Wintrust Financial Corp (WTFC) 2010 Q4 法說會逐字稿

Good day, ladies and gentlemen, and thank you for standing by.Welcome to the Wintrust Financial Corporation 2010 fourth-quarter and full-year 2010 earnings conference call. Following a review of the results by Edward Wehmer, Chief Executive Officer and President, and Dave Dykstra, Senior Executive Vice President and Chief Operating Officer, there will be a formal question-and-answer session. The Company's forward-looking assumptions are detailed in the fourth quarter's earnings press release and in the Company's Form 10-K on file with the SEC. As a reminder, today's call is being recorded.

I will now turn the call over to Mr. Edward Wehmer.

Thank you. Welcome, everybody, to our fourth-quarter conference call. With me, as mentioned, are Dave Dykstra and Dave Stoehr, our Chief Financial Officer.

If we sound a little hoarse, it's only because we had to put up with the Bears loss yesterday. And thinking about all of that, I thought maybe we could have made some more money last year because I'm seriously considering slashing the bonuses of all of the Wisconsin contingent as part of Wintrust -- but maybe I won't do that. I won't be a sore loser.

But anyhow, what I thought we would do today -- Mr. Stoehr, by the way, our CFO, is a big Packers fan. He just fell off his chair. But what I thought we would do today is give a quick recap of the year, talk a little bit about the fourth quarter and our results therein. Dave Dykstra, as always, will then take you through some more detailed specifics related to the fourth quarter, back to me, then I'm going to give some thoughts on 2011 and beyond, and then we'll have some time for questions.

In 2010, we had told you and our shareholders our stated goals for the year. They were to increase our core earnings, control credit by identifying and clearing problem assets, identify dislocations of people, assets and banks in order to move us ahead strategically, return to our pre-cycle growth mode, and also to retire TARP in a shareholder-friendly way. I think we have accomplished all of that during the course of the year. Core earnings, pre-tax, pre-provision, pre-bargain purchase for 2009 were $123 million, and they rose to almost $200 million in 2010. For the fourth quarter, those core earnings were over $230 million. We increased our net interest margin up to 3.46% in the fourth quarter and 3.37% for the year, up from around 3% in 2009.

On the credit side, because of our overall balance sheet growth, NPA and NPL ratios decreased from the already low levels that they were at the end of 2009. NPAs to assets at December 31, 2010, were 1.58% compared to 1.74% last year. And NPLs were 1.48% at December 31, 2010, compared to 1.57% last year. On an absolute-dollar level, they remained relatively constant. Non-performing assets remained relatively constant. In a period of time as uncertain as we had, when many of our competitors showed increases during the course of the year, I think holding those levels constant was really a victory in that regard.

Net charge-offs for the year were $110 million as compared to almost $140 million in 2009. The cycle really isn't over yet, although it seems to be abating. Our level of NPAs are very manageable. Our goal is to continue in 2011 to identify and push these bad assets out, so that as we continue to increase core earnings, they can fall to the bottom line faster. Our goal is to be -- for 2011, and as it was before, was to be totally out of the effects of this cycle before any of our competitors. And I think so far, so good, in that regard.

On the dislocated asset, people, and bank side, we did three FDIC deals during the course of 2010. They were all strategic and they all moved us into new markets, and they were all economically accretive to us. We also did one branch acquisition during the course of the year to complement one of the FDIC deals that moved us into the market of Naperville. We took a pass on a number of unassisted deals during the course of the year, north of 20, 25, just because we got in and they didn't look right, but we were very active in terms of looking at those banks, and unfortunately we didn't find any that made sense. We will continue to do that in 2011.

On the people side, we added more than 50 new bankers throughout our system. This includes our Chicago office, which is really off to a terrific start. Our year-over-year loan growth, core loan growth, and the increase in the level of DDA balances year-over-year -- I think DDA balances moved up almost 11% of total deposits -- should give you some evidence as to the success of this initiative. Asset dislocations, like the AIG transaction that we did, or the re-REMIC transaction we did are fewer and farther between these days. We continue to scour and scan the market for these types of assets though, and although we also continue to look for asset generation platforms to complement and to diversify our niche-lending portfolios, which by design we like to be about one-third of our overall loan portfolio.

