Thank you, and good afternoon, everyone. Thank you for joining us on Heartland Financial USA's conference call to discuss first quarter 2012 results.

This afternoon, we distributed copy of the press release, and hopefully you've had a chance to review the results. If there's anyone online 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, President and Chief Executive Officer; John Schmidt, Chief Operating Officer and Chief Financial Officer; and Ken Erickson, Executive Vice President and Chief Credit Officer. The management will provide a brief summary of the quarter, and then we will open up the call to your questions.

Before we begin the presentation, I would like to remind everyone that some of the information that 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 bearing the company's hopes, beliefs and expectations or 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 can be obtained on the company's website or the SEC's website.

At this time, I would like to turn the call over to Lynn Fuller. Please go ahead.

Thank you, Scott, and good afternoon. We certainly appreciate everyone joining us this afternoon as we review Heartland's excellent performance for the first quarter of 2012.

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

Well, we're certainly off to a great start this year reporting the best quarter in our 30-year history. In today's earnings release, we reported record net income of $12.8 million, more than triple last year's first quarter earnings of $4.2 million.

Annualized return on common equity for the quarter was 17.27%. The company's exceptional performance is a result of a combination of factors, including a remarkable net interest margin of 4.23%.

On a per-share basis, Heartland earned $0.71 per diluted common share, compared to $0.18 per diluted common share for the first quarter of 2011 and $0.31 per diluted common share in the fourth quarter of last year.

Our pretax pre-provision earnings also set a quarterly record at $21.4 million, compared to $15.4 million for the first 3 months of 2011.

Net interest margin jumped by 15 basis points over the linked quarter from 4.08% to 4.23%, matching the best margin we've seen in recent years and equal to that of the second quarter in 2011. Our strong margin is a result of continued loan growth and improvement in funding costs.

We've now maintained our margin above 4% for 11 consecutive quarters.

For those of you who follow Heartland, you know that the reduction of nonperforming assets has been our #1 priority, and I'm extremely pleased to report more good news on that front as our credit quality continues to improve. Over the last 12 months, we've reduced our NPAs by over 1% from 3.14% to 2.07%.

And for the quarter, we reduced NPAs by over $12 million.

With this reduction, nonperforming loans that's exclusive of those covered under the loss-sharing agreements, now represents only 1.97% of total loans, and our allowance, as a percent of nonperforming loans, has increased to 79%.

Now turning to the balance sheet. Total assets remained unchanged at $4.3 billion.

During the quarter, portfolio loans increased by $51 million, which met our expectations for new loan growth. Year-over-year, loan growth is slightly in excess of 7%.

As I've shared with you in the past, our plan has been to move dollars out of securities and into quality loans, with securities now representing 28% of total assets, down from a high point of 32% in last year's third quarter.

In pursuit of our second highest priority, quality loan growth, we are devoting significant resources in the development and management of our commercial and retail sales forces. Our efforts are fueled in part by participation in the U.S.

Treasury Small Business Lending Fund. With the goal of approximately $92 million in qualifying net new loan growth, our progress has been very good to this point with growth approaching $20 million in qualifying loans.

Assuming we maintain this pace, we would expect to benefit from a reduced dividend rate on the preferred shares, while playing an essential role in the economic recovery of our markets through the support of small businesses and new job growth.

Now shifting to deposits. Heartland's margin continues to benefit from favorable changes in deposit mix.

Year-to-date, deposits increased by nearly $66 million, with demand deposits growing by nearly $34 million. Compared to this point last year, demand deposits are up 21% and time deposits are down 11%.

At March 31, demand deposits represented 24% of total deposits. Time deposits also represent 24%, while savings and money market deposits account for 52% of total deposits.

Well in terms of capital, our tangible capital ratio increased to just under 6%, at 5.93%. Our regulatory capital ratios of risk-based capital and Tier 1 capital continue well above required levels.

And again, I would emphasize our very shareholder-friendly equity structure. John Schmidt will provide more detail on our balance sheet and income statement in his comments.

Now I'd like to update everyone on the growth of our residential real estate operations. The continuing wave of residential refinancing activity in the first quarter, combined with the expansion of our mortgage unit, resulted in a significant increase of $7 million in gain on sale of loans over Q1 2011.

The timely expansion of our Heartland Mortgage and National Residential unit is producing exceptional noninterest income. Further expansion is envisioned as we build our teams of loan originators and support staff, both within and beyond the Heartland footprint.

In the first quarter of 2012, we originated over $290 million in mortgages and expect this number to grow as we methodically add new loan production teams throughout 2012. While refinanced activity currently represents approximately 60% of our originations, we plan to shift our mix from refinanced to purchased originations as interest rates rise and refinancing activity falls off.

Appropriately, I want to recognize the extraordinary efforts of the Heartland Mortgage team as Jeff Walton and team continue to build out our mortgage loan origination engine.

