Wintrust Financial Corp (WTFC) 2011 Q4 法說會逐字稿

Welcome to Wintrust Financial Corporation's 2011 first-quarter earnings conference call. At this time all participants are in a listen only mode. (Operator Instructions). As a reminder, this conference call is being recorded.

Following a review of the results by Edward Wehmer, Chief Executive Officer and President, and David 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 the Company's Form 10-K on file with the SEC.

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

Thank you. Good afternoon everybody, and welcome to Wintrust's fourth-quarter and 2011 full-year earnings call. With me as always are David Dykstra, our Chief Operating Officer; David Stoehr, our Chief Financial Officer; and Lisa Pattis, our General Counsel. With the General Counsel in the room I will not be using any verbs in this discussion.

As our normal procedure, I will talk in general about the full year and the quarter. Dave Dykstra will get into the specifics on other income and other expense and then return to me for a general outlook, what to expect, what we are looking at in 2012. And then as always we will have time for questions.

All in all 2011, other than the Packers winning the Super Bowl and the Cardinals winning the World Series, was a pretty darn good year for Wintrust, especially given the environment we were working in.

We celebrated our 20-year anniversary. It was 20 years at December 27 that we opened our first bank. We recorded record earnings of $77.6 million. We remained profitable throughout this current cycle, which we consider to be 2008 until now, with actually two of the years in the cycle being record years, 2009 and now 2011.

For the full year total assets grew $2 billion or 14%. Deposits grew 14% or $1.5 billion. Loans, including covered loans, grew $1.24 billion or 12.5%. Our loan portfolio remains highly diversified. Our commercial initiative to date has been extremely successful.

We had a big improvement during the course of the year in our deposit mix with demand deposits now comprising 15% of total deposits and CDs down to 40% of total deposits. It was demand deposits, although not as variable now as they will be in the future, were very nice -- it was very good to have them. We continue to work on this deposit mix and we will going forward.

We enhanced our overall franchise in 2011 through multiple acquisitions. We acquired Elgin State Bank in an unassisted transaction. We did three assisted deals -- First Chicago, The Bank of Commerce and Community First Bank. Did two mortgage companies -- Woodfield Planning and River City Mortgage. And Great Lakes Advisors added great capabilities and assets to our asset management business.

Our branding initiative -- we are getting Wintrust known and tying all the banks together -- is going extremely well. We used to say in the old days, you would go out and say you are from Wintrust, and people would say -- your what hurts? And now the doors are really open when we say we are from Wintrust. Our reputation is extremely good in the market, and we are getting many, many more at-bats than we have.

It has helped the commercial initiative a lot, where if you look at the year DDA growth of $584 million and commercial loan growth of $500 million on the books right now. And (inaudible) commercial loans we are still stuck at about 42% utilization, so there is a lot of upside there.

We closed 2011 with our best credit metrics since 2007 and very positive trends in that regard. If you look at a longer period of cycle to date basis, which we, as I said, consider the fourth quarter of 2008 until now, we have been able to get through this relatively well. We have grown our assets about 60%.

In total we did six FDIC-assisted deals and one unassisted deal being Elgin -- the two mortgage companies and Great Lakes, as we discussed. We did -- also did two branch -- closed down two branch deals in the process. A specially finance deal with AIG early on in the cycle was very helpful to us and that business continues to go well.

During that period of time, those three years, we recorded aggregate net income of $214 million. And we are one of the first around to pay off our TARP funding.

The fact that I am most proud of during that cycle period of 2008 until 2011, we raised our tangible book value from $20.78 to $26.72, an increase of almost $6 per share or close to 30%. Which just tells me we have not had to get through this cycle on the backs of our shareholders, and one of the few banks around of our size who has been -- who can actually say that.

In fact, on that fundamental basis of tangible book value 30% over that period, about 10% a year. So we are very proud of that and the way we have been able to add to shareholder value in that regard.

I apologize if this walk down memory lane has bored you a bit, but I think it is important to look at strategies more often than just a quarter and how they actually play out.

I know it is hard for a number of analysts out there that fit some of the things that we do into their models, but in fact, we take what the market gives us and we are in the business to improve shareholder value. And I think we have done a pretty good job so far of doing that. And I think we are extremely well-positioned going forward to continue to do that, and I will talk about that a little later.

The fourth quarter all in all was a very good quarter for us. It was somewhat of a noiseless quarter because it is the first time that I can remember that we haven't closed on a transaction.

The balance sheet. Total assets were relatively flat with the third quarter as core deposit growth was offset by the runoff of high-priced transactional CDs, the majority of which coming from our FDIC-assisted bank acquisitions.

During the quarter though demand deposits increased $150 million and non-CD interest bearing accounts grew by $217 million, and again that was offset by CDs falling by $370 million.

We were able to put that liquidity that we talked about last quarter -- that excess liquidity to work through loan growth, which totaled -- if you count all those held for sale and our covered loans, totaled $327 million. So that was helpful to our margin, which I will talk about in a second.

The loan growth which comprised of $161 million of commercial loans, $50 million of commercial real estate. Our home equity loans, as you would imagine in this refi cycle, dropped $17 million. Residential real estate was up $24 million.

It is kind of an interesting phenomena that what we are finding on the residential market is the real estate market appears to be bottoming out on the residential side and trying to find some footing to go forward. What we are seeing is a number of transactions that are arms-length transactions that are taking place in the market where I agree to buy your house for X -- for $700,000 let's say. We shake hands and the appraisal comes in at $600,000 because of all the for-sales that are going on out there.

So those loans can't be sold under Dodd-Frank, and we are actually affording people adjustable-rate mortgages on our books to get these deals done. These are good customers and it is trying to get off the bottom, I think, is the point I can bring up there.

The premium finance for both life and P&C was up $20 million and auto loans up $12 million. So it was good across the board loan growth, especially when reporting our emphasis on growing.

The loan growth helped the net interest margin and net interest income margin up to 3.45% from 3.37%, and net interest income up $6.2 million. Sometimes where -- we look at it often and we put it in the -- in our press release. The covered call strategy that we have employed for 20 years really is an enhancement to the margin. If you put that into the margin, you will see that the margin was up from 3.47% to 3.6%.

These were good results in spite of the fact that our life loan portfolio -- our purchased life loan portfolio actually produced $2 million less of interest income versus the third quarter. This was due to the fact that there were virtually no prepayments in the fourth quarter under this 0303 accounting, and we were required then to actually extend the life of that pool. And when you do that it dropped down our yield on that portfolio.

I would imagine going forward if we return to normal prepayments that we can get some pickup there, but basically no repayments right now, that yield has bottomed out.