Our third goal was a return to pre-cycle, pre-rope-a-dope, as we call it, our rope-a-dope strategy growth pattern. Prior to us putting the brakes on, we were growing at double-digit rates throughout our existence, since we opened in 1991. In 2010, assets were up $1.8 billion, loans up $1.2 billion, both 14% growth; deposits up around 9%, a much better mix in deposits as we brought on more DDA; and less reliance on public funds, although we didn't have a lot to begin with, and single account CD customers. Wealth management had a record fourth quarter for us, and continues to build and to grow, and we had a very good year in mortgages. So we continue, I think, did a reasonable job of getting back to those growth patterns that we had before, but this is going to be a continued strategy in 2011.

Our final goal was to retire TARP in a shareholder-friendly fashion. During the course of 2010, we completed two overnight transactions and raised over $500 million in new capital to support growth and to pay off TARP. This increased our tangible book value per share; both of those offerings did, so really in a shareholder-friendly way we raised capital. We didn't have to do it to fill a hole. We did it to support growth, and to retire TARP and get under the burdens that TARP put upon us.

All in all, if you look, given the market conditions, given the competitive environment, I think 2010 was a pretty good year for us. We accomplished everything we set out to accomplish. We had hoped that the credit cycle would be abating, but it appears that 2011 is when that hopefully will occur, and we look forward to that.

For the fourth quarter, or just a couple of points about the fourth quarter, very good core earnings increase. Again, record wealth management income, margin rebounded to 3.46%. As you recall, in the third quarter it dropped off a little bit, but it has rebounded. Good loan growth on a core basis. It's good controlled loan growth.

Deposits and assets shrunk a little bit from the third quarter levels, but this was really by design. During the meat of the cycle, we had built up a lot of liquidity, as we're pretty conservative bankers and we felt it was important to have a lot of liquidity as we worked our way through the cycle. But what we did was we let almost $172 million of brokered deposits run off in the fourth quarter, as well as a number of single account CD relationships. There was a negative spread on all that. As you know, we were sitting on $1.2 billion of overnight money at that point in time, so we were losing money on that. We felt that where we stood right now, we could let that run off. Those are available to us again, if in fact we need them going forward to support future asset growth.

With that being said, I'm going to turn it over to Dave, who will give you some more details on the fourth quarter.

Thank you, Ed. As normal, I will briefly touch on the other non-interest income and non-interest expense sections, as Ed led you through the margin and the provision for credit losses area. In the non-interest income section, our wealth management revenue increased to $10.1 million in the fourth quarter of 2010. This was up $1.1 million from the $9 million in the third quarter of 2010, and on a year-over-year basis was up $2.1 million from $8 million in the fourth quarter of last year. Our wealth management revenue surpassed $10 million on a quarterly basis for the first time in the history of the Company, and we saw good revenue growth in both the asset management and the brokerage lines of that business.

Mortgage banking revenue also recorded a record quarterly revenue amount of $22.7 million. The Company originated and sold $1.3 billion of mortgage loans in the fourth quarter of this year, compared to $1.1 billion in the third quarter of 2010, and compared to $953 million in the year-ago quarter.So $1.3 billion for the fourth quarter of 2010, $1.1 billion was in the third quarter, and $953 million of originations and sales in the fourth quarter of 2009. Clearly, the favorable interest rate environment in the last half of 2010 led to this new wave of refinancing activity that was favorable for our revenue source. Rates popped up a little bit in the fourth quarter, so our expectations are that the revenue will decline some in the first quarter as the rate environment did increase, slowing down some of that refinancing activity.

Indemnification claims, we've talked about in the past, from purchasers of the Company's mortgage loans, subsided further in the fourth quarter, and we recognized $1.4 million of expense in the fourth quarter for potential recourse liabilities. And that's the lowest level that we recorded on a quarterly basis in 2010. If you look at the other non-interest income categories, there was no other changes that deserve a special mention on this call.