Now moving to M&A. In addition to solid organic growth, expansion of our banking franchise through mergers and acquisitions continues to be a high priority.

Opportunities are plentiful in all of our markets except New Mexico, and I would expect at least 1, if not 2 acquisitions may be announced in 2012.

In terms of how and where we invest our capital, we have prioritized only the most profitable growth opportunities within our current footprint. That being said, I would consider accretive transactions that open new and attractive geographical markets in both the Midwest and the West.

Well our consumer finance subsidiary, Citizens Finance Co., continued at an impressive pace in the first quarter, with net earnings of $907,000. At the same time, Citizens' delinquency rate has declined to 3%, its lowest ever.

Citizens currently operates from 10 locations in the Midwest, with an 11th office planned for opening soon in Elgin, Illinois and plans for a 12th office later this year.

In concluding my comments today, I'm pleased to report that at its April Board Meeting, the Heartland Board of Directors elected to maintain our dividend at $0.10 per common share payable on June 8, 2012.

I'll now turn the call over to John Schmidt for more detail on our quarterly results, and John will then introduce Ken Erickson, who will provide commentary on the credit side. John?

Thanks, Lynn, and good afternoon. In my remarks today, I'll look to add additional depth to the press release relative to the first quarter results.

Additionally, I'll provide estimates on some key operating metrics for the second quarter and remainder of the year.

To reiterate Lynn's comments, we are very pleased with the quarter results as we showed improvement in almost every key operating component.

Let me start with the balance sheet. In previous calls, we discussed our strategy of moving out of investments into loans.

Obviously this quarter, we effectuated the strategy very well. During the quarter, investments decreased by $105 million with the dollars moving equally into loans held for sale and held to maturity.

Decrease in the portfolio provided an opportunity to sell out some lower yielding securities. As a reference point, the portfolio's duration currently sits at 4.16 years.

Relative to the loan side, as Lynn mentioned, we were very pleased with the growth in both loan categories. Loans held for sale grew $50 million during the quarter, and we would expect the average balance to continue near the current $100 million for the rest of the year.

The held to maturity loan growth of $51 million exceeded my forecast, but certainly moved my estimates to the $200 million level, Lynn emphasized last quarter. Regarding deposits, I won't add any additional color to Lynn's comments, other than to say that the continuing improvement in mix certainly contributed to our reduced cost of funds and, in turn, they expanded margin, which I'll discuss later in my comments.

Other borrowings reflected a $4.5 million increase during the quarter. Activity during the quarter included the payoff of a $5 million trust preferred security with a coupon of 10.6%.

Consistent with the payoff, we expanded our private placement of senior notes by $10 million. At the same time, we stressed our maturities with the $6 million -- with the final $6 million tranche coming due in 2019.

The entire $37.5 million of this debt bears a coupon of 5%.

One, improved investment portfolio performance. Consistent with the sales I mentioned earlier, the yield on the investment portfolio improved quarter-over-quarter.

Loans held for sale, which reflects the -- primarily reflects the mortgage pipeline, nearly doubled from the previous quarter. Given the current rate environment, the additional $50 million in outstandings added approximately 375 basis points of margin.

Combination of $12.5 million of increased loan outstandings over my estimate of $37.5 million and reduced nonperforming assets of $12 million also added to this outperformance. Finally, we are able to reduce our funding costs faster than anticipated with a 9-basis point reduction quarter-over-quarter.

Going forward, we see potential for decreased returns in the investment portfolio. As I mentioned earlier, we see the average balance of loans held for sale continually near the $100 million level for the remainder of the year.

I also mentioned that we would expect loans to grow by a total of $200 million for 2012. We would anticipate much of this growth to be funded out of the investment portfolio, which will certainly help to mitigate the negative impact of the investment portfolio cash flow.

At the same time, we are experiencing pricing pressure on existing credit, which will likely increase throughout the remainder of the year.

Finally, relative to our cost of funds, while we feel that we are approaching an effective floor on our non-maturity deposits, we currently have $275 million of CDs maturing in the next 9 months with an average rate of 1.45%. Included in this total are $130 million of CDs maturing in the next 3 months at an average rate of 1.46%.

In each case, we would expect a 50- to 60-basis point reduction in our costs.

While we are cognizant that our CD portfolio needs to remain a reasonable part of our funding structure, most of our attention remains focused on growing demand and savings deposits. With that said, I would anticipate that our margin would decrease from the current level.

However, I'm confident that we can hold the margin above 4% for the quarter and quite possibly for the remainder of the year.

Finally, our modeling would suggest our balance sheet is very well structured for an increasing rates scenario with a 2% margin decrease in year 1 and no impact in year 2, assuming a 200-basis point rate shock.

Relative to noninterest income. Noninterest income totaled $23 million for the first quarter.

Excluding security gains, noninterest income increased $4.6 million quarter-over-quarter. As with last quarter, gains and sale loans was the large contributors to the improvement, representing a $3 million increase.