That was offset, however, by good performance in our covered asset portfolio, which is performing better than initially expected as a result of our conservative additional underwriting and the terrific execution by our people in resolving these issues in time faster than we anticipated, at values better than we anticipated. The yield on that covered asset portfolio approached 9% from 7.5% in the third quarter.

Our cost of funds, as anticipated, dropped by about 13 basis points quarter-over-quarter as a result of deposit repricing and a full quarter of our new swaps in place on our trust preferred securities.

Credit quality. Credit quality statistics are the best they have been really in a long time. NPAs and NPLs both decreased nicely quarter-over-quarter and year-over-year. They are the lowest that they have been since 2007. And reserve coverage of our NPLs at 92% is the best it has been since 2007.

The trend of net performing loan inflows is also very positive. Inflow was $25 million in quarter four and has really been averaging about a $10 million decrease quarter-over-quarter throughout all 2011. There is no assurances that this will continue, but as of now our trend is our friend.

Reading a number of the initial analysts reports that came out on our earnings there was some discussion about TDRs. As you know, my feeling if you listened before about TDRs, I think that accounting rule is right up there next to hedge accounting in terms of being ridiculous. But if you look at the increase in TDRs approximately 88% of that related to rate reductions. And, again, the rate reductions that come through, if they are not considered market, it has to be considered TDR. And about 12% of it really related to the old A/B loan structure.

So those are loans where we had to charge off a part to rationalize the loan and take a (inaudible) back. But most of them just have to deal with rate reductions, 88%. And those rate reductions really went on average on a weighted average bases from about 4.86% down to about 4.1%. So it is not in the 2% or 1% range.

This is just the nuances of this particular accounting principle that says what is market and what isn't market. And the 88% we are talking about are good customers that never missed a payment. And it is hard when they -- with rates as low as they are, they come in and they have been great customers to fight when they want to lower their rates and the like. And this is a short-term, in our opinion, temporary, things will come back to normal, and we want to maintain those customers going forward.

That being said, even though credit was good, and as many noted there was a bit of a reserve release, which I guess is the nomenclature of this right now, earnings were still burdened by $28 million of credit costs between our provision and our OREO write-downs. If you add the $2 million, $2.5 million of professional expenses related to collection, credit is still beating us up by $30 million a quarter, at least in the last quarter.

Hopefully, as our credit portfolio we are able to make -- aim these trends going forward, those credit costs will come down. There have been many comments I have heard over the past couple of days that, while there won't be reserve releases per se going forward.

But the fact of the matter is with $30 million of credit losses, we believe that if we are able to continue to glide this airplane down and continue to reduce our nonperforming loans, be very aggressive on writing them down, which we always have been and will continue to be, that those credit costs could hopefully be reduced in this quarter and go forward.

So there is -- we always operated at 30% to -- 25% to 35% to 40% of what our peer group is in terms of credit costs. And I think that we will be -- we have done that in the past and I think we will be able to do that as we actually -- the portfolio cleans itself. We already -- and they can normalize -- get back to a normalized sort of situation.

Now I'm going to turn it over to Dave, who is going to discuss in detail other income and other expense categories.

Thanks, Ed. As Ed indicated, I will briefly touch on the more significant non-interest income and non-interest expense sections and generally focus on quarter-to-quarter, third quarter to fourth quarter changes.

In the non-interest income section our Wealth Management revenue stayed relatively flat in the fourth quarter compared to the third quarter, but it was down by only $300,000 to $11.7 million. And that was primarily on less trading income at the brokerage company. However, on a year-over-year basis Wealth Management revenue totaled $44.5 million, which was up $7.6 million or 20.5% from the amount recorded in 2010.

So good growth this year in Wealth Management, and we still have a lot of optimism that that number will continue to grow as we mine customers from our banks that we have not cross-sold yet on, and new business and selling efforts of our folks in both the asset management and the brokerage side.

The Mortgage Banking revenue improved to $18 million in the fourth quarter from $14.5 million in the third quarter this year. It was less than the $22.7 million recorded in the fourth quarter of 2010.

We originated $883 million of mortgage loans in the fourth quarter compared to $642 million in the third quarter this year, and the $1.25 billion that we did a year ago. The low interest rates that occurred generally in the mid to latter part of August last year and continued through to the end of the year substantially helped the fourth quarter, although a little bit less than the amount that we had in the fourth quarter of last year.

And I think generally the thought on that is that a lot of people refinanced last year. And many of those refinanced again this year, but there aren't quite as many people that are still in the pipeline that can refinance or it makes economic sense for them to refinance again, but still good. The rates are continuing to be down.

This is obviously subject to where interest rates go, this revenue line. But we expect to have a decent first quarter. We will just have to see how long rates stay down and how many people continue to want to refinance their probably already low mortgage rates.

We did not complete any FDIC bank acquisitions in the fourth quarter of this year, and accordingly there is no bargain purchase gains recorded in the fourth quarter. That is compared to the $27.4 million that we recorded in the third quarter related to the First Chicago Bank & Trust deal from the FDIC.

Fees from covered calls totaled $5.4 million in the fourth quarter compared to $3.4 million in the prior quarter and $1.1 million in the fourth quarter of 2010. As Ed mentioned, we have done these covered call transactions consistently throughout the years. And we utilize those to supplement the total return on our treasury and agency securities that we hold, and it does help mitigate pressure on the margin in a low rate environment.

Miscellaneous non-interest income continues to be positively impacted by interest rate hedging transactions related to customer base interest rate swaps. The Company recognized $1.6 million in revenues in the fourth quarter compared to $2.7 million in the third quarter of this year and $866,000 in the year-ago quarter.

Additionally, our other non-interest income was positively impacted by approximately $700,000 of valuation adjustments on limited partnership investments that we own at the holding company.

If you recall last quarter, we had a $1.4 million charge on that line item, and so there is a little bit of a swing in that category in the fourth quarter from the third quarter. Generally in the past evaluation impacts from these investments have been fairly small, but the third quarter and the fourth quarter of this year they were slightly bigger. If you want to see history on that line item, we show it on page 19 of our earnings press release.

There are really no other significant categories of non-interest income that had any large changes in the income levels that deserve any special mention beyond what I have already talked about.

Returning to the expense category, expenses were higher this quarter and there were some, I guess, called lumpiness in there. Some unusual items related to the acquisitions and the like, and I will try to walk through with you each expense category here and point out the more significant unusual items during the quarter.

Our salaries and employee benefits increased by $4.9 million in the fourth quarter compared with the third quarter of this year. Approximately $2.2 million of that increase related to commission expenses. And primarily the commission expenses related to the mortgage production during the quarter, as our revenue increased commissions generally are about half of the revenue increase and so that made up a significant portion of the increase for the quarter.

