closings of $904 million exceeded production of $669 million for the first half of 2012. Despite the risk of lower margin, we see continued potential in the Mortgage business as we increase our production capabilities and shift our focus towards purchased originations. This is evidenced by our current origination mix which is 50% purchased compared to 42% for the same quarter last year. Referring to the income statement. Noninterest expense showed a year-over-year increase, largely as a result of the human resource expenses associated with 3 acquisitions and the expansion of our Heartland Mortgage unit. Expansion of our banking franchise through M&A remains a high priority for Heartland. In June, we announced a definitive agreement with Kansas-based Morrill Bancshares. Pending regulatory approval, this will be Heartland's largest acquisition to date and opens the Kansas City metro market along with a well-established presence in northeast Kansas. Morrill Bancshares is the parent company of Morrill & Janes Bank and Trust Company with assets of $751 million and 11 banking locations. After the merger, Heartland will serve 10 states, with 79 banking locations and hold assets of over $5.7 billion. Going forward, we'd like to announce at least one more acquisition yet this year. I'm pleased to report that at its July meeting, the Heartland Board of Directors elected to maintain our dividend at $0.10 per common share, payable on September 6, 2013. I'm proud to say that since Heartland's inception in 1981, our dividend has either increased or remained stable. Well, as most of you know, during the quarter, John Schmidt, our former COO and CFO, announced that he would be leaving Heartland to pursue new opportunities. We certainly wish John well in his new endeavors and note that he stays with Heartland as a Director. We're well into the recruitment process for John's successor and fortunately we have Dave Horstmann, an experienced banker, on our team as Interim CFO for Heartland. As a veteran CFO, we have every confidence in Dave to lead our team during this transition period. I'll now turn the call over to Dave for more detail on our quarterly results and then Dave will introduce Ken Erickson, who will provide commentary on credit topics. Dave?

[Douglas J. Horstmann:]

Thanks, Lynn, and good afternoon. I'll provide a quarter-over-quarter perspective to our second quarter results. Additionally, I'll update some of our key 2013 operating metrics. Beginning with the balance sheet, the investment portfolio remained constant at 32% of total assets, as Lynn indicated. As rates have risen, our investment rates have also risen to 1.95 range for reinvestment. The duration of the portfolio is 4.29 years, up slightly from 4.05 years at the end of quarter 1. Moving to the loan area. The balance of loans held for sale has remained fairly constant as mortgage loan production has remained relatively flat over the past 4 quarters and as we continue to deliver the loans more quickly than anticipated. Held-to-maturity loans increased to $42 million -- increased by $42 million quarter-over-quarter, for total year-to-date growth of $11 million. [indiscernible] has paid additional commercial loan growth during the balance of the year, to bring the total to $200 million. Total deposits were effectively flat for the quarter, decreasing by $1 million. Consistent with the first quarter, time deposits made up 22% of total deposits at quarter end, while demand deposits increased to 27% of total deposits, up from 25% at the end of the first quarter. Moving on to the income statement. The net interest margin, expressed as a percent of earning assets, declined slightly to 3.71% for the second quarter, compared with 3.77% for the first quarter in 2013. More importantly, overall margin dollars in the second quarter increased to $38.9 million from $38.7 million recorded in the first quarter of 2013. This reflects our best quarter ever and supports our opinion that margin dollars will likely continue to grow. Of course, this growth depends upon our ability to increase loan outstandings. We continue to make progress in reducing our interest cost. During the second quarter, we reduced the cost of interest-bearing liabilities by 3 basis points. Obviously, our greatest opportunity remains in our certificate of deposit portfolio, with $230 million maturing during the balance of 2013 at an average rate of 1.32%. We model an 80 to 90 basis point reduction in the cost of these maturing certificates. We continue to evaluate the appropriateness of all of our funding sources, including FHLB advances. Ken Erickson will provide information on the provision for loan and lease losses, which totaled $1.9 million in the second quarter. Noninterest income totaled $24.9 million for the second quarter, compared with $26.5 million in first quarter. Gain on sale of loans totaled $9.1 million compared with $9.6 million during the first quarter. It's important to note that as rates have risen, an increasing portion of the gross revenue of our mortgage business is derived from the capitalization of mortgage servicing rights. Capitalize mortgage servicing rights increased, as noted in the table in the press release, to $4 million as compared to $3.2 million during the first quarter 2013. When considered together, revenue from mortgage loans sales was comparable in the second quarter to the first. We remain confident that mortgage loans originated and sold in the secondary markets will likely pull $2 billion in 2013. Security gains totaled $2.1 million for the quarter. Most of the gains taken were in SBA floating rate securities, in which spreads to said funds have tightened significantly. Given the cash flow and prepayment risk inherent in these securities, we believe the spreads were too tight relative to the other options in the short term -- in the short end of the curve. We believe these sales offered us an opportunity to improve the forward risk-reward portfolio of the Securities portfolio. Market rate increases will likely limit potential gains on sale of securities going forward. In the area of noninterest expense. We saw an increase of $2 million quarter-over-quarter. The largest component of this increase was $1.1 million increase in net loss and repossessed assets, primarily due to the write-downs on a few properties. Ken Erickson will provide more detail on this item. We did see a slight increase in our efficiency ratio of 76.1% in the second quarter from 73.1% in the first quarter. The primary drivers of this increase are a reduction in noninterest income, primarily in the gains on sale of securities and the continued build-out of our mortgage origination business. Salary and benefits costs remained relatively flat quarter-over-quarter. Included in this category were commissions associated with mortgage production totaling $5 million during the second quarter, compared with $4.6 million in the first quarter. Professional fees in the second quarter saw an increase of $700,000 over the first quarter, forward comparable to the third and fourth quarters of 2012. Increase was primarily due to increased recruitment costs and legal and other consulting fees associated with acquisitions. There were no additional accrual -- there was no additional accrual related to mortgage repurchase obligations in the second quarter of 2013. Our effective tax rate in the second quarter was 27.35%. We feel it appropriate to model in the 28% to 30% range for 2013. In closing, I provide the following update relative to the anticipated performance metrics for the balance of 2013. Provision costs will be driven in large part by the anticipated $200 million growth in loans. Deposit growth remains slow, focused on demand and non-maturity deposit areas. Margin dollars will slowly increase while margin expressed as a percent of average earning assets will remain fairly constant. Gains on sale of loans will be at lower margins, with total production expected to be $2 billion in 2013. With that, I will turn it over to Ken Erickson, Executive Vice President and Chief Credit Officer.