Relative to the gains in sale loans, generally refinancing activity was the largest driver for this quarter's activity, representing 60% of the total. Going forward, we would expect second quarter activity to effectively mirror Q1 results.

Of the production in the quarter, 70% was done on the servicing routine basis. We would expect at least a similar percentage in the second quarter, with our mortgage servicing rights amortization trending down from the $1.7 million recorded during the quarter.

In addition to the $3.9 million of security gains recorded this quarter, we also recorded a $980,000 other than temporary impairment write-down on 3 securities in our bond portfolio, the charge related to a decline in the credit quality of these securities. However, we do not anticipate any further declines on these securities or any other securities within the portfolio due to credit quality, but we'll continue to review this quarterly.

Based on our analysis, we believe it is prudent to continue to hold these securities as the economic value exceeds the market value.

Finally, in this area, other noninterest income reflected a $2.4 million increase quarter-over-quarter. Most significant in this was a $2 million gain on the sale of 2 low income, senior housing projects we developed over 15 years ago.

Focusing on noninterest expense. While the total noninterest expense was flat quarter-over-quarter, we continue to see increases in compensation costs primarily associated with the mortgage activity and expansion.

Contained in this total is $3.2 million of commissions associated with mortgage production. This figure includes $900,000 of sign-on bonuses associated with new mortgage loan originators coming into the organization.

This compares to $2.3 million in Q4 2011, with $676,000 representing sign-on costs. Also included in this quarter's total is $759,000 of additional stock-related compensation expense, in comparison with the $349,000 recognized in the previews quarter.

We would anticipate this expense to approximately $430,000 per quarter throughout the rest of 2012.

The expense is higher in the grant quarter due to the required acceleration of expense for those meeting age and service requirements.

Net loss on repossessed assets decreased by $1.4 million as compared to the fourth quarter of 2011, but still impacted noninterest expense by $2.9 million. As we previously discussed, we were -- we are very diligent about assessing our impaired assets each quarter.

Contained in other expenses is an accrual of $300,000 associated with potential mortgage buyback risk. We continue to thoroughly assess those risks each quarter.

Also included in the other expenses is a $302,000 charge associated with early payoff of the previously mentioned trust preferred security. Given the current level of earnings, we feel the effective tax rate will be in the 30% to 32% range.

One, we'll receive reduced investment portfolio returns; two, we'll see loan growth in 2012 certainly in the neighborhood of the $200 million range; three, provision costs continuing to moderate relative to 2011; four, deposit grow somewhat slower than 2011, but focused in the demand and now maturity deposit areas; five, the margin continued above 4%; six, gains of sale loans continuing at the same level as the Q1 total; and seven, the overhead to remain in the same relative range.

With that, I'll turn it over to Ken Erickson, our Executive Vice President and Chief Credit Officer.

Thank you, John, and good afternoon. It is my pleasure to report continued reduction to nonperforming assets and improvements in the credit quality at Heartland.

I will begin by discussing the change in nonperforming loans in the first quarter.

As already mentioned, Heartland experienced a $7.7 million reduction in nonperforming loans in the first quarter, including those loans under loss share agreement. New credits added to nonperforming totaled $3.4 million.

We reduced our nonperforming loans by $11.2 million, of which $8.8 million went to other real estate owned through foreclosures or deed in lieu transactions. I'm pleased to refer to the table within the press release that reconciles the changes in nonperforming assets for the quarter.

As stated in our earnings release, $26.6 million of the $49.9 million of nonperforming loan, excluding those covered by loss share agreement, resides in 13 credits where individual exposures are greater than $1 million. The release details the markets that originated these credits.

In comparison, we had 25 credits greater than $1 million, representing $53 million in nonperforming loans at March 31, 2011. The industries for these credits are also detailed within the release.

The largest concentration within this nonperforming is in lot and land development, which represents 31.5% of the $26.6 million. $2.4 million of our nonperforming loans are covered by government guarantees through World Development, FDA or FSA.

And on March 31, we had a total of $31.2 million in TDRs, of which $21.4 million were accruing performing loans.

Next I'll comment on charge-offs and provision expense. In the first quarter, Heartland reported net recoveries in the amount of $200,000 and recorded a provision expense of $2.4 million.

The allowance, as a percent of loans, increased from 1.48% to 1.55%. The slight increase is the result of an additional $1 million in reserves associated with impaired loans and an increase in some of our qualitative factors associated with the recent increase in loan volume.

The reduction in the allowance, as compared to March 31, 2011, is due to the reduction of loans considered impaired and the specific reserves associated with those accounts. The coverage ratio, which measures the allowance to nonperforming loan, increased from 64% to 79%.

We anticipate the coverage ratio will continue to increase as nonperforming loans continue to be reduced.

Delinquencies in the 30- to 89-day range increased slightly in the first quarter, but $6.6 million or nearly half of the 0.55% delinquency is related to 2 borrowers whose renewals did not occur before the account went 30-days past due, but delay in renewals was not related to credit quality issues.