On the non-interest expense side, salaries and employee benefits increased to $59 million in the fourth quarter of 2010. That was up from $57 million in the third quarter of 2010. A significant portion of the increase related to commissions on the high level of mortgage banking and wealth management brokerage business in the quarter, as well as growth in our commercial banking staff, a full quarter of employment-related expenses related to the recent FDIC acquisition that we did in the third quarter and the branch acquisition that Ed referred to, and then just a general growth in the bank that we have experienced recently.

So the remaining categories in non-interest expenses, there really weren't any changes that require special attention, except that our data processing costs increased slightly due to the growth of the Company's accounts, and some conversion-related expenses as we convert over some of these FDIC-assisted transactions onto our data processing system. NRO expenses were up as we continue to push up problem assets, sometimes clearing them at prices that are slightly less than the appraised valuations that we had, and some continued downward valuations adjustments as the commercial real estate values have continued to trend down slightly in our market area. Our other miscellaneous expenses and professional fees also remained higher than normal, as we had legal and collection costs related to the non-performing loans as we continue to work them. All other categories really were fairly consistent with the prior quarters and in line with our expectations. So for other income and other expense, I think that covers it, and we'll throw it back over to Ed.

Thanks, Dave. To summarize, we have a lot of good momentum moving into 2011. We feel very good about that. Our main goals for 2011 will sound a lot like the ones for 2010. We want to continue to be ahead of the curve in terms of identifying problem assets and moving them off our balance sheet. Again, the sooner we can do that, the faster increased core earnings will fall to our bottom line.

We want to continue to increase those core earnings. As we said, core earnings were -- for the quarter annualized were over $230 million in the fourth quarter; our goal for this year is to get those, that number over $300 million. And I think we can do that by redeploying some existing liquidity, continue to drop our cost of funds. We think there's another 15 or 20 basis points in that cost of funds reduction that we can pull off, given CDs repricing and the like; and through our normal growth, getting back to our normal pre-cycle growth of having each chartered bank growth $50 million to $75 million per year, and the earnings that we'll make on those growth. We believe, as I have said previously, that we can get a margin right now in this rate environment, given how we fund ourselves in the 3.6% to 3.75% range, and that's what we're shooting for this year.

2011 should be a very active year, at least in terms of opportunities on the expansion side of the business in all of our lines of business, from the banking, assisted and unassisted deals, from the wealth management, from the mortgage side of the business with all the restrictions coming on board with Graham-Dodd -- or not Graham-Dodd, that was a long time ago; Dodd-Frank. We think that will be good. And on the specialty asset side also; we are extremely busy in this regard, but again we will always be disciplined and strategic, and really anything that comes through from that is just gravy for us. Again, we will be disciplined.

We will be strategic, and we are very much looking forward to 2011. We have great core momentum, great opportunities in the market given how we've set ourselves up with capital, with our earnings, we think that we competitively are well-positioned to take advantage of what's going to come our way this year.So we're cautious, we're disciplined. We're strategic, but we intend to really take advantage of the markets right now, and to be the first out of this cycle, and again, increase those core earnings and have them fall to the bottom line.

Hopefully, toward the end of this year or middle to end of this year, you'll start seeing the credit abate. It's going to be what it's going to be, but as soon as it falls off, again, the sooner money falls to the bottom line, gets earnings per share up and we can get out of our share doldrums here. But again, we feel very excited about what we're doing this year. We have a very motivated staff. Everybody knows what they need to go accomplish, knows what they have to do, and we're fired up.

So with that, I can turn it over for questions.

Thank you, sir. (Operator Instructions)

Jon Arfstrom with RBC Capital Markets.

Good afternoon, guys.

Hello, Jon.

Question for you, maybe for you, Dave, on the margin. You had a fairly high amount of prepayment in the quarter. Is there anything unusual about that or anything to read into?

No, I think if we actually go back and look at the third quarter, it was a relatively low quarter. So, we obviously can't predict when people are going to prepay the accounts or in these cases, some people pass away and the accounts --

Mature.

