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

For the next few minutes, I'll touch on the highlights for the quarter. I'll 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, Heartland continued its streak of excellent quarterly earnings, recording our second best quarter in our 31-year history, nearly double last year's third quarter. While we just missed setting a new record, our exceptional quarterly earnings of $13.6 million was 85% over last year's third quarter earnings of $7.3 million.

Year-to-date, net income stands at $40.4 million, once again nearly double the $21.8 million earned through 3 quarters of 2011. On a per share basis, Heartland earned $0.75 per diluted common share in the third quarter compared to $0.20 per share in the third quarter of 2011.

Year-to-date, Heartland has earned $2.24 per diluted common share compared to $0.92 per share for the first 9 months of 2011. Heartland's annualized return on average common equity for the quarter was a superb 16.8% and stands at 17.4% year-to-date.

As we had expected, Heartland's net interest margins slipped below 4% in the quarter to 3.84%. Our margin reflected the realities of this low rate environment.

However, net interest incomes in dollars remained solid, copying both the third quarter and 9 months of operations last year. Our pre-tax, pre-provision earnings were also very strong at $64.9 million year-to-date compared to $52 million for 2011.

One of the factors contributing to Heartland's earnings momentum is loan growth, which continued in the third quarter. Despite a slight dip in commercial outstandings, our pipeline is strong as we expect to maintain a year-over-year increase in the area of 11%.

Our growth strategy emphasizes proactive business development, calling on potential commercial, agribusiness and small business clients. It's also worth noting that with $87 million of net growth in qualifying small business loans, we've nearly achieved our goal of approximately $92 million.

At this level, our preferred dividend rate drops to 2% and upon achievement of our goal, 1% through 2015.

Mortgage loan originations continued to provide a significant positive impact to Heartland earnings. With interest rates remaining at historic lows, refinance activity dominates with an origination mix of 64% refi and 36% purchase.

While we welcome the refi business, our Heartland Mortgage unit is building programs to attract more purchase business. We believe our longer-term success in residential real estate financing depends on our continued shift towards purchase originations, which will drive revenue when the refi boom comes to an end.

Currently, Heartland Mortgage is operating in all 9 Heartland subsidiary banks, with our National Residential Mortgage unit serving San Diego from 4 locations, along with Reno, Nevada; Minot, North Dakota; Boise, Idaho; and Buffalo, Wyoming. Year-to-date, Mortgage Banking revenue, the combination of gain on sale of loans and loan servicing income was $41.3 million versus $8.1 million for the first 3 quarters of 2011.

Now that's an increase of 410% year-over-year. Discussion of Heartland's exceptional year would not be complete without favorable comments on our steady improvement in credit quality.

I'm extremely pleased to report more good news on that front as our nonperforming loans have been reduced by nearly $32 million from last year's third quarter, a 44% reduction. Over the last 12 months, the percentage of nonperforming loans and leases to total loans and leases has been reduced from 3.1% to 1.5%.

With this reduction, our allowance as a percent of nonperforming loans has increased to 99%. We feel very good about our reserve position and with the contingent sale of OREO very close to our marks.

Now that being said, net loss on repossessed assets did increase this quarter, mostly as a result of lower appraisals on 2 properties.

Looking at the balance sheet, total assets increased by $166 million in the third quarter to $4.6 billion at quarter end. This increase was driven in part by both the acquisition of Liberty Bank branches and loan growth.

In terms of deposits, we experienced growth in all categories, partly as a result of the Liberty acquisition, as well as excellent results from our calling efforts. Year-to-date, deposits have increased by $293 million, with demand deposits growing by $140 million.

At September 30, demand deposits, savings and money markets represented 77% of total deposits.

Now moving on to capital, our tangible capital ratio increased to 6.18%. Our regulatory capital ratios in risk-based capital and Tier 1 capital continued 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.

Well, possibly the biggest story of Heartland's third quarter would be our growth initiatives. During the quarter, we closed on the branch purchase from Liberty Bank FSP, adding 3 offices and over $50 million in deposits to our flagship bank, Dubuque Bank and Trust.

Subsequently, we consolidated one of the Liberty offices into a nearby BB&T location.

Soon after the Liberty closing, we announced the acquisition of First Shares Inc., that's the parent company of First National Bank of Platteville, Wisconsin. This transaction will add 3 more locations and over $130 million in assets to our Wisconsin Bank and Trust subsidiary.

We began the fourth quarter with our third M&A announcement for 2012, the acquisition of Heritage Bank in Phoenix, Arizona. This transaction is scheduled to close in December and will add over $100 million to our Arizona Bank & Trust subsidiary when the merger is completed in March of 2013.

