Wintrust Financial Corp (WTFC) 2015 Q1 法說會逐字稿

Welcome to Wintrust Financial Corporation's 2015 first-quarter earnings conference call.

(Operator Instructions)

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 first quarter's earnings press release, and in the Company's most recent Form 10-K on file with the SEC.

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

Good afternoon, everybody. Welcome to our first-quarter 2015 earnings call.

With me, as always, are Dave Dykstra, our Chief Operating Officer; Lisa Pattis, our General Counsel; and Dave Stoehr, Wintrust's Chief Financial Officer. We'll do this under our usual format, with me giving some general comments on the quarter. Dave Dykstra will get into other income, other expense, and some detail; and then back to me for some summary thoughts about the future, and then time for questions.

If you follow us, you know the first quarter was pretty busy -- a pretty busy one for us. From an earnings standpoint, the quarter is -- first quarter is always a tough one. We have two less days; you've got unpredictable Chicago weather; and higher payroll tax costs.

But good loan growth got us through -- a good, strong mortgage growth got us through, and helped us post increased earnings. Net income a little over $39 million, up 13%; earnings per share at $0.76, up 12%. Our assets grew $372 million to almost $20.4 billion, and that was up 12%. Very good loan growth this quarter across the board -- $543 million or 15% growth to almost $15 billion in outstanding loans.

Deposits grew $657 million or 12% to almost $17 billion. Of that deposit growth, $261 million of that was DDA growth, showing the continued success of our commercial initiative; and DDA now stands for 22% of all of our deposits. Two years ago, it was about -- or three years ago, it was about 9%. So, our deposit base is moving along very nicely.

During the quarter, we also closed on our acquisition of Delavan, which added -- of that loan growth, added $128 million of that loan growth, and $167 million of that deposit growth. Four branches came with that transaction. There are opportunities for some cost saves within that structure.

Loan growth is really strong across the board, given that our loan pipeline still remained consistently strong, at about $1.4 billion, non-weighted, and about $852 million -- $854 million weighted. So, our loan pipeline still remains very strong, and that bodes well for the future.

From an earnings standpoint, this loan growth helped offset the effect of diminishing accretion from our purchased loan portfolio. It didn't, however, offset the decline of our net interest margin of 4 basis points to 3.42%, which is primarily due to that lost accretion.

Credit quality remained very good, as we appear to be back to our lower than peer crisis levels -- lower than our peer, and pre-crisis levels. Our reserve coverage ratios are explained in detail on page 28 of our press release.

As you know, it's a little complicated, with us being as acquisitive as we are, picking up those discounts. I would refer you all to page 28 to get a pretty concise view, and really of our credit quality and our credit -- our reserve coverage.

Dave's going to discuss other income and other expense in detail. I just wanted to point out the continued progress in our wealth management business. Although brokerage revenue was down quarter versus fourth quarter, basically because we had two less days, trust and asset management revenues grew very nicely.

Asset management revenues were the highest they've been in the Company's history. Assets under administration grew to $20.6 billion, up 4.2% from the fourth quarter, and we continue to be excited about our prospects here as that business continues to grow.

The quarter was also marked by the announcement of three transactions that should close in the end of the third -- or end of the second, beginning of the third quarter. They will bring approximately $981 million of assets, $833 million of deposits, $510 million worth of loans, and 16 branches with them.

Of those 16 branches, we intend to consolidate around 10 of those, so we'll end up with net six. That will represent 63% -- a 63% cut in branches. And we would expect there to be pretty good overhead savings in all of that, just not with just with the branches, but in terms of other opportunities to save administrative overhead and the like.

So, each of these banks also is operating I would say on average around 60% to 65% loan to deposit. It's a good place for us to put our loan growth that hopefully will be pulled through off of the pipeline that I discussed earlier. So, there are significant cost opportunities, and the possibility of accretion from the portfolio with performance better than anticipated, better than our marks.

This is an opportunity we've talked in the past about the kinetic operating leverage of the Organization, and our ability to grow into that -- to grow without a commensurate increase in expenses. We have seen nice organic growth, but we believe that will come when rates rise -- that will be a little bit easier, and the acquisition pipeline, we believe, will slow down when rates rise, but this gives us the opportunity -- acquiring cost-out opportunities gives us the ability to take advantage of that operating leverage that we have.

Our acquisition pipelines remain very strong. And we are going to concentrate on cost-out opportunities, but we'll look at geographic expansion if situations so warrant.