The fourth quarter was also impacted by having a full quarter's worth of expense related to employees added as a result of the acquisitions in the third quarter. If you remember, the Elgin State Bank acquisition didn't occur until the last day of the third quarter, September 30. So the third quarter was really not impacted by Elgin, whereby the fourth quarter was fully loaded for the transaction and it accounted for about $650,000 of the increase.

We converted Elgin's over onto our systems in December of this year and so we should be able to realize some leverage out of that going forward from an employee-based perspective.

A portion of these compensation levels are still elevated as we are still in the process of integrating the recent First Chicago acquisition. And until we convert that in March of this year, those staffing levels will be elevated somewhat as we maintain them on their existing system and put in the effort to get that converted to Wintrust system.

And then the quarter also saw some higher expense levels recorded for variable pay in the form of bonus accruals, long-term incentive accruals, and it made up the majority of the remaining increase from the third quarter.

The occupancy expense increased in the fourth quarter by about approximately $463,000 compared to the third quarter. Specifically the third -- the fourth quarter included about $500,000 of additional nonrecurring occupancy expense related to two facilities that we acquired in the First Chicago acquisition.

We ultimately decided that we weren't going to keep two of those facilities. And instead of owning them and keeping them on our books, if you dispose of those facilities you have got to settle up with the FDIC for rent expense, and so the amount of settlement with the FDIC related to those facilities was approximate $500,000.

So that really made up the majority of the increase in that category quarter-over-quarter, but the quarter also included carrying 11 new facilities that were acquired from the third to the fourth quarter, where we had a full quarter's worth of expense. So I think other than the one-time expense that we talked about, occupancy expenses really held their line fairly well.

Data processing expenses increased $226,000 from the third quarter of this year. Again, the increase in this category was impacted by the acquisitions that we did in the third quarter. Specifically we did convert Elgin in December, as I said earlier, and we had approximately $646,000 of conversion-related expenses associated with converting their data processing system over to ours. So again, an initial expense for the quarter that won't be recurring as it relates to Elgin going forward.

Professional fees declined by $1.4 million in the third quarter to $3.7 million. Now the third quarter, as you recall, was usually high as we had the legal costs associated with the three transactions that we closed in the third quarter. And the accounting rules now indicate that legal fees associated with an acquisition have to be expensed. We had no such acquisitions in the fourth quarter and so that was the primary reason why legal and professional fees went down. We do have elevated cost on this category as we work through the collection of the nonperforming loans and working out of our OREO.

Additionally, as you may be aware, we recently hired an in-house General Counsel and we anticipate that this should allow us to reduce some of these legal expenses on an ongoing basis. And her management of our legal matters that we outsource we believe will be managed in a much better way, and her expertise should help us reduce legal expenses going forward.

Advertising and marketing increased to $3.2 million in the fourth quarter from $2.1 million in the prior quarter. The primary reason for the increase in this expense category is that we spent a fair amount of money in the latter part of 2011 with a significant marketing campaign to really promote the Wintrust brand and our ability to offer affiliated banking to all of our customers.

We now can have any customer of any of our banks do their banking at any of our nearly 100 locations around Chicago. And this is important from a consumer side, but it is also very important from a commercial banking side. Many of our commercial customers really want to have multiple locations where they can bank. And so we are getting the word out about the Wintrust brand, the ability to do affiliated banking. And although there is little extra investment in advertising this quarter, we do think that is going to reap benefits down the road as we grow our consumer base and as we grow our commercial base and the loans that would come from that.

OREO expenses were elevated to $8.8 million in the fourth quarter from $5.1 million in the prior quarter and $7.4 million in the year ago quarter. The $8.8 million was comprised of $6.2 million in valuation adjustments and approximately $2.6 million in carrying costs for the properties that we own.

Obviously, this category fluctuates depending on which properties we have in the portfolio and the appraisals that we get on them. We are fairly religious about getting updated appraisals. The market is still under stress, and we just don't play games with this category. We will get our appraisals and we mark them appropriately.

So a little stress in the commercial real estate market. We take our -- we took our hits and we will continue to do so, and try to aggressively move these properties off the balance sheet. And so hopefully this is more elevated than we have seen in the last three, four, five quarters. And hopefully we will be able to move these out and as the OREO balances come down this valuation fluctuation can subside.

Page 39 of our earnings release will give you plenty of detail on the activity and the composition of our Other Real Estate Owned portfolio.

Other non-interest expenses increased approximately $2.6 million from the prior year -- or the prior quarter. The primary reason for this compared to last quarter is a result of higher loan collection costs related to our nonperforming assets, as well as our FDIC covered assets. We would anticipate these costs would abate over time as our NPLs continue to decline.

And the remaining of the increase is a variety of other and less noteworthy changes, some of which are obviously related to the growth that we've had over the past couple of quarters with our acquisitions.

Overall, we are aware that expenses spiked a bit in this quarter for a variety of reasons. Some of them are unusual and should not be recurring. OREO valuation adjustments were unusually high, but as I said, we are committed to realistic -- being realistic about our property valuations, being out in front of those, and these should subside as we dispose the properties.

If you look at the non-valuation costs in our system, you know, the quarter was lumpy. We do believe we have leverage in the system. We have grown a lot, as Ed indicated, over the last few years. We think we have ability to leverage that growth now. Our staffing levels at some of our recently acquired banks, once we get through the conversion, should be able to be reduced. Advertising and marketing and marketing costs should return closer to historical levels as we moderate the advertising efforts that we devoted to our branding efforts.

Occupancy expenses, as I indicated had some -- a large unusual one-time type of adjustments for the First Chicago FDIC transaction, as well as the data processing conversion related to the Elgin transaction. Both of those were fairly significant charges that certainly won't occur again with First Chicago or Elgin.

We are always looking for ways to improve our leverage with vendors and the like, and with our increased growth could we can generally go back and negotiate better prices, and we are actively doing that.

And then we should be able to leverage on the employee set going forward. There is attrition going on. We have challenged all of our entities to try to give responsibilities to others within the group. And just to make sure that we are not retaining any unproductive employees in the system.

So we are constantly looking. It is a little lumpy this quarter, but we really do believe that the overhead expenses as we continue to go forward here and grow will come down as the ratio of the assets and will be able to provide good leverage for future growth.

That is what I have and I will throw it back to Ed.