During the third quarter, we also added 2 branch locations to our footprint. In early August, Rocky Mountain Bank opened its new main banking office in downtown Billings, Montana.

That's its 10th location. And in early September, the Arizona Bank & Trust added its seventh location, opening up the attractive Scottsdale market.

We continued to seriously evaluate multiple M&A opportunities within all of our markets. Now that being said, we would consider attractive transactions that opened new and attractive geographic markets in the Midwest and the West.

Moving on to our consumer finance subsidiary, Citizens Finance Co., continued at an impressive pace in the third quarter, with net earnings of $695,000. Year-to-date, Citizens' return on equity is a lofty 23.6%, with year-to-date net income of $2.3 million compared to $1.8 million for the first 3 quarters of 2011.

In concluding my comments today, I'm pleased to report that at its October Board meeting, the Heartland Board of Directors elected to maintain our dividend at $0.10 per common share, payable on December 7, 2012.

I'll now turn the call over to John Schmidt for more detail on our quarterly results, and then John will 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 to depth to the press release relative to third quarter results.

Additionally, I'll provide estimates and some key operating metrics for the fourth quarter. To reiterate Lynn's comments, we are very pleased with this quarter's results and feel very positive about the operating strength of the company.

Let's look at the balance sheet. During the quarter, while investments were flat, cash and cash equivalents increased by $108 million as we continued to look for the best opportunities to deploy more overnight money into investments.

As a reference point, the duration on the portfolio currently sits at 4.16 years versus 3.88 years into at the end of the second quarter. Relative to the loan side, loans held for sale increased by $26 million during the quarter.

This is consistent with the increased production throughout the quarter.

Starting in the fourth quarter, our holding period and average balance were increased by as much as $75 million as we intend to create mortgage-backed securities prior to delivering production into the secondary market. They held a maturity loan growth of $167 million year-to-date and $18 million for the quarter continues to evidence one of the core competencies of Heartland.

We remain confident that we will reach our estimate of $200 million of loan growth in 2012.

Let's move on to the income statement. Consistent with last quarter's forecast, we saw our net interest margin fall below 4%, dropping 21 basis points from 4.05%, down to 3.84%.

This change was generally related to the investment portfolio performance and specifically, the aforementioned growth in cash combined with the sale of a portion of the securities that had become increasingly more susceptible to prepayment risk.

At the same time, even with this reduction in the net interest margin percentage, total margin dollars decreased by only $365,000 quarter-over-quarter. As we've discussed in the past, our focus has been to fund loan growth from the investment portfolio.

However, we continue to see opportunities to expand and improve our already granular deposit base. As a result, the investment of these new low-cost deposits, combined with the run-off of the existing investment portfolio, will have the obvious effect of reducing the return on that portfolio.

Relative to our cost of funds, we continue to see some incremental pricing opportunities in our nonmaturity deposits. Additionally, our CD book continues to reflect some larger opportunities with $121 million of CDs maturing in the next 6 months at an average rate of 1.07%.

We typically model a 60 to 70 basis point reduction in our CD pricing. Much as I mentioned last quarter, we're cognizant that our CD portfolio needs to remain a reasonable part of our funding structure, which is best evidenced by the expansion of balances this quarter.

In summary, we anticipate some modest further reduction in the margin. What we still anticipate it remaining around the 3.8% level in the fourth quarter.

However, we see the margin holding very flat in terms of dollars. Additionally, loan growth would serve the boost to the margin as would an increase in rates.

We experienced a provision recovery for the quarter of $500,000, while this quarter's results was in large part driven by the payoff of 1 loan previously classified as impaired. We have expected the majority of our provision expense on a go forward basis would be driven by loan growth.

Relative to non-interest income. Noninterest income totaled $30 million for the quarter.

Excluding security gains, noninterest income increased by $1.2 million quarter-over-quarter. Gain on sale loans continues to be the largest contributor to the noninterest income at $13.8 million for the quarter.

This number has continued to improve due to increased mortgage production and improved margins on that production. Importantly, we see the pipeline continue to expand consistent with what we experienced in the third quarter.

Additionally, we continue to adhere to our previous estimate of $2.1 billion of production in 2013. This is in part driven by the increase in the number of mortgage loan originators, which totaled 141 producers at 9/30/2012 versus 73 a year ago at this time.

We experienced a $493,000 mark-to-market charge on our mortgage servicing rights in the third quarter. Relative to the servicing portfolio, 78% of our production in the quarter was done on a servicing retained basis.

As a result, the current level mortgage servicing income will continue for the rest of the year.

Also of note during the quarter was $5 million of bond gains, and majority of these gains are directly attributable to the movement our of the investments I mentioned earlier.