During the quarter, we also opened four new de novo branches of the Organization. So, it was a very, very active quarter for us. Pipelines remained, on the loan side and the acquisition side, we remained very busy, and they remained very strong.

And with that, I'll turn it over to Dave to talk about other income and other expense.

Thanks, Ed. As usual, I will briefly touch on some of the more significant non-interest income and non-interest expense sections.

Starting with the non-interest income side, our wealth management revenue, as Ed indicated, totaled $18.1 million for the first quarter of 2015. This was down slightly from the $18.6 million recorded in the prior quarter, but improved by $1.3 million when compared to the year-ago quarter.

Trust and asset management component of this revenue continued its consistent growth, increasing to $11.2 million from $10.8 million in the prior quarter. As Ed noted, brokerage revenue can fluctuate based on customer trading activities and the number of days in the quarter, and it showed a slight decline to $6.9 million from the $7.9 million recorded in the fourth quarter of last year. Overall, this quarter marked another solid quarter for our wealth management unit, and we look forward to continued growth.

Mortgage banking revenue increased $3.1 million to $27.8 million in the first quarter of 2015. And that's from $24.7 million recorded in the prior quarter, and was substantially higher than the $16.4 million recorded in the first quarter of last year.

The Company originated and sold approximately $942 million of mortgage loans in the first quarter, compared to $838 million of mortgage loans originated in the prior quarter, and $527 million originated in the year-ago quarter. Also, as longer-term rates declined at the end of the fourth quarter and into the first quarter, we experienced a higher level of refinancing activity, which resulted in the mix of volume related to purchase home activity actually declining to the mid-40%s range from slightly less than 60% in the prior quarter.

Moving on, if we look at fees per covered call options -- they increased to $4.4 million in the first quarter of 2015. This compares to $3.0 million in the previous quarter, and $1.5 million recorded in the first quarter of last year.

Trading losses totaled $477,000 during the first quarter this year -- relatively consistent with the $507,000 of trading losses that we recorded in the fourth quarter of last year, and the $652,000 of trading losses we recorded in the year-ago quarter. As you'll remember from our prior calls, these trading losses are primarily the result of fair value adjustments related to interest rate contracts that we do not designate as hedges, and these are primarily interest rate cap positions that the Company uses to manage its interest rate risk for a rising rate environment.

Now, other non-interest income includes fees generated from transactions related to customer-based interest rate swaps. Market conditions for these products were more attractive to our customers in the first quarter, resulting in $1.1 million of additional revenue compared to the prior quarter. In total, the Company recognized $2.2 million in interest rate swap revenue in the first quarter, compared to $1.1 million and $1.0 million in the prior and year-ago quarters, respectively.

Flipping to non-interest expenses, our total non-interest expenses were $147.3 million in the first quarter, an increase of approximately $3.9 million compared to the prior quarter. Clearly the biggest driver of the increase was our elevated payroll tax expense of $3.8 million more than the prior quarter. Additionally, the acquisition of Delavan Bancshares in the first quarter contributed approximately $1.0 million to total non-interest expenses. So, if you exclude these two categories, total non-interest expenses actually declined from the fourth quarter of 2014.

The conversion of the data processing system related to Delavan Bancshares was just completed this month. And post-conversion, we should see additional cost savings related to those ongoing expenses.

If we look at the individual categories, and look at the notable fluctuations from the fourth quarter, salaries and employee benefits expense increased $2.5 million in the first quarter compared to the fourth quarter of last year. The increase in this category was primarily due to an increase in employee benefit expense.

Significantly impacting this category, as I mentioned, was a payroll tax expense, which was approximately $3.8 million higher in the first quarter compared to the prior quarter. Payroll taxes are always higher in the first quarter of the year, as the Social Security tax limitations reset at the beginning of each year.

Additionally, the base salary expense was up approximately $1.6 million, or approximately 3.5%, in the first quarter compared to the prior quarter. The first quarter includes the impact of annual base salary increases for employees, which were generally in the 3% range, plus the impact of salaries added from the Delavan Bancshares acquisition in January.

Offsetting these increases, commissions and incentive compensation expense decreased approximately $2.9 million to $25.5 million from $28.4 million in the prior quarter. An increase in commissions related to the higher mortgage volumes was offset by lower commissions in wealth management brokerage area, and a decline in the accrued incentive compensation from a higher level that we had in the fourth quarter of last year.