Regarding expected resolution of the nonperforming loans, I can state that our collection efforts in the second quarter of this year are expected to result in a further reduction of $10.3 million of the nonperforming loans recorded as of March 31. Of this amount, $5.3 million is expected to move to other real estate and $5 million to be paid down or restored to accrual status.

Relative to other real estate, including those assets covered under loss share agreement, as shown in the table inserted in the press release, other real estate decreased by $5.5 million in the first quarter. Total owned residential real estate, including all properties intended to be used as 1-4 family residences, is $5.7 million; while owned commercial or agricultural real estate is $33.2 million.

Included in the $33.2 million is $18.7 million of various lots, land and land development.

During the first quarter, $8.7 million was moved into other real estate. Sales resulted in $12.1 million, while OREO write-downs were recorded in the amount of $2.1 million.

Since the end of the first quarter, $6.3 million of other real estate owned has already been sold or contracted for sale, as most of those sales expected to close in the second quarter. This includes $2.9 million or 15.5% of the lot and land inventory.

Regarding portfolio of diversification, we remain well diversified, with $1.8 million or 71% of our loans, are either fully or partially secured by real estate. Of the $885 million in loans categorized as nonfarm nonresidential, 59% or $518 million is owner-occupied.

In review of the $368 million commercial real estate non-owner occupied portfolio at March 31 shows that $7.8 million or 2.1% of that portfolio is classified as nonperforming. These loans carry an impairment reserve of $46,000.

Our exposure to nonowner-occupied properties increased by $21 million in the past quarter. We have a total of $109 million in construction land and land development loan.

$12.2 million or 11.2% of this portfolio segment is on nonaccrual. This is a reduction from $15.6 million at December 31.

Consistent with our allowance and impairment methodology, the majority of the expected losses on these loans has already been recorded by a charge to the allowance, which results in only $240,000 in specific reserves associated with these accounts at March 31. Our exposure in construction land and land development loans was reduced by $7 million from December 31.

My final comments will be directed at the retail portfolio. Our retail portfolio continues to perform quite well.

Foreclosures on 7 residential properties for $366,000 were completed in the first quarter. 27 foreclosures on $2.5 million of loans are currently in process.

Historically, several of these get resolved prior to final action.

Citizens Finance, our consumer finance company, performed well in the first quarter. Net loan outstandings are $62 million, an increase of $2.6 million since the end of the year.

Annualized net charge-offs year-to-date are 2.12%. And delinquencies were 3.01% at March 31, down from 3.79% at December 31.

In conclusion, I continue to be optimistic regarding the positive trends we are seeing in the portfolio. Our nonperforming loans continue to decline since their peak at December 31, 2010.

As mentioned earlier, we expect a further reduction in nonperforming loans in the second quarter as we gain control of our assets and move them to other real estate.

Our 30- to 89-day delinquency does not indicate any significant problem loans with payment difficulty. The sale of $12 million in other real estate owned gives me confidence that buyers are reentering the market.

To help facilitate the sale of and exposure to our other real estate, we have created an OREO website. It is linked to each of our bank's website or can be directly accessed at a www.htlfproperties.com.

Loans held for sale continue to grow as our mortgage production platform continues to expand. Loans held to maturity have also seen consistent growth over the past 3 quarters, with growth of $181 million since June 30.

The growth was primarily driven by the growth in commercial and commercial real estate, which comprised over 73% of the increase. Pipelines remain strong, which should result in further growth in the second quarter.

I do not expect that recoveries will exceed charge-offs on a go-forward basis, and I do not expect that will be void of any new nonperforming loan. But without a fallback in the economy, 2012 should show significant asset quality improvement over the prior year.

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

Thank you, Ken. I will open the phone lines for your questions.

A question for you on loan growth. Is there any theme or any story there, I know last quarter.

Lynn, you said you'd be disappointed with the low-end of guidance, and I guess you got your wish, but is there any story or any big reasons for that growth?

Well, I guess my opinion -- like ken talked about, but my opinion is that when we saw fourth quarter growth of about $100 million, and I saw our pipelines continue to build, producing somewhere north of $50 million growth, I just felt, with the pipelines developing, that we were going to see a little better loan growth than what we were anticipating. I know John's been careful not to be too aggressive on giving you guidance on loan growth.

I guess I tended to be a little more optimistic. I don't know if got anything to add to that, Ken.

Right. I think we've commented in an earlier call that we have made an effort to free up our real rainmakers out there, make sure that they are focused on growth and calling on the customers, better target marketing and better time on their part.

So a lot of good efforts on all of their parts.

Yes. My comment was we're spending a lot of time and effort in improving our sales process on both the commercial and the retail platforms.

And I'd echo what Ken said. I think we're becoming much more efficient at the front end, the prospecting credits that fit our front-end guidance.