Mature, I guess they call it. So, it gets a little lumpy, but I think if you look over the last four or five quarters and look at the average, that's probably a better way to look at it than to look at it on a quarter-by-quarter basis.

It's almost the same amount, Jon, as it was in the second quarter, if my memory is correct. It appears to be paying off a little faster than we may have anticipated, or originally anticipated. So, it is what it is, but with only really one blip in the third quarter, it's been relatively constant at these levels.

But if you notice also, that portfolio is replacing itself. Actually, that portfolio grew this year, so, it's been a nice piece of business for us, a nice line of business for us, and we think that that business will continue to prosper and when these loans that are coming off of the -- out of the original AIG package are coming back in, we're actually higher prices than we got before. It's working out as planned, maybe a little bit faster, but as we tried to explain in the third-quarter call, that was just a little bit of a blip, and I think a lot of people over-reacted to it.But, we all wish life was linear, but it isn't.

To me, it gets to the sustainability of the margin and I hear what you're saying. And I guess, your comment about the 3.60% to 3.75% type margin is a goal. And I guess I look at the 3.46% number from this quarter and I see some repricing and some loan growth that you're talking about. Do you think that -- my curiosity is if there's any aberration in that 3.46% number that you need to caution us on, or is this something that we can rely on?

Well, you don't know what you don't know. All I can tell you is it's consistent -- that prepay was consistent with every quarter other than one since we had them, so relatively consistent. We think that just because of the way we're funded in our asset mix that if it doesn't come in one place, it might come in someplace else. We see interesting opportunities on the asset side as we redeploy liquidity and do some other things. Although it looked quarter-to-quarter, it had a big effect on that relative change, there are some other things we're doing here.

It's going to bounce around a little bit. We expect it to continue to grow, as, like I said, we redeploy liquidity, et cetera, et cetera. We're trying also to position ourselves for rising rates that if we could get a nice 4 point rise in rates, which takes fed funds to 4.25%, which doesn't seem too out of the question over the next few years, that we'd be able to move that margin in the 4.25% and up range. That's really what we're planning for and what we're working towards. So, we spend a lot of time on the margins, spend a lot of time on planning for it. We still are relatively short in our liquidity side of the equation, and so we're trying to balance it all out and work towards, that number, that goal number I talked about for the margin by the end of the year.

And then just one quick question on lending. I asked this question last quarter as well, but give us an idea of the difference in the lending pipeline in your new downtown office versus, how they are building in some of your affiliate banks.

Well, it's interesting. Downtown office has a very nice pipeline. They closed a lot in December and January. Their pipeline is still relatively strong, but one of the things we've done, Jon, there was -- this initiative starting 1-1 of '11 is being pushed out into all the banks.

We've reorganized the lending areas of all the banks into commercial area, a real estate area, and then an all-other area. And we had a kickoff meeting about 10 days ago to push the initiative formally into all of the banks. We have taken the entire market that we cover. We have qualified the middle market customers that we're going after. There is a relentless calling program going on, so with -- and we expect the same -- how I do put it, per capita, per lending officer, results that we get downtown at the bank level. So, throughout the system, we see pipelines growing and expect to see them growing at the same percentage, because we push this whole middle market initiative throughout the entire system. So pipelines are still very good, but it's really across the board right now.

Another interesting thing you might look at is our commercial real estate numbers actually went up, and I don't know if you see many people, see that happening. I see most people running away from it. Rebound real estate, the rich people or the wealthy -- I don't want to say rich people, but people who are out buying the troubled assets from other people, buying things at 50% of replacement cost and the like, we have been able to find a lot of these folks and funds that are doing this with great strong backgrounds of you can lend 50% on a 50% cost, and that 50% cost is really 50% of replacement cost, and you're getting really good rates and fees on that, that's a good business, too. We're living up to our reputation of being salmon and swimming upstream in some respects, or going against the flow as it relates to that business also. But, we think the real growth will take place on the commercial side of the business, but we are seeing good growth on the real estate side, as people take advantage of their ability to take advantage of dislocations in the market.