[Kenneth J. Erickson:]

Thank you, Dave, and good afternoon. The first thing that I would like to draw attention to is the change shown in the earnings release in nonperforming loans and other real estate owned. Including those assets covered by a loss share agreement, nonperforming loans increased by $8.1 million in the second quarter, although nonperforming loans are still down year-to-date by $2.8 million. Other real estate owned and other repossessed assets are down $2.4 million for the second quarter and down $1 million year-to-date. This places our ratio of nonperforming loans at 1.45%, and our ratio of nonperforming assets at 1.52%. The increase to nonperforming loans is the result of 3 larger loans, with principal balances in aggregate of $15.2 million being placed on non-accrual in the second quarter. None of these seem to pose any significant risk of loss, but each has their unique challenge with keeping payments current. In each of these cases, we are working towards resolution. A principal reduction of $1.2 million was received on these credits in the second quarter. Further cash payments in the amount of $6.3 million is expected in the third quarter, which includes payments on all 3 of these accounts. Other real estate owned has continue to sell at or near book value. Net loss on repossessed assets was $2.5 million this quarter. While $975,000 of this is collection ORE and repo expense, the remainder was associated with property value adjustments during the quarter. Most of this was isolated to a few specific properties. Reasoning for the reductions ranged from lack of demand for a single purpose property, soil conditions in a specific land development, which increases costs of construction, and occupancy decline in 2 income properties. $5.5 million in sales were recorded in the second quarter. Of these specific sales, gains of $195,000 were recorded. Our existing portfolio is made up of 28 residential properties, aggregating 30 or $3.1 million, and 96 commercial properties that aggregate $31.7 million. Of these 96 properties, 34 are individual lots and 27 are land loans, combined, comprising $16.9 million of our other real estate owned. 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 91.74%, down from the first quarter while still above the 89.71% recorded at December 31. With reduction in nonperforming loans, this ratio will improve. The allowance to loan and lease losses, as a percent of loans and leases, was reduced from 1.35% to 1.33% this quarter. This is primarily the result of a reduction in the allowance held for those loans covered by ASC 450, as we have seen a slight improvement in the strength of our customer financial statement for 2012 as compared to the 2011 financial results. It should also be noted that a valuation reserve of $3 million is recorded for those loans obtained in acquisition. Excluding those loans from the allowance for loan and lease losses as a percent of loans and leases calculation, would result in a ratio of 1.38% for June, which would compare to 1.41% for March 31, and 1.45% for December 31. As mentioned earlier, loan growth in the second quarter was $42.5 million which recovered the reduction of loans seen in the first quarter, plus showed a minor increase year-to-date. Third quarter production is shaping up to exceed our results of the second quarter. With that, I'll turn the call back to you, Lynn, and remain available for questions.