We're a lot more discipline on giving front-end guidance for the types of credits that we want to pursue. Again, we're freeing up our very best salespeople to get them on the street.

And everybody knows that if we don't convert securities into quality loans that we're going to suffer a reduced margin. So it's a very high priority.

It's #2 on our priority list, and I think everybody's pulling the same direction.

And John, you commented on this in your prepared comments, but can all of you just give us some thoughts on pricing, how competitive is it? Something we should be overly concerned about?

I think that Ken, probably sees it more than -- even more we do, but I think that we see ramp in it. It's not ramping at this point.

Where we do see a ramping up as far as the pressure, and it's coming probably in the some of our larger markets, some of those more proximate to, say, Chicago. But I think some that of the deals we're hearing are LIBOR plus 200, in that range.

And again that's not pervasive, but we continue to hear more of it coming down the pipe.

We, for a long time, sold not on price but on value. And that's something we continue to reinforce, that if we can't demonstrate to our clients that we can make a quantifiable, meaningful improvement in what they currently have that we don't deserve to have the business.

So we're not going to give the product away. We can get reasonable returns still in the investment portfolio, albeit much less than we have historically.

And it just doesn't make any sense to us to be -- to give loans away, taking both interest rate risk along with credit risk. And there's just some business we won't do.

If it's going to be priced that tight, and somebody's just focused only on rate, then maybe it needs to go somewhere else.

And I would echo that on some of the very largest transactions we have seen and have been price down, as John mentioned, but the majority of what we see on solid credits, which are the size that's our bread and butter, it's usually LIBOR plus 300 or 350 and we're a relationship bank where we're seeing the entire transaction relationship come in versus the transactions, so...

The only thing I'd add to that is an awful lot of our clients are still priced up fine. And we are still able to get prime plus on a fair number of our credits.

And a fair amount of floors. I know the floors do get do get pushed down a little bit on an annual renewal, but we still have floors on a number of our credits.

Which I think must just add to that, [indiscernible] explains why we have upper rate environment and that for sure, we have a light depreciation of the margin as well model 200 basis points up. Once we burned through those floors, we really don't see much exposure to margin.

If any.

Just curious, you mentioned the favorable pricing on the mortgage loans sold, and what was the gross margin? And then maybe if you can give us your thoughts on how much is related to market factors versus systems that you have in place.

The overall gross we're looking at certainly is -- it's probably in the neighborhood -- when you look at the without MSR, with MSR, Stephen -- maybe the question.

I'm sorry?

Well, yes. You're looking -- just the…

The gross number?

The gross number on origination.

Yes.

It be probably in excess of 250 right now, still MSR.

And do you think is -- I guess I'm trying to get a sense of -- there seems to be some very favorable pricing out there right now in the mortgage market. How much do you think you're getting that spread that you're getting?

Do you think it is related?

Just related to volume coming through, you mean in some of the issues just a heavy refinance -- refinancing activity is certainly enhancing our margin in the current marketplace. Is that a quarter?

It probably is, somewhere in that neighborhood. Is that in fact your question?

I think -- there's a lot of volume going to the pipeline, which we've seen some of the ability to enhance our pricing as a result.

I would add, though, our goal, longer-term and if you look back in time at our legacy banks, we were not picking up this much margin. And just part of the sales process that we weren't doing as good a job of getting the margin we get today.

Our goal is still to work up towards 300 basis points on a gross That's our goal. We're not there, but that's our goal.

Depending on the type of production. And I got to price them more accurate.

We're probably right up on 275 right now.

Okay, fair. That's helpful.

The security assets were down -- looking further out, I guess what kind of ratio are you comfortable withdrawing that down, to?

Also as an organization, we peg about 20%, Stephen, from our overall asset base and investments.

And bank by bank. Some banks may go as low as 15%.

We don't like them to get the low 15% securities to total assets.

Then maybe in response to that, surely that's one benchmark. But we do spend a lot of time looking at the overall liquidity profile of the banks and then the company as a whole, continuing to put some additional metrics in place and also some stress-testing and liquidity buyback, as I said that investment portfolio 20% that we've spoken to is just one additional benchmark of how we monitor liquidity on a bank-by-bank basis.

Got it. And Lynn, you mentioned acquisitions.

So what gives you confidence that some of those banks that you're talking with are going to pull the trigger sometime in the near future?

Well, our pipeline of M&A prospects is as deep as I've ever seen it. And the thing that gives me confidence that in markets that we're already in, we will have anywhere from 2 to 3 prospects that we're talking with.

At the same time if one doesn't take our pricing, which will be accretive to our earnings, we can quickly go to the next. And that's the position we want to be in, whether you're lending money or whether you're looking for partners.

You want to have a deepened up pipeline so that you don't have to take a deal, that doesn't make sense.

And maybe from their point of view, what do you think is going to drive their decision? And I suppose it's different from bank to bank, nut maybe kind of general overall theme.