Thanks, Dave. With 2011 on the books we can look forward to continued progress in 2012 on all fronts. I look down here, I always think -- and when New Year's Eve at 12/31 I always tell my wife, I said, do you hear that? She said, what? I said the rock just rolled back down the hill. We have to be like Sisyphus and now we have got to push the rock back up the hill. And the slope is always bigger and the rock is always bigger, but we are prepared to do that.

In the fourth quarter we were able to put a lot of our excess liquidity to use. The loan to deposit ratio now stands at 86% at year-end and well within our target range of 85% to 90%. That means we still have some room to absorb a little bit more liquidity.

Loan pipelines at year-end remain strong. The gross six-month pipeline stands at over $1 billion, on a weighted average basis it is closer to about $800 million. If I look back now -- we have given you pipelines statistics before, these pipelines have been relatively constant as you can see by the loan growth that we have had. And assuming a 50% sort of draw rate on a lot of these right now, but the pull through has been very close to these pipelines. So the pipeline remains very strong, and continues to be well-populated even after we close transactions.

Our goal, as you know and as we stated, is to get back to being asset-driven like we were prior to our adoption of the strategy that served us so well during this cycle. Again, that means that we create more assets than we need and that allows us then to go out and expand the franchise in terms of new deposits, in terms of core relationships and households.

We have yet to even begin marketing in all of the new branches we picked up, as we have been pushing to absorb the liquidity that we have received as a result of those deals and those acquisitions. So that is our goal is to get back to that growth mode knowing that every dollar we bring in we could make money on.

So we are going to be working really hard to maintain the net interest margin this year. There is going to be some headwinds on the margin, as you all anticipate and know. There's competitive headwinds and then there is just the overall rate environment headwinds that we have to deal with. But our loan pipeline is strong and should be able to help us negate that.

Also providing a bit of headwind is over the next few months we are going to have to build up approximately $600 million worth of liquidity in order to retire the $600 million securitization that we have outstanding. So for a period of time our liquidity is going to have to grow a bit and that gets out at 10, 15 basis points come out while we wait to pay that off.

The bonus, the jackpot, comes when we do pay off that securitization and we pick up 2% on $600 million on our cost of funds. So that is going to be a little bit of a headwind over the coming months. We will try to get out of that early, but you never know if that is going to work or not.

Hopefully if the life loans return to normal prepayments we can have some pickup there. We are also looking at any number of other opportunities that relate to earning assets.

Also, there is still good room on deposit repricing. As noted in the press release, CDs are maturing in the next six months. They are almost $2 billion at a current cost of 1.05%. But if you take 70 basis points as kind of the go rate on those right now there is good pickup.

Then there is additional $750 million that comes through in the second half of the year that is almost at 1.3%. And if rates stay the same, again, we should be able to achieve some cost savings there which should help the margin and help also offset some of the headwinds that we talked about.

So hopefully our additional loan growth, some of the things that we are doing here, we will be able to fight the good fight and maintain our margin going forward.

Notwithstanding that, obviously net interest income itself we expect to grow nicely through the year as we execute on booking these loans and going forward.

We also hope that during the course of the year if trends continue on the credit side of the equation that we should be able to reduce our overall credit costs, which again were over $30 million in the fourth quarter. Now there is no assurance that that is going to happen. We still will be very aggressive in pushing things out. The sooner they are gone, the sooner we get to experience the relief in the credit costs, so we are really identifying and push things out as fast as we possibly can, and that is consistent with the strategy we have had throughout the cycle.

So in conclusion, we think we can continue to grow and to build -- to continue to build our income and during the course of this year. Dave talked about expenses. The fourth quarter was very lumpy. We actually took the fourth quarter to take a breath and to look back. When you grow 60% in three years you obviously develop some inefficiencies, and our budgets for this year's have pushed through a number of cost-saving ideas and concepts.

As Dave said, as we convert First Chicago and some of the other institutions that we have picked up there will be savings that we can experience on the expense side, especially personnel expense and the like. So we are very focused on the expense side.

But, also, if you think of the amount of money we have spent in terms of the investment we have made in our commercial initiative, how well it has paid off this year. Guys tell me they're operating at about 30% or 35% capacity now in terms of the infrastructure we have there. That is a main growth target for us as we continue to build that out. Our reputation is pretty good out there right now and it is opening a lot of doors, so we hope to be able to get some leverage on that.

But I also think 2012 is going to be a very interesting year, again, on the possibility of acquisitions front, assisted and unassisted deals. We remain very, very busy with incoming calls on potential unassisted transactions. There is still a lot of stress out there, so we are not -- we are still being very, very careful and very disciplined in our approach to that.

But we continue to look at asset managers, mortgage companies, and in the specialty finance area we were seeing all sorts of opportunities, but as you know we are very, very picky.

Getting back to an asset-driven organization will allow us to get back on an organic growth trend and continue to build the franchise value of this organization.

We really like where we sit right now. I think it is our opinion that banks -- community banks and metro areas under $1 billion it is going to be awfully hard for them to really survive and thrive going forward. Not just because of regulatory burdens that we all know are increasingly expensive, but the ability to generate assets in this market is going to be kind of tough because we are all looking for good earning assets, and even the very large banks are pushing down deeper into that market.

It is going to be hard for them to work through. And I think many of them are realizing that. And as time moves on a lot of the banks that we have gone in and visited already, that may have not been in a financial position to pull off a deal, we are still staying very close to a number of them. And time moves on, they are able to solve their problems. And we think with our consortium of community banks, our approach to how we deliver services in this market -- our research says that 50% of the people still want a community bank, a smaller bank to deal with them. I think we are in the right place at the right time to really thrive.

So given all that we look to 2012 with confidence. Still a lot of moving parts here, but we feel good about where we stand competitively. We feel good about where our balance sheet stands and we feel good -- pretty good about our future. So with that we can turn it over for some questions.

(Operator Instructions). Jon Arfstrom, RBC Capital Markets.

Just a question for you on loan growth. You touched on it a bit, but you have had a few pretty good quarters of C&I growth put together. And I am just curious where you think that is coming from, and if you could give us a little more color on the profile of what kind of business you're getting?

It is the classic middle-market business and it is basically not new lending. This is all just market share redistribution. We have -- with a lot of things going on in the market we have been able -- and with the people we brought in and the contacts they have had we have been able to take probably pro rata from smaller banks and bigger banks, good middle market companies mostly from the bigger banks. And the pipeline is relatively the same. [As the story] said over $1 billion, but the composition of it really hasn't changed that much.

One of the things that we don't see right now in the pipeline is the small-business initiative that we are embarking on for this year. We put in a lot of infrastructure for the middle-market initiative. And that infrastructure can actually be leveraged into emerging middle markets or a little smaller type of companies and small business. We, as I mentioned on the last call, had brought in a crew who are well-versed in SBA lending. They are off and running right now with a pipeline right now of about $25 million, $30 million, but we expect that to grow also.