Okay, all right. Thank you.

Mac Hodgson with SunTrust.

Good afternoon.

Hi, Mac.

On that same loan growth topic, Ed, could you provide any detail on the types outside of commercial real estate in the commercial loan growth? Is it mainly still a market share shift? Are you starting to see new loan opportunities come up through acquisitions and things like that? Let me just speak to that a little bit.

Majority is still market share shift. I would say 75% of it is, rough number, is probably market share shift of us picking up new clients and bringing them on board. Probably 25% are acquisitions and other general growth situations. I think that's probably a fair number.

Okay, great.

And on the margin, the -- I know it's impossible to estimate, obviously, on the accretable discounts -- I know they started around 1.5 years ago or so around $75 million and it's been reduced about 0.50 over the last 1.5 years. Would you expect that -- I know it's hard to estimate -- to mostly go away over the next two years, so that you wouldn't have hardly any of that coming through spread income?

Two prongs to that answer. We still have the collectibility discount out there that we'll be shifting over, we hope, because the overall asset class, we haven't seen a lot of losses in it. But, we have the collectibility discount that, hopefully, will be moving over to accretable discount over the course of that portfolio running off.

Remember, too, we use the level yield method, so as that runs off, as the portfolio runs off, there's less and less accretion that comes in. So, I think your analysis of another two years probably, probably makes some sense.There will still be some left, but I think it makes some sense that the majority of it just through prepays and through, less being accretive because there would be less outstanding will make it less material, if you will.

Okay, great.

Any, any plans with the securities portfolio? I think it looked like it increased a little bit this quarter. Any purchases there?

Nothing, nothing significant. What we did in the fourth quarter is we stayed relatively short, so if we did buy some securities, they might have been short corporates or short agencies and the like. We've made no material shift in our portfolio strategy.

Okay.

We are thinking -- as rates have moved along and rates have moved up a little bit, we don't want to lock in these really low rates, but we are considering commencing of getting back to the -- we always had a laddered portfolio out there and as it makes sense to start jumping in and start laddering out, if you think rates are going to continue to move up a little bit or to the rate environment may come up and stay here for a little while and then move. So, we are considering in, 2011, we'll have to pick the right time, but getting back into our laddering strategy that we've always employed.

Okay, great.

One last one on the tax rate, how should we think about that coming up here? I know given the changes in Illinois with the corporate tax rate.

Did they change the rates in Illinois?

Somebody told me. (Laughter).

We'll clearly have a little bit more expense there. We do a fair amount of business throughout the country, so not all of our revenue is apportioned to the state of Illinois, so you can't look at it holisticly going there, but it will tick up a little bit for the tax rate increase. Until we get through and look at all the apportionments and run the numbers -- we just haven't done it yet -- I can't give you a specific percentage that we think it's going to be. Rate was a little bit lower this quarter, as we filed our state return in the quarter and the apportionment was a little bit better than we thought, so that we had a little less state taxes than we had anticipated. It helped the quarters a little bit there, but we do a lot of business through our premium finance area and tri-com and some in the mortgage business where the revenues are attributed to other states, so it's not the full whammy on our income.

Right. We also have a number of the tax credit deals that we put on it a couple years ago that are starting actually to come to fruition, so we're getting some rebate on those. How those work, they are CAR-driven tax credit deals for affordable housing that the first couple of years you put them on, they really don't do much for your bottom line. But when they start to mature, those credits fall straight through and those are starting to kick in also, so, hopefully, those will offset a little bit of this Illinois state tax increase.

Okay, great. Thanks.

Emlen Harmon with Jefferies.

Good afternoon, guys.

How are you?

Just a couple quick questions on credit. You guys did make good progress throughout the year. We did see a little bit of a tick-up in the NPA accretion in the quarter. Could you talk a little bit about what you're seeing there, whether it's something environmental or just any credit that's particular to you guys?