It is different from bank to bank, but one of the things that we see is that some of the smaller banks are just getting tired. It's been a long haul through this recession.

Some of the banks have aged management and don't have a great succession plan in place. Some of the banks' shareholder base is at a point where they need to get the liquidity.

And what we preach is why not pick up that bank stock that's trading as cheaply as ours relative to our earnings capability. And ride the stock up versus taking somebody's currency that's already trading at a having multiple to current market and write it down.

So we're finding interest in deals that are anywhere from hard cash to all stock or a mix of both. And then, of course, you've got branch acquisitions.

Where banks that are troubled are trying to dispose of branches that fit into our footprint .

Lynn, just a question on acquisitions again. What type of size are you guys thinking in terms of doing multiple at the same time?

What are the size of assets you kind of ballpark you're looking it.

The largest ones that are in our current pipeline right now would be about $400 million. That's the largest.

And they worked their way down to, in some cases it's just a branch acquisition, it might be even a bit less than $100 million, if it's just a few branches.

Okay. And then can you just remind me kind of where you're comfortable running, obviously the earnings improved significantly this quarter.

Where are you guys comfortable running tangible common?

Well, we'd like to get that 6% level. We told you in the past it's been -- our range is 5% to 6%.

We'd like to keep it up towards the 6%, and over time work it may be up between 6% and 7%. At present, as well as we can remain around that 6% range, comfortable at that.

So certainly that's, Chris, that that's impact overall consideration. We look at, if it's a larger deal, one refers to around not just structured in such a way that the equity portion is a relatively significant portion such that we don't see too much impact on that overall 6% goal.

It is not to say that we won't come off that a little bit relative to an acquisition, but always building towards that 6% goal always in mind too, that we're going to have an accretive our soon to be accretive transaction as we go through it.

Just one a question on the credit -- with the growth, the score you built to the -- you built reserve ratio. But the outline -- outlook for credit looks sound pretty good.

How should I think just about the reserve levels as a percent and relative to kind of charge-offs? Will you draw down a bit going forward?

Not until we see significant changes in credit quality. I think you heard me say that we increased some qualitative factors as it went with new loan growth.

Just looking at the new loan volume coming on, we increased a couple of basis points in that end of the cycle. We do have still, I think, it's 3.5% to 4% of our total loans are impaired with a specific reserve.

That continues to come down on a quarterly basis. But I'd mentioned that the majority of the reduction year-over-year of the allowance came with about 30 basis points coming out of the allowance that was formally impaired loans that are now gone.

So as we see credit quality improve, there'll be a slight reduction in the allowance percentage as we go long term. Will that happen in 2012?

It's hard to say. We haven't gotten a whole lot of year end financials in yet to look at the changes in credit quality of companies year-over-year.

Charge-offs, I expect them to be significantly less than they've been in the previous few years, but I don't expect them to be nonexistent like they were in this first quarter.

Yes. Just to add to that we take such a granular approach to the overall allowance and the building on the allowance.

As Ken points out we need to see the overall financials come in and then we will weigh the FAS [indiscernible] component on that. The impairment is assessed very diligently each quarter and then the overall qualitative factors build into it as well.

So I mean, I don't see any -- certainly, we're not doing it arbitrarily, and it's going to be driven by ultimately performance in the quality of credit as it should. And then ultimately the driver of that is the improvement of the overall economy.

All right. Last one John, the $2 million low income gain, there's nothing to suggest that would recur right?

Nothing on the horizon right now.

Just one really quick question. Lynn, you referenced that your regulatory ratios remained well in excess of what you need to have obviously.

I was just wondering with the swap down securities into assets, whether or not that means any meaningful difference in the ratios as of the end of the last year.

We were so far above the required levels that I'm sure it came down a bit, but I mean, again, we were in some cases, double the required levels, as I've shared with you in the past. So there may be some reduction, but I mean again our margins, they're unbelievable.

A couple of questions. One, following up on the last question is risk-weighted assets, what were this quarter?

I mean if you don't have it, it's okay, I can...

Jeff, we don't have it in and that risk-weighted assets are driven by roll-off of the call reports and we're just about ready to put a final touch on those, but they aren't quite there yet.

Okay, that's fine. I'll get it when it comes out.

The bonds, the 2 or 3 bonds that were impaired for $900,000, what were they? And anything else like that in the portfolio?

And then just -- go ahead.

These are -- I'm sorry, Jeff. Didn't mean to interrupt you.

And then just a follow-on question was, do you still have to believe 7 Z tranche positions at the parent level?

Yes, so if you look at the 3 bonds that were impaired, they were all private label, CMOs which were purchased 3 years ago plus the overall return on those securities even concerning this write-down would be still double digit. As I tend to indicate in my comments, we're still looking to hold these securities despite the write-down.

We still think there's value in those securities. So we've been monitoring them for a while and the more we assess it about the appropriate time to take it.