1 in Montana and 1 in Colorado.

We would anticipate a reduced level of write-downs on a go forward basis.

Finally, we've substantially increased our accrual rate of mortgage repurchase obligations by $1.5 million. This increase reflects our continuing effort to estimate the potential loss exposure on any claims made prior to the final negotiation of a settlement.

We would not anticipate additional accruals of this size on a go forward basis. Given the current level of earnings, we feel that the effective tax rate would be in the 32% to 33% range.

Lynn mentioned our success in developing SBLF qualifying loans.

To confirm the dollar impact of this effort, the dividend for the next 2 quarters will be $408,000.

we'll see reduced investment portfolio returns; provision costs continuing to moderate; net interest margin dollars remaining relatively flat; gains on sale loans continuing at roughly the same level as the Q3 total; SBLF loan growth reduces the annual payments starting in 2013 by $2.4 million; we'll see the close of First National Bank in Platteville and Heritage Bank in Phoenix, Arizona, which will add $230 million of assets to the company.

With that, I'd 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 improvement in the credit quality within Heartland's loan portfolio.

As shown on the earnings release, we continued the reduction in both nonperforming loans and other real estate owned, with nonperforming loans reduced to 1.54% of total loans and nonperforming assets reduced to 1.68% of total assets. We completed the sale on $3.9 million of properties in the second quarter, 10% of the assets owned at the beginning of the quarter.

As of September 30, we had $2.5 million contracted for sale to be delivered in the fourth quarter. Updated appraisals on OREO properties resulted in 2 significant write-downs this quarter, $986,000 on bare land and $1.2 million on an industrial building.

A review of properties that are scheduled for appraisals in the fourth quarter has been made, and it does not appear that significant risk of reduced values is present in these properties. At September 30, we owned the 25 residential properties with an aggregate book value of $5.7 million.

We owned a total of 112 commercial properties with an aggregate book value of $30.5 million. Of the commercial properties, 47 are individual residential lots with a value of $3.3 million and 35 are land or lot development with a value of $14.7 million.

Our loan growth, excluding those covered by loss share agreement, was $18 million in the third quarter. Loans year-over-year are up $274 million.

The third quarter had some portfolio activities that mapped the continued success our banks have had with expanding their commercial portfolio. 2 larger relationships were paid off this quarter when the businesses were sold.

These 2 businesses had $10.8 million in loans outstanding at June 30.

In addition, another $5.7 million was paid down as expected from a receipt of funds from the sale of tax credits related to the loan transaction.

Finally, we received payoff from competitors in the amount of $9.6 million on a few credits we were choosing to exit due to increased credit risk evidenced in this relationship.

Excluding these one-time events, loan production continued this positive trend over the past several quarters. $5.7 million of recoveries on previously charged-off loans have been received in 2012.

This puts our banks in a net recovery position year-to-date, and when included Citizens Finance, our consumer finance company, the net loan losses were $536,000 in the third quarter and $1.3 million year-to-date. Our allowance for loan and lease losses as a percent of loans and leases decreased from 1.58% to 1.53%.

This quarter, a negative provision of $502,000 was recorded. This was primarily the result of the collection in full of a loan that had an impairment, that is a specific reserve of $1.28 million that had been previously established in a prior quarter.

Offsetting this was the $536,000 of net loan losses and provision expense on the new loan growth of approximately $225,000. The allowance has been reduced by 33 basis points over the last 12 months from 1.86% to 1.53%.

The portion of the allowance maintained for impaired loans has gone down by 31 basis points during the same period, therefore, leaving our allowance on non-impaired loans relatively unchanged, reducing from 1.34% to 1.32% year-over-year.

The drought has certainly been a leading story for the past several months. It is too early to estimate the impact it could have on our agricultural portfolio.

Feedback from our agricultural lenders is that yields so far from this fall's harvest are met, with some being surprisingly better than expected.

As I stated last quarter, most of our grain producers carry crop insurance that will protect them from a catastrophic loss or those that end up with reduced yields. Our agricultural lenders have reviewed their portfolios, and we expect limited increased risk exposure due to the drought of 2012.

All of our banks completed their annual examinations from the FDIC and/or their respected state examination team during the past quarter. These examinations went well, as expected, with no changes noted in classified credits.

The fourth quarter is expected to show continued improvement in credit quality, with limited risk through any significant charge-offs and continued sale of all the real estate owned. Pipelines are relatively solid, so we expect to end the year with solid loan growth.

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

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

Just one quick question, John. Were there any mark-to-market gains for mortgage trends in this quarter?