So I think we will see the same sort of pull-through on the commercial side which now predominates the pipeline, but we expect the pipeline also to start picking up some of the smaller business as we go after that on a targeted basis. So I hope that answers your question.

Yes, that does.

Utilization is still 42%, 43%. Really our middle-market companies that we picked up are all doing very well. But they were sitting on so much cash that we haven't seen any increase in utilization at this point in time, but that will happen.

Dave, a question for you. On the -- obviously the First Chicago loans that was a big pickup and the potential accretable difference, but what kind of a life are you assuming on those loans?

You've got to segregate these down by pools. So each pool has a slightly different life, but on average we are probably roughly in the three-year range. The loss share ends after five years and so we are really targeting game plans here to get them out before we get right up to the end of the loss share period. So we don't fool ourselves if we think it is going to take longer, but on average I think it is roughly the three-year period.

So that is likely to last for a while?

Yes.

That is it. Thank you.

Chris McGratty, KBW.

Thanks for the help on the expenses. You outlined a few kind of nonrecurring. But just digging into First Chicago a little bit more, the numbers I'm seeing, they are right filing before the close. They are roughly running $10 million, $11 million a year, salaries. Dave, what can you -- how can you help us out in terms once the conversions are finished what kind of -- what type of efficiency you can get off that number?

I hesitate a little bit, because until we let -- you want to work through your numbers here and see who is staying around and you're keeping. We have -- the number you referred to there obviously had a lot of their senior executive officer in there and had a lot of their loan officers in there. And a lot of those people just don't come over with the deal, so a lot of the high price people are out of the equation.

Now what we end up keeping is the frontline people that are consumer-facing, the personal bankers, the tellers and the like. And then you have some in the back office people, and we really need those people around to get us through conversion and we need some of them after conversion.

And as we have attrition within the rest of the organization what we would like to do is find homes for those people. But the savings is really going to be in the back office side. We don't have the high-price people in there that are going to come out of the equation anymore.

But we do have -- we have two branches that are within a Jon Arfstrom driver of each other that we will be closing down and consolidating those branches, which should bring additional people cost savings into the equation.

So we haven't come out and told any number -- we don't give guidance on that. But suffice it to say that there are significant savings, majority of which will be achieved when we can get the conversions under our belt.

Right. As I mentioned, two of those we settled up on with the FDIC at the end of the year basically, and so we will be able to get some of that in the first part of the quarter. But the conversion really doesn't take place until the middle of March. That is when we could get a conversion slot that works. So there will be some of that goes away in the first part of the quarter, but the majority of it would be really towards the latter part of the first quarter.

The second quarter then. So I am thinking about right way this $67 million personnel cost this quarter. You were $62 million before. We should be at the high water mark now. And then over $12 million kind of bridge the gap between pre-First Chicago and post, is that a fair assumption.

Depending on commissionable -- commissions were a big number this quarter.

The commissions will -- if mortgage volume goes up or down the commissions go with it. So our mortgage revenues are up $4 million roughly and the commissions are up $2 million. So if that goes up more you will see some more commissions. But we are really not -- as Ed said, we have capacity on the lending side right now, we think, so we are not adding a lot there. We are holding the line across the board as much as we can. So if we can get more efficient once we get through these conversions I really don't expect it to increase much.

Okay. Just one on the Wealth Management. Maybe I missed it. The decline this quarter, can you just maybe touch on -- you had the acquisition in for the quarter and I was wondering was there anything unusual and what is the run rate for next year?

Well, a lot of it just depends on the markets.

Yes.

On the Wealth Management side, you guys know that business, it is a function of market value, and the markets had a good start this year. And we continue to grow our assets under management, so if markets go up that will be good. If markets go up that actually aids our commission-based brokers also.

So the fourth quarter was kind of kind of wacky in terms of -- market wasn't your friend. It seems to be better in the first quarter. And we continue to do it on a growing base. So I think that the base is growing, but we are subject to the whims of the market in terms of overall revenue.

Trading volumes are down a little, as I said. But you remember that the acquisition of Great Lakes occurred on July 1, so we had a full quarter of them in the third quarter. So there really isn't any noise as far as a partial quarter in the third quarter and a full quarter in the fourth. We had full benefit of their business in both quarters.

Okay, just last on the tax rate. Why should we be using for an effective tax rate for the year?

Well, I think what we have in there now is a decent (multiple speakers).

41% or so?

It was 39.4% for 2011.

Okay, thanks.

Emlen Harmon, Jefferies.

Could we loop back to the margin a little bit and just talk about -- obviously you guys had a couple of helpers in the quarter with the swaps and then the covered asset yield going up. Just talk about the core margin a little bit and what you saw there.

And obviously I think one of the things that dinged you a little bit there was the loan yield was going down. And just kind of what you're seeing in terms of pricing, how much of that was due to repricing new loans versus new loan growth?

The life insurance portfolio didn't help us much with $2 million less in revenue period-over-period. That didn't help us on the asset side. On the P&C side, the property and casualty side, we also had about $1 million less revenue. Those rates were dropping. And as I have said on previous calls, that portfolio has gone from being in the good old days before the cycle of prime plus 4 portfolio down to prime plus 2 -- a little over prime plus 2 right now, and that has been falling.

But we have taken steps now to stem that tide. When the cycle hit in 2008 we really decided to clean up -- not that that portfolio was dirty -- but to really make it really very conservative. We didn't know what to (inaudible) the rest of the portfolio was going to do, and we figured we don't need any problems over here. So we really -- we used to run and think running at a 3% delinquency and the premium -- the P&C premium finance portfolio was our benchmark. We got that number down to 1.5%, which is a great number.

But it also took away our late fees and took us out of some businesses like transportation and other business where you can get some higher yields and higher rate fees. It might be a little dirtier in terms of some charge-offs.

We are going back into those businesses again and try to hopefully stem the tide in terms of what has been a death by 1,000 cuts, whereas the rates have been falling in the P&C portfolio. So if you look at that that is one-third of our portfolio on the asset side where our yields went down, and that didn't help matters much.

On the commercial side of things, yes, it -- our commercial portfolio yield -- Dave, you have got that over there -- but really didn't go down that much this quarter. I don't have the specifics in front of me, but quarter-over-quarter might have been a couple of basis points. Plus real estate was down a couple of basis points.

But, yes, it is a competitive environment out there. And there is pressure on the pricing side of the equation. We are not giving it away though, although we are having to compete in that market.