And, yes, John, excuse me for interrupting, you may have said on the your comments, and I just missed it. How much of the 3 securities are?

In aggregate?

Yes.

I want to say it's -- Jeff just give me an estimate. I think about $7 million would fairly close, if not a little bit less than that.

That's fine. And then how big is the private label book?

Still about $100 million trending down. Again, we -- this has been a one off of those 3 securities.

We feel very confident in that overall portfolio. They're all very well seasoned at this point, obviously, very well structured, and we just saw some erosion of some of the support tranches, which requires us to move in.

And this was fairly significant move this quarter is why we saw it. We've actually seen some enhancement in some -- in the performance some of the other private label performances relative to the burn through of the support tranches.

The -- your other question was to the Z tranches and those still -- we have not sold anymore of those.

And still the 7 at the parent?

There are.

Yes. okay.

And then maybe, Lynn, I don't know if it's for you or Ken, well, or for you John. Just comment -- press is full of reports on farmland maybe overheating in terms of what people are paying for and presumably what someone is lending against it -- might pencil in the Federal Government first.

And I believe the Kansas City Fed had put out maybe similar comments if you guys could just comment on what you see in the X sector and how you're approaching lending there?

In our forward guidance process that we meet quarterly and go over economic indicators and look for bubbles being created, we've identified over the last probably 18 months that there's been a bubble forming in land values and commodity prices. And we do see the government coming in and lending much more heavily on farmland acquisitions than we would pull in the lend.

We'll run it anywhere in our areas 6,000 to 8,000 per acre unproductive land and we pretty much tapped out 3,000 an acre. We're just not going to follow that pricing up.

So I think I said it before that if we have had the same discipline on commercial real estate and development property out west as we've had on ag credits throughout the last 25 years that we've been lending into that sector, we wouldn't of have that losses that we incurred over the last 3 to 4 quarters.

And I'll echo that we've said for a long, long time in that ag market that we will loan what we consider to be the productive value of that property, not what the current market value may be because you still have to be able to turn a dime and make the payment. So I had a meeting just earlier just last week with a few people including the head of our ag department, trying to make sure that we still understood what we viewed to be productive value and Lynn mentioned roughly $3,000.

And that's about our upper limit on good productive property.

Well, the larger farm credits that we financed that are properly capitalized, understand that too much leverage in that business is not a good thing for sustainability. And we shock our credits for lower commodity prices whether it be milk, corn, beans, et cetera.

And we try to make sure that we are not lending into those clients anymore than what they can stand at shocking commodity prices down to pretty low levels. And the good guys get that.

The guys that want to over lever they've got to go somewhere else.

Has much property changed hands in effect as a lot of new leverage coming in system because a lot of land has changed hands or is it few transactions but prices are up and therefore, broad generalization is being made that everyone's levered?

Well, I know from reading some data in the states of Iowa, Illinois and Wisconsin that something like 80% of the farm sales are sales to neighboring farmers. And in many cases, these are ag operations that have grown through generations and have become sizable.

And so their basis in their current landholdings is quite low. That's where most of the sales are occurring.

Now there are some people speculating as always, but those are not people that we're lending money to, generally

Okay. One and the last question last question shifting gears, can you Arizona's numbers are getting better.

How's the Phoenix market feel and et cetera?

I just read an article today on that housing is picking up down there. You're starting to see new development there.

Foreclosures are much reduced from last year. And housing prices have stabilized, and they're starting to come up a little bit.

So still very good affordability index on housing in the Phoenix area, but that's seen about as good a turnaround as anything.

Most of my questions have been answered. Just have a couple.

In terms of your loan growth outlook for 2012, can you maybe give us a little bit of flavor as to in terms of geography where you expect to see that growth coming from in your footprint and then what role, if any, do participations play in it?

Are you talking about participation from non-Heartland banks or participations between our sister banks?

Let's start with the non-Heartland banks.

Very, very little. We just want see a lot of participation from non-heartlands banks.

We do significant participations across the sister banks, but I'd say the production of loans is pretty broad-based. We're seeing good production out of the Midwest with the exception of slow down a little bit in the Rockford area, but they had some reasonable production in the latter part of 2011.

Minnesota's showing some good improvement in production. We are seeing pretty good production in Arizona.

Denver's still a bit slow and New Mexico is a bit slow. I would say that between John, or maybe Ken, I think the slowest markets that I see would be Denver and New Mexico at this point.

New Mexico historically has been a good producer, but they came in to the recession late and they're a little slower coming out of it.

And relative to participation, I think one of the biggest growths at least several percentages have shown is Galena State Bank. But a lot of that would actually represents participations between Heartland banks.

And I'm looking at our current pipeline of just loans to be funded and have been committed by us and committed by the customer. And this includes the participation these banks would pick up.

So it's not completely driven by the market that's originating it. But where we sit at the end of the quarter, 35% of it is coming from DB&T.