Occupancy expenses increased by approximately $751,000 in the first quarter, and increased to $12.4 million from $11.6 million recorded in the fourth quarter of last year. The current quarter includes approximately $115,000 of costs associated with the Delavan acquisition; increases in utility and maintenance charges, which tend to be seasonally high due to the cold weather and snow removal costs; and additional lease costs associated with our move into the new location at 231 South LaSalle Street.

As we mentioned last quarter, the move to the new location is going to allow us to bring our wealth management and middle market groups together in one of Chicago's historic bank structures. However, the accounting rules require that we begin to record lease expense on this new location when we took possession of the property, and while we are building it out. So, essentially we've doubled up on our rent in our downtown office space during the build-out period, as we are paying rent on the new location that we're building out while we still continue to pay rent on the existing locations for our wealth management and middle market banking teams.

So, we expect to move the wealth management unit into the new space in May, and the commercial banking team will probably occupy the space sometime in the third quarter of this year. So, until those moves are completed, we'll have elevated rent expense.

The first quarter saw a decrease of $909,000 in net OREO expenses compared to the prior quarter, resulting in net OREO expense of $1.4 million in the current quarter compared to $2.3 million in the prior quarter. The current-quarter expense was comprised of $861,000 related to net operating expenses, and approximately $550,000 related to valuation adjustments and net gains on the sale of OREO. Page 37 of our earnings release provides additional detail on the activity in, and the composition of, our non-covered OREO portfolio, which decreased to $42.3 million at March 31, from $45.6 million at the end of the prior quarter.

Data processing category increased by $135,000 in the first quarter to $5.4 million from $5.3 million in the fourth quarter of last year, and from $4.7 million in the first quarter of the prior year. The current quarter included approximately $130,000 of conversion-related costs associated with the recent acquisition activity, and the remaining increase is generally a result of additional deposit and loan activity.

Professional fees increased slightly to $4.7 million compared to $4.0 million in the prior quarter. And the current quarter included approximately $568,000 of legal costs that were associated with the recent acquisition activity. The remaining categories of non-interest expenses that I haven't addressed were up slightly from the prior quarter, increasing only 0.5%, or approximately $800,000.

And finally, as we noted in the press release on page 23, included in the non-interest expense section were acquisition-related charges of approximately $738,000 that will not be recurring for the specific transactions to which they relate. In the first quarter of 2015, these charges related primarily to legal expenses and data conversion charges. We'll continue to provide the details on these acquisition-related charges in future quarters. As Ed noted, the year is shaping up to have multiple acquisitions that we will hopefully close on and convert late in the second quarter or early third quarter.

And with that, I will conclude my remarks, and throw it back to Ed.

Thanks, Dave. Just to be clear, we'll close on the second and third quarter; conversions will take place in the third and fourth quarters for those deals. So, it will take a little time to get the -- wring the expenses out, because it's really all subject to getting the conversions done.

Hopefully, we'll be able to find homes for some of the people we're going to have to -- whose positions will be removed because of that -- and we're doing everything we can. This is new to us. We've always been really going after geography, and these are our first really major cost-out moves here. So, in the rest of the year, it could be a little noisy in terms of -- as we set up plans and the like to take care of those folks and either find them a new job or get them situated somewhere else.

So, in summary, how could you not be happy? Our stock traded at a 52-week high yesterday; Blackhawks are up 1-0, and the Cubs are in first place. How about that?

We're very pleased with our results, and our progress in the first quarter. It really positions us well for the rest of the year and beyond.

The acquisition pipeline remains very active. Our loan pipelines remain very strong. Mortgage demand for the near term continues to be strong. Wealth management continues its steady progress.

Our interest rate sensitivity position in the quarter even got better than it was, and it was pretty good before. We're going to continue to work that, and make it as good as it's available. But you can see page 20 of the release for the details of that.

We also increased our dividend in the first quarter about 10%. So, a lot of good things going on here. As I said, we like where we sit right now, and look forward to continuing to execute our plans to take advantage of what the market's giving us.

So, with that, we can turn it over for some questions.

(Operator Instructions)

Jon Arfstrom, RBC Capital Markets.

Just to start maybe with a question on the pipeline, the numbers that you gave us, the $1.4 billion, and then the $854 million weighted, that's up quite a bit compared to last quarter.

No. It's actually down, John.

What's that?

It's pretty much even with last quarter.