But that being said, you know that back in 2008 when we hit a point where we just couldn't get returns, we just turned it off and we wouldn't do it. We will do the same thing. We haven't changed our profitability analysis on bringing these -- on bringing business -- bringing accounts in.

But that being said, there is competitive pressure to drive it down. And hopefully through our mix of assets, hopefully through what we have done to remediate the yields on the premium finance portfolio -- by the mix of assets, I mean you saw us grow $50 million in commercial real estate. We still are -- this is the time where rebound real estate makes sense, and we actually can get pricing. We are -- we are fighting the battle. And so we -- but it is competitive out there.

Okay, thanks. Then one other question on the -- just understanding the mechanics of the covered call income. Obviously had a nice ramp up in that the last few quarters. Could you give us a sense -- is the notional value of that book growing? Is it just valuation that has been helping you out the last couple of quarters here? I just want to understand how we should think about that on a go forward basis.

The notional is not growing that much. You can actually see in our balance sheet -- if you look on the face of the balance sheet, we have got a line item in there that is called trade day securities receivable. It was $637 million at the end of September and $634 million. They are down there because those securities were called right before the end of the year.

And so the accounting rules say you got to break them out like this. But that is about the amount of securities that we are writing calls on. They are treasuries and agencies. The difference between quarters is really volatility. Volatility drives the fees that you get quite a bit.

So if vol is up, the fees they get go up. If volatility is down, you get a little less. And so we just continually consistently write on that. So if you have new securities you can write up par and volume is -- or volatility is high you will get more. If for some reason they don't get called away and rates move higher then you will get less. But really the fluctuation in the last few quarters really have been more volatility driven than anything else.

We have been doing that strategy for 20 years. It is all -- it is a strategy that edges our positive GAAP, which we are -- we are still trying to keep in the 10% to 12% range right now -- our positive GAAP that is. And it is basically our hedge against falling rates. Rates start moving up, decompression plus asset repricing is really the beach ball under water that we are trying to plan for as it relates to our margin.

So we will take advantage of this as long as it is there, and have in the past. I can't tell you how many millions we made. We actually just consider it part of the margin, and that is why we presented that way as an alternate fashion in the press release.

Right. If you go on the back we will show that analysis of here is the margin with and the margin without. But like Ed said, we look at it as a way to enhance the yield on the securities and a way to hedge against a falling rate environment. Hedge not from the accounting perspective, but hedge from the layman's perspective.

If we were to do this type of a transaction and try to accomplish the same objective by using a floor or some sort of interest -- rate derivative, any of that change would go up in the margin. But because we are selling a call it is deemed to be fee income and it goes down on the non-interest income line.

But it is sort of a macro hedge against falling rate environment on our balance sheet. And we have done it consistently quarter after quarter after quarter after quarter. And the fluctuation here really was, I would say, volatility the last couple of quarters.

Got you. Okay, thanks. I appreciate that. I appreciate the answers.

Brad Milsaps, Sandler O'Neill.

Just a question. Most of mine had been answered, but you commented on the securitization funding rolling off, I guess, maybe in August or in the third quarter. You mentioned building liquidity. You have got -- I don't know -- $2 billion in securities and other close to $1 billion in cash currently on the balance sheet. What are you guys thinking in terms of what you need in liquidity to operate. I just wanted to square those comments with you.

My thought -- my initial thought was you have the liquidity on the balance sheet to take care of that without having to raise any additional money.

The problem with that is we actually have to put it into escrow to pay -- to be available to pay -- we have to put it in the trust to pay it down. The trust isn't paying what we can get on the -- through our own normal investment activity. So that is where the drag is going to come in is of that $600 million sitting there on the day that we close it out. So it will be a bit of a drag from that perspective, because it has got to be liquid overnight and you don't get anything on that.

But all in all we are glad we did that transaction because it did make a hole in the balance sheet and allow us to do the AIG transaction. So this was a little bit backwards pain. And like I said at the end, when we retire it that will be worth 2% for us on $600 million. That is real money flowing into the margin. But it is going to provide some headwinds just because we can't invest it like we invest our normal investment portfolio.

Okay, got it. Then just a second follow-up. You guys have had a nice mix change in the deposit base. I am just curious are you pleased with what you have been able to keep for Chicago? And is that where most of the runoff in the CD book came this quarter? I am just curious what you have kept versus what you have wanted to keep kind of that you are six months into the deal now?

Out of First Chicago the number that ran off was around $70 million, $71 million of the total. The rest of the switch out of CDs actually were internal switches into savings accounts or money market accounts and the like. So we lost about $70 million out of that. And that was really all transactional high-priced money that was not in the zip codes that these branches actually service, so we let that run off.

We work very hard to make sure if there are households with multiple accounts within the service area of all those First Chicago branches that we maintain those. So, yes, we have been able to keep what we want out of there. And we look forward to being able to actually start very actively marketing out of these branches when in fact we hit that asset-driven position.

First Chicago was an interesting transaction. And I think I said this on an earlier call, it was the tale of two banks. You had the old Bloomingdale Bank & Trust, which was a real good strong community bank. You had Labe Savings on the north side of the city, which was a very strong old name, old-line community bank. And then when they cobbled together the First Chicago they went out and raised deposits and did sort of transactional lending, and that is what got them into trouble.

So you would expect that bank with $900 million or whatever when we picked it up, there was really only about half of that -- 60% of that that was really core bank there. And we have our sights on maintaining that. We have actually, I think, been able to hold and do a little bit better than we thought we could do.

So it is holding in right where we thought it would. And like I said, I'm very pleased with the work that Dave Larson and our Purchased Assets Division in terms of their ability to get their arms around the -- we are seasoned veterans in dealing with FDIC deals and being able to get our arms around them, to document them properly and to move them at values better than anticipated and times that are faster than anticipated.

Great, thank you.

Terry McEvoy, Oppenheimer.

Could you talk a little bit about the opportunities in some of the newer markets that you have entered over the last couple of years through the branch acquisitions? Where should we expect to see that growth; is it on the deposit side? And then I guess expenses related to maybe capturing some of that market share, any estimate there?

Well, really, we have moved into a lot of new markets. The north side of the city of Chicago is a huge market for us. I think I have said earlier that within three miles of those branches there is -- I can't remember the number offhand, I don't want to say it -- but almost 4 times the density of what we have in our legacy type branches in terms of households in people.

And, yes, what we would be looking at is the retail side of the equation to support the commercial that we are bringing on the books and then the commercial kind of follows.