Interestingly enough, in the fourth quarter, there were two credits that totaled probably $28 million in total that went on non-accrual, that made up the majority of that. The flow itself was relatively -- it was down a little, if you look at -- if you take that out. But, in both of those credits were current and we're digging deeper into the risk ratings and just trying to -- these guys probably could have lasted for another six or seven months with the cash that they had. We had not advanced any interest reserve there, but we just said it is what it is; we're not going to kick the can down the road. We're actually trying to dig even a little deeper into the portfolio and push things out now. To me, that's a good sign that the normal inflows that just happen seem to be slowing down, and we're trying to be very proactive in terms of identifying things and moving them in, not that we were kicking the can down the road before, but there were two larger deals that came in this quarter that we're just trying to be proactive on and move them out.

So other than that it's going to be what it's going to be. Real estate still is lousy here. It's going to be what it's going to be, but I think we're ahead of the game. I think that we're -- I think we can -- our plan is to land this airplane and to bring the non-performers down quarter-over-quarter, but we're not going to kid ourselves and try to push stuff off. So, it's relatively constant. We still have the situation where it's now good people who tried to do the right thing are just out of gas, and you got to deal with those issues. But, hopefully we can -- this will start abating during the course of this year and we can continue to push things out and get that core earnings to fall to the bottom line.

Got you, helpful. Thanks.

And along those lines, could you just refresh my memory, on the TDRs, I thought I'd dig in just a little bit, but just the kind of restructuring that you guys are doing and what you typically -- I guess maybe what your typical restructuring tends to be?

I would say that the majority of them are -- that whole issue, again, of could the guy walk in someplace else and get this deal done at this rate in these terms. A customer who's come in and you give them a 5% rate on the thing and it's amortizing, but he probably would have to get 7 someplace else or there's some hair on the deal. He could have even come in and a piece of property could appraise at 110%. He could have brought it down with additional collateral to 90%, but then it's above 80, so that's a TDR.

A lot of it is just part of the way that the new TDR rules are written and come in. How the deals are coming in, I don't -- as we've said before, I don't pay much attention to the TDRs' number because it really doesn't mean much. It's a lot of those loans are good. The other 25% could be your basic AB type notes where you're charging off part of it, rationalizing the thing, rationalizing it for your client, charging off part of it in terms of some other concessions he's giving you, and then going forward with it. So, that's about 25% of it would be a rough guess and 75% is just this structural stuff brought about by the idiocy -- I'm sorry, I shouldn't say idiocy -- the rules.

Got it. That's helpful. Thank you very much.

Stephen Scinicariello with MacQuarie.

Hi, guys.

Hi, Steve.

Just wanted to get your thoughts now that you've repaid TARP, you've raised a significant amount of capital, you have a great position on that front, and just want to get a sense of the opportunity set that you guys see in front of you, and I know you can never choose the exact way things happen, but if you could rank order? If you had your wish, how you would potentially deploy some of that excess capital as you look out -- what might it look like as we look into 2011 and beyond?

Well, we're getting back to the, to the pre-cycle strategy of having each bank open a new branch every two years, so we stopped doing that in 2006. We will have a number of de novo branch openings in new markets out of at least half of our banks. I temper that by saying that there will be acquisition, both assisted and unassisted bank acquisition opportunities, we believe, throughout the course of this year, and if a particular bank has a branch scheduled to open and an opportunity shows up in that bank's geographic area, we would put that particular branch on hold for another year. We can't -- we don't want to overload any particular charter with too much.

We think that good core organic growth coming through de novo operations. If you recall, that's how -- that was our bread and butter forever, was doing that, and we continue -- we want to continue to expand out through the Chicago and Milwaukee areas, so de novo, core growth, we still think is for the best, one of the best scenarios for shareholders, followed by on the banking side, assisted deals. If someone wants to pay us to take something over and we do it right, that -- and it's a market we want to get there and it's got a good, strategic position for us and a good right-hand side of the balance sheet, someone wants to pay me to get in there, that's actually better for shareholders than starting from scratch. We intend to be active in that market. Again, if it's strategic, we will be very disciplined in how we do it.