It is. Okay. I had a $700 million quarter, but -- .

Probability might be a little bit better, but flow-through has been pretty good. But it's -- last quarter was our highest in a long time and it's maintained that level in the first quarter.

Okay. And I guess it gets just a question on the loan growth outlook and expectations. Does it seem like this is the type of sustainable pace you can put up?

It was a little bit better than I thought it was going to be for Q1. And I guess I'm just curious if you feel like there was anything specific in this quarter or is this a sustainable type pace?

Well, you had $128 million that came over in the acquisition, which was part of it. You also had about $100 million growth in mortgage warehouse lending, which will move with the mortgage business.

So if you take those two out, you're down to about that 350 number maybe. And we usually look at about 250 to 300 so it wasn't that far off from a core standpoint but the acquisition helped and the mortgage warehouse. We'll take if we can get it.

So the market is still interesting out there. People have asked previously, are you going to rope-a-dope or what's going on?

I tell you, there's a couple areas where the circuit breakers are tripped. One is in multi-family, especially close to the city of Chicago. There's a lot of other people's money flying into the market, and they're doing things that -- cap rates that don't make a lot of sense to us and it trips our loan policy and our profitability model.

The other place we're seeing some irrationality is clients who are going out, and we had one deal -- you're not going to believe this one, it was a pretty big deal for rolling stock. And it was a five-year deal. We lost a 198, five-year non-swap. We're not going to play that game either.

So it's very selective right now but we are finding, obviously finding deals and relationships that fit our metrics and it appears that that keeps going. Our momentum is very good.

Our name recognition in the market is -- it was really getting good and now it's getting increasingly better. And our reputation seems to be not mine but the Company's seems to be getting better too. So, we're getting lots of at bats, and we won't be afraid to stop if the market turns on us, but right now, we're doing pretty well.

Okay. That's helpful. Appreciate some of the color on the potential cost takeouts on the deals. I think that helps us.

I guess the question I would have is, you said there's potentially more activity to come. Maybe talk a little bit about that and then what kind of capacity you think you have.

Well, we're still very active. You never know what's going to come across the finish line and what isn't. But we are pretty active in the area.

Capacity issues, because of our structure, these are all moving into different banks. Really the only place where you have a capacity problem is the timing to get things converted and on the system.

That's why the ones we're doing at the end of this quarter or the second quarter beginning of the third quarter won't be converting really until the end of the third and beginning of the fourth quarter. So that's really where the bottleneck comes in.

But from an overall capacity standpoint, we're going to make hay while the sun shines. And continue to look at opportunities, especially as I said, cost out opportunities.

And if we are at the table and the plate gets too full, we've told people in the past we just can't deal with you right now and many have said, well, when can you. So, we're lucky that we're concentrating really on the zero to $1 billion deals and those are the ones that are really -- that the market is coming to us right now with, and we'll continue to look at those.

All in all, they seem like, is it cheaper to do a big deal or three little ones? The three little ones, the execution risk, I think, is much lower. Our ability to analyze and understand and assimilate is much easier especially with our structure.

So I'm not concerned about that right now. We've got to get them over the finish line but it still is pretty active.

Okay. Good. Still a holding pattern, as you would say? Okay. All right. Thanks, guys.

Thank you.

Emlen Harmon, Jefferies.

Just a question on the loan yield compression. You noted that the drop in accretable yield was up a portion of the compression in the loan yields there which were I think in the non-covered portfolio down about 13 basis points. Which outside of the accretion, which portfolios were kind of the biggest driver of the loan yield compression? And what's your outlook for that going forward?

Well, I think probably the way to look at it is we don't actually give out specifics on individual loan categories, but the new loans are still coming in. If we look at our new loan volume, it's still coming in at the 4 to 4.10 range. And it's really across the board. We're seeing compression.

There's a lot more people in the commercial real estate side now playing in the market and we're seeing some of those areas get overheated a little bit. Ed gave you an example on the commercial side where they're offering a long-term one at 198 so I think we're seeing slight compression across the board. But our new loan volume as we look at it every month is still coming in, like I said, between 4 and 4.10.

I think we're going to see still see a little bit of compression there as we go on, but it's been holding in. It's just the rest of the portfolio was yielding higher. We were at 4.21 before and now we're down in the 4.08 range. So could we see a little bit more compression? I think so, but we again don't think it's going to be dramatic.