[Lynn B. Fuller:]

Thanks, Ken. We can now open the phone lines for your questions.

[Operator:]

[Operator Instructions] Our first question is from Jeff Rulis of DA Davidson.

[Jeffrey Rulis:]

I guess a question maybe for Dave and/or Ken. Just some line item detail on the, first, the professional services and then, second, kind of OREO cost. Any thoughts on those levels going forward, expectation to tail-off or increase?

[Douglas J. Horstmann:]

I think the professional fees, as we noted, are fairly comparable to the way they were in the prior end of last year. They're a little bit down in the first quarter. But I think they're fairly consistent with our acquisition activity and should remain fairly consistent.

[Kenneth J. Erickson:]

And on the ORE expense, I commented that just under $1 million is core right now, but that will scale with the size of the ORE portfolio. So as that continues to settle down, we will see a reduction in that. It's primarily driven by the taxes on ORE and the insurance of those ORE properties.

[Jeffrey Rulis:]

Okay and I guess, Dave, just a follow-up on the professional services. I guess, the core would be ongoing M&A discussions and work, but is the component side to recruitment -- if that's expected to be ongoing?

[Douglas J. Horstmann:]

I think it should. I think it would be. We have a number of hires looking to -- we're recruiting for now, including the CFO position. I would expect that, that will continue as we have built out some of our other entities. Yes.

[Jeffrey Rulis:]

Okay. And then just a couple of housekeeping. Butch, could you repeat that tangible book number again? I think I was getting a different figure.

[Lynn B. Fuller:]

Tangible book value? It's -- book value per share end of the quarter at $18.51 and $16.56 per tangible. $16.56. Did I give you a different number? Did I misquote that? That should be right.

[Jeffrey Rulis:]

Okay, I'll double check the number I've got. And then, sorry, last one on -- I think it was Ken talking about the sort of the CD bucket. What was the size and rate of the CDs that are expected to reprice by year end?

[Kenneth J. Erickson:]

[indiscernible] CDs in...

[Douglas J. Horstmann:]

$230 million.

[Kenneth J. Erickson:]

And they're at 1 point what?

[Douglas J. Horstmann:]

1.32.

[Kenneth J. Erickson:]

And we expect a reduction of 80 bps?

[Douglas J. Horstmann:]

80 bps to 90 bps. Back on the -- back on your question. MSR -- we exclude MSR from the calculation. That's not considered intangible for purposes of our calculation. But that's why you may come up with a different number.

[Operator:]

The next question is from Jon Arfstrom of RBC Capital Markets.

[Jon G. Arfstrom:]

Maybe a question for you, Lynn. Just on the loan growth guidance, the $200 million number. It seems like, to stick with that number, you're expecting some pretty strong growth in the second half of the year. Could you maybe just update us a bit on your thoughts and where that's coming from?

[Lynn B. Fuller:]

We meet with the bank presidents and the functional heads of Heartland, at least 3x a year. That meeting took place, oh, just a couple of weeks ago. And we asked the bank presidents, once again, to give us their best number of what they think they could do as far as net new loan production for the remainder of the year, and that's the number they came up with. It sounds a bit odd given where we are at this point. But we had a reduction of $32 million in the first quarter. Second quarter started to pick up nicely, with a growth of $42 million or thereabouts. And then our pipeline for loans to be funded -- and of course, this is a gross number, but loans to be funded for July, is about $80 million. So I don't have numbers for you that show amortization and payoffs and the like. But it does appear that the banks are gaining some pretty good momentum in their pipelines. I hope that we're successful in hitting that number because that's where we expect the cash flow off of our securities portfolio to fund those loans.

[Jon G. Arfstrom:]

Okay. And I'm guessing, either for you or Dave, that's probably one of the key drivers to the relatively stable margin outlook. Is that fair? I know you've got some funding levers, but it seems like that's a pretty critical piece of it.