So the north side of the city of Chicago is a huge growth opportunity for us just because of density and I believe what we have to offer. We also moved into Des Plaines, Mount Prospect and Park Ridge, the three areas that are great market areas that we should do very well in. They fit very well into our -- right into our wheelhouse, if you will. And then -- you know, on the south side.

So we feel very, very comfortable. We are really chomping at the bit to start marketing. And, again, that is what we used to do back before we went into the cycle, we were very good at moving into markets, moving very quickly to one or two in market share both in deposit generation, and not just total deposits but rooftops penetrated.

And again that is -- you get -- when you move out of the retail side it will help your mortgage business, it will help your wealth management business. You will probably get maybe 6% or 7% in retail lending that you will pull out of there. You probably will get 10% to 15% in local business lending. I saying 10% or 15% of the deposits you are generating. And the rest will come -- one-third of our business comes from the niche businesses, which we expect to grow, and from the commercial and other initiatives that we are doing.

So we think that the opportunities are pretty good and they are -- and, again, that is why we are spending the money -- another reason we are spending the money on getting the Wintrust name out there and getting the convenience out there. Still that local alternative to the big bank, but we can offer the same set of convenience, same or better products, same or better delivery systems as the big banks.

The cost of doing this, well, you are seeing some of it in the marketing, as we have positioned that ourselves to be able to do it. And the real costs will come through if we have to pay up a little bit for deposits, which in the past we always were able to pay up a little bit because we always had the assets to cover.

So that is where -- to bring people in through offering the bundled account packages that we offer and the like, and there is usually a teaser account associated with it. Most people open three or four accounts when we win them over to this. That teaser account is a one-time sort of thing that we are able to get them in on.

But that is kind of the main costs will be the amount of teaser that you bring in. But, again, we have the assets to cover, and that is when we turn the switch on and build it out. But we are actually excited about that and can't wait to get back into what we know how to do well.

And just a question on M&A. The unassisted deals you're looking at today, would they have been potentially assisted deals last year? And I guess what I'm getting at were there banks last year on the cusp of failing that have made it this far and now you are -- I won't say forced to look at them -- but now you are looking at them through an unassisted channel?

No. Many of them are -- the fact that we have only done one should tell you that there is still some stress out there. When we go in and we look at these organizations, these are good people who have got screwed up and things in terms of the asset side of the equation.

We go in and we apply the marks that we apply to our own portfolio to their portfolios. And when we do that -- and let's say you had a $300 million bank and the guy is sitting on $20 million worth of capital, and we apply the marks that we use, that $20 million can actually go down -- you could have $30 million worth of marks, which would apply for paying nothing and having $10 million worth of goodwill on the books.

When you run the numbers on that, and knowing that you have to keep 10% or 11% capital in these banks, and then have to go dollar for dollar with capital on the goodwill, you would have to -- you would have to put in $30 million, $40 million, $50 million into a $300 million bank to make it work, and you just can't get the returns on it.

So we stay close with the people. Time will help them. The regulators really -- we like to think that there is a -- we do think there is an uneven playing field out there. We are looking at appraisals in some of these places that are three or four years old and discounted 20%, or actually should probably be the inverse of that. But they're giving them time to work out their issues if they have got any sort of capital left and there is no run on the bank.

But time will help them if they are -- over time they will use their core earnings to drive some of these bad assets out. If markets get better and help them make some of those bad assets even a little bit better then they become very valuable.

And those guys will come out relatively tired. And we are still keeping close in talking to them, but the economics just don't work on a lot of them, because I think we are very harsh with our marks, just as we are on our own book.

But I will tell you the inflows of calls have not stopped. Our teams are out constantly, but there is just -- like I have said before, it is the little girl going through the pile of manure and saying there is a pony in there someplace, and we just can't find a lot of ponies right now.

This is David. I would say the one thing that maybe we are seeing a little bit different on that is, you know, that the things we are looking at right now they haven't turned around in a year. So they're not the ones popping up.

But you are seeing -- we are seeing more inbound inquiries from people that maybe thought about raising capital and couldn't do it and maybe thought about selling the whole bank and couldn't do it. And now they're looking at pieces of the bank to delever. So maybe they will sell a branch or maybe they will sell a division or maybe they want to sell a location or something.

So some of these guys are trying to sell off pieces where they can delever the balance sheet a little bit, possibly pick up a little bit of a gain off a deposit premium, or maybe they have got an older building that they have got a lot of depreciation off of where they can maybe pick up some value from that, or a trust business or some other fee business.

So we are getting more inbound calls for pieces of business as well as full banks yet, but probably more inbound calls for pieces of business than we did a year ago.

Okay, thank you.

Peyton Green, Sterne Agee.

A question on the overall credit mark that you have on your FDIC covered assets. I guess at the end of September you had about $1.255 billion in unpaid principal. I think the market gets -- the credit mark was about 39%. How often -- and I guess you review the mark versus the accretable yield. Is that done every quarter and adjustments made or was there one particular --?

Every quarter.

Okay (multiple speakers).

We do cash flows every quarter.

We look at the marks and the cash flows. We've got a team dedicated to working with our Purchased Asset Division, and as these guys get information as they work through the files they share with our accounting folks that are running the cash flows and the marks and we are updating it just constantly.

So expect volatility in this.

You have gone through -- the first quarter after you do a deal there is some volatility because we tend -- as Ed said, we go in very conservatively. We only had a couple of days to do due diligence on these FDIC deals. And you get in there afterwards you got a little bit of time to market and you do your best case. We tend to fall on the conservative side.

As you work out three, four, five months and you really get into the files and you really get to know the situation on the borrowers, as you really get to understand the market, if those situations are better or worse you are going to have more volatility in those first few months after you've got a deal done.

After that you will have a little bit, but we should have -- our guys are pretty good at getting that situation figured out. It shouldn't be nearly as volatile thereafter. This one was a little more volatile because this -- we got First Chicago in July of this year and as we work through into the fourth quarter things became much clearer. And we had been conservative on it. But I don't think you will see that kind of big swings unless you pick up more FDIC deals and you have the same phenomenon.

And so how much of the [110.6] that was re-classed from non-accretable to accretable was related to First Chicago, any sense of that?

The vast majority. Probably 90% of it basically or more.

Okay, so (multiple speakers).

Remember of that number 20% of that comes to us through the margin, the other 80% is the FDIC. So that discount, we have 80/20 loss share on it. So as you look at those numbers in that table -- and we may change this for the Q and going forward to show of that discount what is ours that is going to go to the margin and what is the portion that is FDIC related. But the vast, vast, vast majority of that was First Chicago.

And so the offsetting expense is essentially a reduction in the carrying value of the indemnification asset?

Yes, you got it.