Third, our unassisted deals, you're starting to see although I said during the course of last year, we didn't find many with meat on the bones or that had a risk profile that was acceptable to us to take a run at, I think you'll start seeing more of those this year, as people start being able to put their head up, is hopefully we work out of this thing, this whole cycle, and I think that we've positioned ourselves as a partner of choice for a lot of these people. And again, I think that you can get reasonable value for what you would have to give them and through the beauty of purchase accounting, they have got a good core earnings stream, you can bring that right to your bottom line and hopefully not have to pay through the -- well, we wouldn't do it, but pay through the teeth to do that.

Thirdly, I think that as I mentioned earlier, we see opportunities on the specialty finance side. We also see opportunities in the wealth management side to help bolster those aspects of our business, and, again, we need to be disciplined on this, but it is somewhat of a buyer's market across the board in the businesses that we're in, and if it's strategic and can help us grow, we're very interested in that. We expect this year to be a very active year. It's been a very active month for us already in terms of looking at lots of different things. We think the whole year's going to be like that.

We're not going to break away from our core operating tenants. We still believe in diversification. We would like to find other asset platforms to -- I think the diversification of our balance sheet is one of the things that helped us get through this current cycle as well as, knock on wood, as well as we have. We're not breaking away from our basic operating tenants and we're really just getting back to where we were, so anything we can pick up on the side I think will be gravy for us on the acquisition side. I don't think that there will be any shortage of opportunities for us to deploy capital.

That sounds great.

And of the 20 to 25 that you guys passed on, was it just valuation, or was it also risks that you weren't comfortable with, or what were some of the deal-breakers on that stuff?

Mostly it was really, it was all credit. We would go in and we would -- in a typical situation, they would say we've had the X, Y, Z company or some outside source come through and value the portfolio. We think we're in good shape; we think when we do a burn down analysis that there's capital left and that this could be a good situation for you. You get in and you go, oh, my God.

Based upon -- we're very severe on ourselves, and given the experience we've had in terms of moving assets out, we know what the market is for these things. And to bring -- we have walked away saying, really, when you burn it down, there's really nothing there based upon the marks that we think are in the portfolio. And then sometimes you couple it up when you start looking at the right-hand side and go it's not all it's cracked up to be. There's really no franchise there that we can pick up. It mostly boils down to the credit side, though, and you look and it's just unacceptable risks for what you think the reward might be down the road. There's still a bit of kicking the can down the road and, as far as we're concerned, hope is not a legitimate strategy, so we, we don't hope for anything. It's real.

All right, thanks so much, guys.

Thank you.

Frank Barkocy with Mendon Capital.

Hi, guys, how are you?

Hi, Frank. How are you?

Good. Most of my questions were answered, but if indeed you get into a situation where the opportunities are not there to make acquisitions, is it too early in the cycle to consider a dividend increase or share buyback?

Well, that's an interesting question.

I think it is too early in the cycle to consider it. I think we think that -- we know that the opportunities are there. Having been -- if we've been in 25 or so odd different banks, they are going to show up one way or the other down the road. We get pinged by potential targets every week; there's opportunities out there. So right now, we're more considerate of -- the competitive environment here, Frank, too, is that we're in pretty good shape. A lot of these smaller banks that can't go out and lend, a lot of our larger brethren, same-size brethren as us are a little bit ham strung right now, too, with some of their issues.

We've always been very good at organic growth, and I think that our organic growth should be relatively strong. So, I think that we're more interested in growing the franchise, building it out right now, because that's what the market is giving us. To consider a share buyback, I don't think makes a lot of sense right now. Given -- considering a dividend increase is something that probably will be looked at down the road, but as you recall, we cut it from, we cut it in half prior to -- or during the cycle, when the whole card thing came down. It's something that as earnings grow, we've always paid out, tried to pay out 10% of trailing earnings, and as earnings grow, it's something we would look at.

Good. Thanks a lot, guys.

Brad Milsaps with Sandler O'Neill.

Hey, Ed, Dave.

Hi, Brad.

Hi, Brad.