When we pick up the $500 million-some odd I mentioned earlier on the three acquisitions we announced, now, you'll mark them to market but historically we've done better but you never know. It could be up or down. But so it's kind of a little bit of a moving target to give you our thoughts on where it will be throughout the next 18 months.

Got you. Thanks. That's actually all very helpful. And then you guys noted the increase in asset sensitivity quarter over quarter and that was up nicely. Give us a sense of how you're trying to add to the balance sheet or where you're focused on growing the balance sheet or changing the balance sheet to affect that increase in asset sensitivity.

Well, if you look at the deposit side of things, the increase in demand is certainly helpful from that perspective as that continues to build and grow. We are very, very stingy on fixed rate loans.

Any fixed rate loan of size that comes in and is proposed to be non-swap has to be approved by me or Rich Murphy, our chief credit guy. So, it's just discipline on the asset side, on the loan side to not follow the herd in some situations.

There is competition out there that is putting on non-swap fixed rate deals, and we don't really want to do that. So a lot of it is just transactional discipline at the individual bank levels.

So but we'll continue to look to grow DDA and find other ways to increase our interest rate sensitivity position going forward. It's got to happen sooner or later.

(laughter) It does. All right. Just like a Cubs World Series, right?

But hey, who thought the Cubs would be in first place this late in the season, you know?

Thanks, guys.

Chris McGratty, KBW.

Dave, on the expenses, first quarter got some seasonal impacts, this a little bit of one timers in the quarter. How should we be thinking about the starting point for next quarter, obviously before the deals come in?

Well, we always say a lot of this depends on the mortgage banking side, how much commissions are there. We still think the mortgage will be relatively strong for the second quarter and the buying season. But those commissions there go up and down based upon that volume.

But I think the salaries and employee benefits will see a little pickup from the seasonality of the payroll taxes. But you might see a little bit more for commissions because we expect the wealth management unit to do better.

And as the year goes on, we generally have a little bit more of incentive comp. As we make more, we accrue more.

So that number we have this quarter may be a reasonable number, might be a little bit, just a little bit high, but again, a lot of that depends on the mortgage banking. Occupancy expense is probably going to hang right in there until we get everybody moved over from the other locations, which really won't happen until the latter half of this quarter for part of it and the third quarter for the rest.

And then you go down the other ones, there wasn't a tremendous amount of change in those, although once we get convert, we do think we'll get rid of some small amount of other expenses out of the Delavan transaction since we're post conversion now. But without going through each line item, that's the good overview. I think occupancy expense is one until we get moved will stay a little elevated.

You could imagine that as we -- the way the accounting rules are as we announce these deals or as we close on these deals, Chris, that there will be some one-time charges that come through that'll be extraordinary this year. So, but other than that, it's going to be -- we absorbed some additional marketing expense that'll be ongoing, so but we did that in the first quarter. Dave talked about the rent expense. So we'll see where -- I think, what I think Dave's right on with what he said.

Okay. Let me just follow up with one question. Ed, you talked about you typically shy away from efficiency and talk about the overhead ratio. You're looking at a 1.6 ratio today. In the past, you've talked about getting to the 1.5.

My question is with the deals coming on, is that something you can get to you believe this year? Or is that going to -- you're not too far off but is that something that maybe needs a little bit of higher rates before you can get to that 1.50 level? Thanks.

The higher rates, the 1.50 level, the higher rates won't do anything for it. It will help the efficiency ratio but we won't see the full benefit of these cost out acquisitions really until January next year, you can start thinking.

I mean, they'll come in in the fourth quarter, they'll come in piecemeal as we convert and move things out, but really they'll all be run at the beginning of the first year, and I think we continue to strive for that. But we won't be afraid to continue to build and grow.

You can make investments in the future. So, and we continuously look for opportunities to add additional diversification to our lending platform. And we're not afraid to invest in those types of things. So, we will continue to invest in the business.

If we can continue to put up double-digit earnings growth, continue to improve our metrics slow and steady, as I've talked about, which is kind of the plan, we still want to be able to invest to continue to fulfill the entire plan that we have.

Great.

Like Ed said, we will convert most of these bigger ones in the fourth quarter. So you won't really see the full impact until you hit the first quarter. Which clearly is an achievable goal, we think.

That's great. Last question on the acquisition front. You guys have used cash in the last couple deals. You've got capital. A little bit of the capital is lower. What's your thought over the next 12 to 24 months on maybe using stock and transaction opportunistically raising a little bit of capital to fuel the next leg of the story?