These are just loans ready be booked now, 30% of it is Wisconsin, 10% of it is Arizona and then Albuquerque market is a little over 10%. So those are the strongest markets right now that we have.

Okay, great. And then just kind of shifting gears going back to your M&A strategy, can you talk a little bit about solar expectations?

Are they beginning to kind of come more in line with what you’re thinking?

Well the ones we're talking to are, to a great extent, and I'm not suggesting will be successful on all of the prospects we have in the pipeline. As I said before I'm glad that we've got 2 or 3 deep in each of the markets because if we can't come to an agreement on what is accretive transaction at Heartland, we'll have to pass and go to the next deal.

But I think what I recognized is people are becoming more realistic.

Okay. And that -- so you could, the accretion you're talking about, is that year 1 or quarter 1, or what's your timing on it?

Well, we like it to be accretive in the first year, but if not in the first year, absolutely needs to be accretive in the second year.

And obviously, the other component we look at, or at least one of the other components we look just is the internal rate of return, Dan. And right now most of the transactions we're modeling are certainly in excess of 15%.

Sorry to belabor the call, but I did want to touch on one thing. How much more production have you added to the mortgage company in the last quarter?

And how much more do you plan to add in terms of the producers or, however, you choose to measure it?

I wonder if it would be easier just to say, what we're projecting as far as production for the year. I mean, we had $290 million in production first quarter, and we are looking at $1.5 billion or thereabouts for the year.

And assuming that will continue the ramp up. I have a suggestion, Jon, that we would be potentially quadruple what we have done in Q1 and there would be some potential ramp-up so we get that done potentially go to $1.5 billion.

So how many producers have we added? By the estimate, probably about 40 or so, a reasonable estimate.

And then of that $1.5 billion, which do you think is refinanced versus purchased volume?

50% has been refi, but as the refi boom burns off, we're hiring people that are more focused on purchase transactions. And so we clearly want to move our mix away from refi to purchase to take out some of the swings in the cycles.

Yes, okay. And then this may be bigger picture, I was looking at some of your older numbers on mortgage.

And we didn't have big refi booms maybe $0.5 million to $1.5 million in revenue a quarter. But obviously if you just look at the purchase volume this quarter and say "You can even just take off refinance and you're probably at $3 million to $4 million."

And that sounds like that pace is going to grow, and I guess the bigger picture, what do you expect from the mortgage company? How big do you expect it to get in terms of percentage of revenue, just to kind of give us an idea of what's possible here?

Again, we're still probably early on in this, John in some respects, but I think the numbers we have generally spoken to will be, say, $1.3 billion to $1.5 billion this year potentially another $0.5 billion the following year and potentially another 0.5 billion the following year. If we hit all our numbers.

I mean, that's what we would generally try to focus on as we grow this part of our business. We feel we are in a unique point relative to a lot mortgage loan originators finding our model and our company to be an attractive alternative right now.

So that ramp up, which is still in some respects the pain is still wide on that, we'd still say there's potential to go on that direction. As a reference point, I can't give you overall movement, but right now, we have a, call it, about 100 mortgage loan originators.

And then we have somewhere in the neighborhood of 30 additional that would be either sales managers or producing sales managers, so certainly over 120 producers right now within the company, mortgage loan originators.

There are 2 lines of business that we had recognized that we don't want them to become so large that they're out of proportion to the size of our core business banking. And the 2 lines of business would be mortgage origination, residential real estate origination and the other is Citizens Finance.

And so both of those are providing good earnings. Citizens provides a great return on equity for us.

And mortgages providing a great source of fee income. And we don't want those to get out of proportion to the banking side.

So we're watching that carefully. But that being said, I'd still say mortgage has some ramp-up to go before we'd be concerned about that.

Definitely seems like there's room to grow.

We believe there is. And again, most of this has been to this point our legacy markets and we see that continuing to expand as a primary expansion point.

So the other thing we think about, Jon, is not only the mortgage side, but then the ability to cross-sell that production to the retail side of the organization to then include wealth management and brokerage, and certainly all of those pieces are in place, but we're working diligently to put that in place as well so it's not just a single transaction, but rather a semi-shift in the overall earnings capacity organization.

Thanks, Scott. In closing, I'm very pleased with the positive financial performance we've been able to share with you today.

Our margin remains very strong at 4.23%. Our investment in expansion of our mortgage banking unit is producing excellent noninterest income.

And we appear to have overcome the nonperforming asset issues that have impacted earnings for the better part of the last 4 years.

As stated in the past, I feel very confident about the earnings power of our company as this quarter results have demonstrated. Needless to say, we're excited about the posting of record earnings for the first quarter and optimistic about the rest of 2012.

I'd like to thank everybody for joining us today, and hope you all will be able to join us at our Annual Stockholder Meeting, which is on May 16. And if not, then certainly at our next quarterly conference call, which is scheduled in July.

So have a good evening everybody.