Just one follow-up question on pricing. It seems we've gone in the last 18 months from banks being acquired at deep discounts from the FDIC or paying nothing, actually, to book for book deals. And now in some markets we're seeing bigger premiums to what would be proforma tangible book value. Can you guys talk about what your expectations on pricing, vis-a-vis Chicago, and where you guys trade, et cetera, and how that weighs into your acquisition strategy?

Well, on a -- to break it into -- talk about banks only, assisted and unassisted deals. On the assisted side of things, it really depends on the bank itself and what it means for you strategically if it moves us into a market. We also look at how much work is it going to be; we want to get paid for the work. We've always been very disciplined in how we go about it. We have seen a couple of transactions that have gone down recently, where we were way out of the money in terms of our bid. I think -- couple, it they haven't been reported, they will be. One of them was reported and we thought that we had an aggressive bid.

There's nothing I can do as it relates to competitors who see something we don't and may be more aggressive than us, but we're pretty well-disciplined. What's interesting is we've gone back and looked at what -- we constantly monitor the marks that we've done to date on the three deals that we've done, and we're pretty darn close in terms of where we're at. I'm very comfortable with what Rich Murphy and his team do when they go in and they perform their portfolio analysis going in. On the assisted deals, I think that we do a pretty good job and in most cases it's a lot of work to work out of them. We're going to want to see some bargain purchase. I don't think we're going to be playing on the premium side, but who knows what might show up and maybe we will, but we're going to be very disciplined in how we go after that.

On the unassisted side, I have been a little bit amazed at a couple of the deals that have gone down, but I think if you can get your arms around it, and if there's something left -- if you can do your marks and there's something left on the capital side of the equation, and there's very good core earnings in the organization, and you can get those to drop right away through the beauty of purchase accounting and you don't have to put too much capital in to support a big good will number, there's a model there that actually works. Obviously, it has worked for a couple people who have gone in and paid big numbers for banks. I don't know if we can be as aggressive as some of the ones that have gone down, but it will boil down to the analysis that you do, the earnings -- can you make money on this thing and -- but you get to the point where some of these guys, it's just -- if you look at the target, the target can say I'm -- it's going to take me three years to work out of this on my own. I can take a number now, I can ride with the acquirer and through the beauty of purchase accounting, I can put this stuff behind me and get back to building and growing a business.

The assisted deals are going to be pretty interesting going forward. I think that we always were, just because of our culture and how we do things, I believe we were an acquirer of choice. We did deals back in the early 2000s where we might not have even been the high bidder on something, but because of how we're structured and how we work, people have liked that, and I think given the competitive market right now, we know pretty much everybody in our market area, or somebody in our organization knows them, and know how we operate. I think that that will be very helpful to us also.

I think you will start seeing more unassisted deals, but I don't know whether they will command the prices that some of these larger banks have done. But how many of those big, large banks are available? Quite frankly, we're not interested in doing really big deals like that. We're -- I like the $200 million to $500 million banks, where we can grow them after we get them and move us into a market and use that talent that we've had in the past of being able to grow organically, because that's growth without premium and that goes right to the benefit of our shareholders.

Hello?

We have time for one final question. Stephen Covington with Stephen Capital.

Hi, Ed. This is actually Joe Stieven.

Oh, going under an ail yes, alias, are you?

Actually, Ed, my last question was on the M&A side, and you got that already, but good quarter. Thank you.

Thanks, Joe.

This concludes our Q&A session for the program.

I would now like to turn the program back over to Edward Wehmer for any closing remarks.

Thank you, everyone. We appreciate you listening in, appreciate your support, shareholders and followers, you will be assured of our best efforts going forward. We're pretty fired up about 2011 and you got a staff here, a group of management and people here working who are excited about where we stand right now and where we think we can be at the end of 2011.

Happy new year, everybody, and now it's Steelers' fans. Go Steelers. Thanks, everybody.

Ladies and gentlemen this, does conclude today's program. Thank you for your participation and have a wonderful day. Attendees, you may now disconnect at this time.