[Lynn B. Fuller:]

It is -- that is a critical piece and that's why good quality loan growth is our number 1 priority this year. We clearly got off to a slow start. But if you look at the industry, the industry had a slow first quarter as well. So we're not a whole lot unlike what you're seeing now. I just did see in the C&I letter that just came out that there was a big pickup in loan growth late in the second quarter, and that's what we've experienced as well.

[Jon G. Arfstrom:]

Okay. That's helpful. And then maybe just a mortgage question -- bigger picture. How do you expect the refi purchase mix to progress as the year progresses? Maybe another way to ask it is, what kind of a mix do you think you'll have as you exit of the year?

[Lynn B. Fuller:]

Well, we'd like to get it up towards or above 60% purchased business. So the talent that we're recruiting for, mortgage loan originators, are people that really focus on purchased business versus refi. So I mean, that's the goal. Obviously, time will tell whether we're capable of doing that. But we have shown nice improvement. And we're pretty solid at 50% purchase right now compared to total production. So we need to keep moving that up. I would expect the new markets that we're opening, because of the recruits that we have, those folks really do focus on purchased more than they do refi.

[Jon G. Arfstrom:]

Yes, okay. And you mentioned 3 new markets. Are there more to come? Do you think or are you close to having your full build-out completed?

[Lynn B. Fuller:]

We didn't -- I didn't mention some of the increased markets in our current footprint. But outside of our current footprint, I'm not anticipating any additional markets, other than we are down the road with Portland and Seattle, and we're optimistic about being able to put together a group in Kansas City. One of the markets we're expanding in, in our current footprint would be Milwaukee, and -- putting them on board. We have not been in Milwaukee. And northern Wisconsin, up in Green Bay, Sheboygan area, and then we're in Madison. So, and of course, Monroe and Platteville. But Milwaukee gives us access to a very good market. We've brought on some high-end mortgage LOs in that market.

[Operator:]

The next question is from Brad Milsaps with Sandler O'Neill.

[Brad J. Milsaps:]

Dave, maybe just a question on the mortgage banking expenses. I think you mentioned commissions were around $5 million in the second quarter. That's roughly a little -- maybe around 55% of the revenue, up from last quarter. What -- where would you run that number, going forward? Is it going to dip back down in the 40s or you think, kind of a 55-ish sort of percent run rate, it's kind of the area the commissions will fall out going forward?

[Douglas J. Horstmann:]

I think it'd be closer to 50% than it would to 55%. We had more closings than we had new applications in the month of June. So those closings would have generated the commissions. And as that slowed down a little bit, but I think 50% is probably a good number.

[Brad J. Milsaps:]

Okay. And you guys talked about last quarter, potentially retaining some mortgage production, particularly some jumbo loans on balance sheet, it didn't look like that you actually did that this quarter. I'm just curious what your appetite was there. And does that fit into your loan growth projections as well?

[Kenneth J. Erickson:]

The loan growth projections that Lynn gave you was on the commercial and Ag. We still forecast about $50 million of portfolio residential real estate and a lot of that in jumbos.

[Brad J. Milsaps:]

Okay. And then final question just on the Kansas City deal. I think you talked about trying to get that closed by October 31. Is that -- is your sense that's still something that's possible or you think you get pushed later into the year?

[Douglas J. Horstmann:]

No, we're very confident we'll get that done by of October 31. We're kind of targeting the middle of October. Regulatory applications are in and we don't see any issues in that arena. So we're very confident it'll get done then.

[Operator:]

The next question is from John Rowan of Sidoti & Company.

[John J. Rowan:]

Just to go back on some margins. So obviously, the guidance for stable margins for the rest of the year, there's obviously something that's offsetting the repricing of your CD's. Correct?

[Douglas J. Horstmann:]

I'm not sure you're quite -- we're going to get a reduction in the cost by the repricing CDs, and then the loan mark -- the margin on the loans would be coming down to offset that to remain stable, if that's your question?

[John J. Rowan:]

Yes, that is. Looking into 2014, what will the Morrill deal do to your margin?

[Douglas J. Horstmann:]

I'm not exactly -- I think it should improve it given the fact that they have had some good loan growth at their end. But I think, given the size of our institution relative to theirs, I'm not sure it will move it that much.