Was there -- how much of that gets amortized going forward versus was a catch up in the fourth quarter?

Well, it doesn't get amortized. We just recast going forward. So a lot of that was done for the fourth quarter because we had gotten the work done the rest of July and August and September, so a big chunk of that -- or most of that was in the fourth quarter. But we never go back and catch up, it is just a recast forward. You change your cash flows going forward and its perspective.

Okay, great. Thank you.

Mac Hodgson, SunTrust Robinson.

Just a couple credit-related questions. On the OREO valuation write-downs in the quarter, was that related anything specific like the larger kind of blocks of ice you have talked about or just annual reappraisals, any more color?

Could you repeat the question? I'm sorry.

The OREO write-downs, the $6.2 million valuation write-downs on OREO, was it related to like larger OREO that you have had there or just annual reappraisals? Any more color you can give -- it seemed like a pretty large write-down.

(inaudible) we will pull it out right here. Annual reappraisals, especially there was one big deal that probably made up 40% -- oh, 35% percent out of it. One larger deal was multiple properties, but it all -- because usually you've got to look back on putting these things in while the charge goes through, so it is very much all reappraisals. And every eight months to 12 months we get a new one and it is what it is.

Is the fourth quarter generally where most of those reappraisals occur?

No. They actually probably go on the anniversary date of -- when something goes and we get it, we get a new appraisal and we take the property back, and whenever we get the property back it starts the clock for when you do it again.

Okay. And then just a last on the (inaudible) reserve. What sort of reserve are you establishing for new loan growth? And I am really just trying to get a sense of maybe where the reserve ratio might flatten out. Are you putting 1% generally on growth or --?

About 1% generally on growth. But again, it will depend on the nature of the growth. Our growth has been pretty well-balanced. But you look at one-third of our portfolio, the first insurance and our niche businesses it probably average even now 15 basis points of charge-offs.

And that portfolio has been growing ratably with the overall portfolio. So if we were only to grow commercial loans and commercial real estate it would be higher. But it is muted down by the fact that we have such good experience on really over one-third of the portfolio. But on average if we grow proportionally a little over 1%.

Okay, thanks. All my other questions were answered. Appreciate it.

Steve Scinicariello, UBS Securities.

Just a quick one for you. Just if I add up all kind of the lumpiness of expenses that Dave walked us through in the quarter, I come up with around a $10 million figure. Is that -- would you say that is a reasonable number to think of -- this lumpy figure in the fourth quarter?

Dave is in charge of lumpy. I will let him answer.

What are you saying the $10 million is? I'm not sure I follow what you are --?

If you just kind of -- or I just add up some of these lumpy figures that could maybe potentially have reductions going forward, like we were talking about the $6 million OREO valuation, a couple million of maybe elevated comp costs that hopefully we get back when First Chicago converts, maybe $1 million of advertising, and then obviously elevated workout expenses and whatnot. And if I piece it all together I come up with like $10 million. And also with the bonus accruals and whatnot.

I don't know, I am just putting it out there just to kind of gauge how susceptible that kind of amount could be going forward and how likely we could see reductions.

I think you summarized it pretty good there. Obviously, OREO is higher, and then at some point hopefully this market bottoms out and we are just done with -- getting rid of the OREO. The occupancy expense had the extra $500,000 for the rent. We had $646,000 for data processing. So there is over $1 million there. The advertising was up $1 million, and that will abate back as we moderate on that. You've got a couple million there.

And then you've got the OREO, as you said. And depending what number you want to pick there -- obviously, I am not going to put a number in anybody's mouth -- but you can easily get up to that $10 million number, because we do have the legal expense and the other collection expenses.

We don't -- we actually don't take the time to go through and parse out every legal bill and every loan collection expense and try to say, well, that that is in this pretax, pre-provision thing. It is just not worth the time or the effort for our people to go through and do that. But there are a good chunk of the other non-interest expense increases over historical periods are related to collecting these loans.

So I think that is a good characterization, but everyone is going to have to decide for themselves how fast the OREO valuation charges will subside and the like, because we are not going to give guidance on that. We just -- we do what we do -- you know, we do what is right. We get appraisals and they are what they are and we mark them and we go. So hopefully the market plateaus out here and starts to improve and maybe we get some going the other way.

It sounds good. Then the last one I had is just on the non-interest-bearing accounts up 9% sequentially. What is the secret ingredient there? Is it just in terms of being able to compel that mix shift to happen and can you keep it going?

If I told you I would have to kill you. It is really -- it is our commercial initiative and the guys that we brought over to manage our Chicago office, and then who now run out into the -- even into the field as we are pushing it out. I mean, we are -- our reputation is great. Our marketing initiative has opened a lot of doors for us. People know who we are now.

I had two people tell me last week, he said -- you guys -- I think you guys are not a bank of choice for the middle market. You are the guys that people want to talk to and make sure that you get in these deals. And we sell relationships, and deposits are very important to those relationships.

So I think it is good planning. I think it is great people. I think it is good products. Our treasury management product I will put up against anybody's big bank or small. And I know that because we are just starting out we haven't built in the absolutely humongous profit margins that other banks seem to do in their treasury management as they keep adding $0.01 here, $0.01 there when they're doing their budget year after year.

We make good money on it, but I think that we have a very well-rounded, very competitive product group that we can go out and offer. So you add all those things up, our ability to lend right now, and it is just going very well for us. So we would expect it to continue through the course of the year and get better.

Perfect, sounds great. Thanks, guys.

Stephen Geyen, Stifel Nicolaus.

I just wanted to -- just a little bit of a clarification on my end. You talk about the repricing of the CDs around 70 basis points -- I think the number you threw out there, Ed. I just wanted to -- is that -- if something reprices, it reprices into CDs at roughly an average rate of around 70 basis points or is that an average weighted rate based on what proportion that goes into CDs, portions that might go into savings, money market, non-interest-bearing?

No, (multiple speakers) that would be CDs and that number would also be if some of the people extend out. If you are actually doing just sort one-year CDs it is even a little bit less than that. But you are starting to see some customers that just are looking to get a little more or they're just going into money markets. But it would just be CDs to CDs. If you factored in moving into other products it would be less than that.

Got it, okay, thank you.

At this time I would like to turn it over to our speakers for any closing remarks.

Thank you, everybody, for listening in. I was just taking a look at our stock price. And I don't want to do these anymore. Every quarter we come out and we beat the Street, we do good numbers, and our stock price goes down. But we will continue to do these. We appreciate you listening in. As always, if you have additional questions or something comes to mind, Dave and I are available. Have a good quarter and we will see you all soon. Thank you.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may all disconnect. Everyone have a great day.