There were some. I think that actually there may have been -- there's quite adjustment down quarter-over-quarter, John.

It wasn't -- either way, it wasn't maturity, let me put it that way.

Okay. Well, what happens going into 2013?

If you guys have -- obviously you've got it for relatively flat mortgage banking and coming to the fourth quarter. What happens in 2013?

If volumes stay flat, you have to reverse out the first half of this year mark-to-market gains or, do they stay flattish? Just want to kind of understand how 2013 works from the perspective of mark-to-market gains.

If our production remains at that $1.5 billion, there will -- we don't see the mark-to-market rolling back out, to answer your question. So we would anticipate the same level of mark-to-market at this point as our production has stayed at $1.5 billion.

Okay. But if production goes down, you will always have to reverse outside, correct?

There will be some reversal out of it -- much as there would be any, and if you'd need to think about it, there would reversal out and there will be some reduction in the overall income associated in the mortgage activity.

We are actually expecting, John, for the production to go up. Didn't you mention, John, it's $2.1 billion?

$2.1 billion.

$2.1 billion through '13. One of the things that we've been looking at is there are an awful lot of homes that would be happy to refi as long as they can get the value of their home up.

A lot of home owners were still underwriter, but we've seen improving pricing on homes and as that continues, it will open up a new sector of homeowners to refi. So we think the refi is going continue on through '13.

Okay. So again, there was no material mark-to-market gain stressed in the quarter.

And yet, you were not -- I just want to make sure I understand that. It doesn't include the adjustments for the prior quarter, correct?

It doesn't include -- I'm sorry, I didn't get the last part.

But there were no major mark-to-market gains is in the quarter, correct?

Yes, that is correct.

Got a couple of questions, but just a follow-up on mortgage, and that $2.1 billion. I know the goal is to drive more purchase volume through your channels, but how are you thinking about mortgage -- refi versus purchase, in the $2.1 billion number?

Assuming rates stay where they are, Jon, I think we're still anticipating, ideally, in this environment, it would probably be 50-50: 50 refi, 50 purchase. And so I think we still have an opportunity to ramp up both because what I was alluding to in my comments, we've nearly doubled the number of mortgage loan originators over the last year, and many of those are still ramping up.

For instance, we have over 20 MLOs in Minnesota now, where we had 1 or 2 last year at this point. So I think that's in part why we feel confident we can continue to ramp up that -- the overall mood of [ph] production.

There's going to be some new market entry as well, but bottom line, think about the production for '13 at 50-50, as the rates go up, that's going to strike -- we'll probably see some incremental increase in purchase rise, probably some decrease in overall volume, but regardless, we still feel confident it'll be beyond what we're even experiencing in this year.

Okay, that's helpful. Maybe a question for any of you, but maybe Ken or Lynn.

The C&I balances were relatively flat sequentially, but it still sounds like you're optimistic in terms of the pipeline and the activity and the commitments, and Ken, you kind of alluded to some of the one-time items that impacted the quarter. But other banks have talked about a bit of a slowdown in commercial demand or at least decision-making.

Are you seeing that or is it kind of a different story for you?

Our pipelines are relatively full. Like I've said, I want to point out that our growth was masked a little bit by those events that I mentioned.

Now we do have some of our commercial bankers mentioning that they are hearing some conversations in their commercial customer groups of some money sitting on the sidelines waiting to see what happens to the election, waiting to see what happens with taxes before they dive into acquisitions or other growth most of their own. But as Lynn mentioned, with our commercial bankers now, we've had an active pipeline, they're calling on customers outside of our normal customer base.

So we can try to expand who we're dealing with. So that's where the majority of our growth is coming from.

Okay. And then, Ken, just one more question for you.

About -- it seems like about half of your real estate owned is lots and lot development, if I'm doing the math correctly. I know you have a lot of the values baked into your reserving, but you are seeing any lift in some of those values or any kind of loosening in the markets for the lots and lots development?

Yes, we are probably in New Mexico. We're still seeing relatively slow recovery for values there.

We're seeing the most in Arizona where they've really seemed to bottom out and then a fair amount of activity over the last 3 to 6 months. And so it appears that those properties are -- they're starting to move, although slowly, but we certainly expect that, that portion of other real estate portfolio will start to find buyers relatively soon.

John, on the securities portfolio, can you help me with the size? Going forward, obviously, I think there'll be some -- maybe some cash coming in over with these deals.

Just trying to figure out where I should think about the investment book, maybe in Q4, and then maybe looking ahead, what you see in the direction of the book.

As of currently, just over 2. -- $1.2 billion.