[John J. Rowan:]

Okay. And then just to go back to your origination guidance, we're talking about -- obviously, about $2 billion in origination. That's stable, if I'm not mistaken, from what you guys talked about in the last quarter conference call. It seems like you're still indicating that there's more -- that the rate of originations are going to actually increase in the back half of the year based on what you did in the first half of the year. Am I reading that right? And is that all because you're expanding to 3 new markets, you have more FTEs? I just want to understand kind of your guidance in the back half of the year a little better.

[Douglas J. Horstmann:]

I think the answer is yes and yes. That is the way to calculates, that -- to be higher in the second half than the first half, more likely in the fourth quarter as these new origination offices ramp up. So it is predicated on increased volume from new offices to go along with a fairly steady amount from the existing offices.

[John J. Rowan:]

Okay. And just while I have you on the phone, do you have what FTEs for NRM were in 2000 -- at the end of last year and what they are now?

[Douglas J. Horstmann:]

For what? I'm sorry.

[John J. Rowan:]

What the -- what the FTEs, full-time employees were at the end of last year and what they are now?

[Douglas J. Horstmann:]

Not year-over-year. We have it in the press release period-over-period. We had 1,550 employees at June 30, and 1,321 at June 30 of last year.

[John J. Rowan:]

Okay. Well do you know how many of those are in NRM?

[Douglas J. Horstmann:]

I think the growth was roughly 20, 25 to 30 of non-mortgage side. So we're roughly at 200 -- 190 to 200 increase from the National Residential Mortgage.

[Operator:]

The next question is from Michael Perito of KBW.

[Michael Perito:]

This is Mike stepping on for Chris. I just wanted to start with a couple more questions on the Morrill Bancshares deal. Are you guys anticipating having to add any lenders or any other staffing down there once the deal closes? Or are you guys pretty comfortable with the staff that you have in place?

[Lynn B. Fuller:]

Yes, I can respond to that, Mike. We're very comfortable. That -- the bank is focused, much like we are, with its primary target market being commercial. And they got a great group of commercial bankers. And so I think they got themselves very nicely staffed. Now as far as growth initiatives, certainly, that's a great market. And to the extent that we can attract more talent in that area, we probably would do that. But they've got a great staff of commercial bankers and the sailors are very capable of running that end of the business for us. So they're going to be a great partner.

[Michael Perito:]

And then also on the M&A front, once the deal closes in October, could you guys maybe give a comment about what your appetite would be to so something else? Is there going to be a period where you guys looking to just kind of digest this deal? Or is it small enough where you would consider something else immediately if it came up?

[Lynn B. Fuller:]

Yes, as I said in my comments we'd like to be able to announce one more deal this year. But that would pretty much fill us up. Now converting those banks -- we're looking at March of next year to convert Morrill Bancshares. And we do have a slot open in December. Whether we can have another deal announced and get it to convert and close by then, I can't tell you that at this point in time. But if we did one more deal this year, that would be it for this year.

[Michael Perito:]

And then just looking at some of the guidance you guys provided, the loan growth guidance, the deposit growth guidance, but also the expectation for the cash flows and the securities booked to be invested into loans, I guess the -- over the near-term, like in the next couple of quarters, how do you think about the size of the investment portfolio? Do you guys think it's going to move down or is it pretty much going to stay flat?

[Lynn B. Fuller:]

We would expect it to move down. Like I said, we got $20 million of cash flow coming out of it per month, and I'd like to see those dollars flow into loans.

[Michael Perito:]

Okay. and then just one last question for me. On the $15 million that was placed on non-accrual this quarter, do you guys have any other exposure to any of those 3 credits?

[Lynn B. Fuller:]

No, that's the totals of those 3.

[Operator:]

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

[Lynn B. Fuller:]

Thank you. And in conclusion, the second quarter of '13 represented reasonable performance, but it's highlighted by a significant acquisition announcement. While Heartland's earnings were acceptable, we see potential for better quarters ahead. We continue to see improvement in our deposit mix and the beginning of a very positive trend for loan growth. And finally, we're well-positioned and eager to pursue acquisitions that are accretive to earnings and that either meet or exceed our M&A criteria. So in short, I feel good about earnings power in the company, and continue to see excellent opportunities ahead. I'd like to thank everyone for joining us today, and hope you can join us again for our next quarterly conference call which will take place on Monday, October 28, 2013. So thanks again, and have a great evening, everyone.

[Operator:]

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.