That's incrementally going to grow, probably by as much as, certainly $100 million in the coming quarter. That's probably not an unreasonable estimate and move some of that cash off as we move the excess deposits over loans and these acquisitions into the investment portfolio.

I think $100 million is a fair estimate.

OK. And maybe next year -- your comments on the margin were helpful for the fourth quarter, but like most banks, the market outlook seems tougher.

I guess are you guys contemplating anything, either from the -- anything you may be acquiring with this through acquisitions or maybe on your own, to maybe protect the margin next year in terms of your liability?

I mean, are you thinking about on the asset side or the liability side?

I'm thinking if there's anything -- I guess it's a broad question, are you considering anything on your own liability structure that might be high cost debt or I think...

You mean like restructuring some FHLB advances or things of that nature? I mean, we do look at some of that as an alternative right now.

The good news is that we have a pretty good chunk of -- which I should have mentioned in my comment, a pretty good chunk of FHLB maturing in the first quarter of 2013. It's also an opportunity for us.

We are looking and looked at some scenarios relative to early termination of some FHLB advances. We aren't that part on the pike with that, but that is a consideration as well that could occur in the fourth quarter.

It wouldn't be huge, but it would be material if we decide to do it. So other than that, just to reiterate, we do see some opportunities on the asset side, and just to probably give some additional color on the benefit of securitizing the mortgage loan pipeline, that again will add as much as $75 million of industrial funds are dollars in loans that will hold on their books.

That's a total as for the average, we've had somewhat less than that. But that, again, is an asset that will be a contributor to our margin on a go forward basis.

Okay. Just a question on the deals platform.

Can you help us with the -- you guys have a bit of low intangibles, or maybe asked a different way, what's the pro forma size, tangible common equity ratio might be at year end, obviously a lot of moving pieces.

You mean relative to the acquisitions?

Exactly. And what's goodwill?

Can you help us with the goodwill [indiscernible]?

In aggregate, we're probably a bit disappointed, given everything we know on mark-to-markets, it's very preliminary, it's around $4 million add to the goodwill and all intangibles.

Maybe a question for Lynn. You've been busy with, I guess, you had 3 acquisitions in the not-so-recent past, and just curious what your asset is and if you anticipate taking a breather here.

And just curious, the capability of the closing team and how quickly they can put these deals together?

I think, historically, we thought maybe 1 or 2 deals a year was our capacity, but we think we can probably handle, depending on the complexity of the deals, we can probably handle 1 per quarter. We have a number of number of deals in the Q, and so we would be thinking of approximately 1 per quarter.

Now that doesn't mean it will happen, but we think we're capable of doing that. We've done a nice job of formalizing our process.

It's well documented, and the people that are working on these merger integrations are doing a great job. Dubuque went well.

So far, Wisconsin has gone very well. We're in the process now working with Arizona.

So we're pretty comfortable that we can do about 1 a quarter. Now there again, if it's a much larger transaction, that's going to be a little more challenging.

But I guess as we talked internally, the smaller deals are almost as much work as a larger deal.

I think the advantage of multiple charters also helps in regard that we can do some decentralized integration, if you will, and that we're relying on the member bank to help us some of the back end and obviously, the front. So the model, that also contributed to some benefit in that regard as well.

I think that they especially help when it comes to the human side of the transactions, where we're integrating cultures and bringing new personnel on board and wrapping them in to our way of banking.

Okay. And a question for Ken.

You'd given us a ratio of the reserves for nonimpaired loans. I think 1.34%, 1.32%, somewhere in there.

Just curious, the new credits that are coming on, is that kind of a good reserve ratio for us to think about?

I would think so. I mean, that's really the nonimpaired side of our portfolio.

And in a much better economic environment, I would think that, that would drive a little bit lower. But when we're still running in that 7.5%, 8% unemployment, some sluggish business out there, I think that's a fair number to look on new production.

I just want to kind of double back to John Rowland's question relative to the mark-to-markets on the mortgage production. If production should trend back, we'll see a reduction in the mark-to-market, but about $12 million currently, that would trend back to maybe $10 million, so there would be some peel back.

But again, as Lynn pointed out, we do anticipate our mortgage production going the other way.

Okay. Well, thank you, all.

In closing then, I can say I'm really pleased with Heartland's record financial performance for 2012. There's been several contributing factors, including strong organic deposit loan growth, continued reduction in nonperforming assets, excellent noninterest income growth and the potential for future growth in both earnings and assets as we expand both through acquisition and new bank locations.

I speak for our entire management team when I say we're delighted with our progress and really excited about the future for Heartland. I'd like to thank everyone for joining us this afternoon, and hope you can join us again for our next quarterly conference call, which will be in January 2013.

Thanks again, and have a nice evening.