Good question. Each deal is different. Some people want cash. Some people want stock. We're kind of partial to the 50-50 approach to keep it a tax free reorg for the people who want it, but it's really up to the seller as to what type of consideration that they want. There's still a lot of moving parts out there for us, so on the capital side, we've kept our capital stack pretty clean as it relates to preferred stock and things like that.

So we will continue to evaluate where we stand on the capital side. Again, there's still a lot of moving parts, but whatever we do, we will do it in the most shareholder friendly way going forward.

So again, I don't mean to be jumping around on this, but there's still a lot of moving parts here. And we feel that between our earnings and if we need something supplemental, we'll figure it out. But right now, there's a lot going on.

Thanks a lot for taking my questions.

Thank you. David Long, Raymond James.

Looking at your deposit mix, obviously a real nice improvement in the favor of core deposits over the last several years. Can you talk about how sticky you think those deposits are in a rising rate environment?

I think the runoff for us has occurred with CDs have run out the door. We always consider a number of where many of our banks are in high net worth areas.

And like in Lake Forest, people keep $100,000 in their lawn mower account, but the CDs have -- they've gone to other places. Either in the money market accounts or what have you, maybe they might go back into CDs, you never know. But a lot of it I think has gone into the market just to chase yield.

So I think that the runoff for us has actually occurred and we've had deposits on the CD side run out the door. We've been able to replace it with DDA, money markets and savings, our household growth has been in double digits.

So when rates do move up, we won't be afraid to go back to CDs, but your question about stickiness, I think I'm not worried about that aspect of it. You think of commercial DDA, could that be running off? Well if that starts going down, that means loan volume would be up and that would be okay, too.

I think our draw rates were up a little less than 1% in the fourth quarter. And I think that same number was up about 1% this quarter too, so we're seeing some additional draws on the lines that we have outstanding, but I pretty much think it's pretty sticky stuff because and the opportunities to grow a lot of those relationships will exist when you get a little bit above a higher rate environment to give some spread to the playing field.

Got you. And then my second question regarding M&A, I thought I heard you say that looking at the future opportunities, that you would look at geographical expansion. Does that mean you'd be expanding your footprint and how far would you go if so?

No. No, we're not expanding our banking footprint. We're still the Chicago area and southern Wisconsin, but that's a pretty big area. And there's still some geographies if you look at our map that we're not in yet.

The deals that have come up recent because our footprint has expanded, have resulted in we're getting branches across the street or half a mile or a mile away that we're able to close. And that lets us take advantage of our operating leverage.

So those just inherently would be more profitable than picking up a bank that's a new geography for us. That being said, if a new geography does come along and it's reasonable, we would take a real hard look at it, but if it came down I could do one or the other, I'd take the cost out probably first just because it would be a better -- the results, the returns would be much better.

Yes. Probably adding onto that, the only area that we've talked about in the past that we're not in a lot is northwest Indiana but that's really not extending way from our geography much. It's really adjacent to where we're at but we would look at the northwest Indiana area also.

Great. Thanks, guys.

(Operator Instructions)

Chip Dickson, DISCERN.

The first one is just assuming that rates don't get pushed up until the second half of the year, how does that affect your margin?

Well, we said I think in the previous call that we're 340 plus or minus 10 is basically where we stand. Last year was 350 plus or minus 10, but the accretion has run off. So I think that our loan to deposit ratio, the amount of liquidity we have on the balance sheet is what will really affect that 10 basis points.

We anticipate there to still to be -- there's still pricing pressure out there on deals and it's not as bad as it was. It doesn't have the same effect that it did but I think if you went with 340 plus or minus 10 and looked at with the major driver of that plus or minus 10 being our loan to deposit ratio and the amount of liquidity we had, that would be a good place to start. I know it's kind of a wide range, but we don't really give a lot of guidance, but that makes sense to us.

Some of the other calls I've listened to, there was kind of an assumption coming into the year that it would happen by the half and the idea that it might happen later, I think, caused some people to pause a little bit.

I'll tell you, Chip, I have been wrong since the beginning on the interest rates. I don't even think about it anymore. When it happens, it'll happen and we're prepared for it.

Okay. Your regulatory costs are less onerous than the really large banks, but they still are a big burden on you guys, and I'm wondering where we are in this regulatory cycle. Are you close to the peak in costs where they might plateau going forward, or are you still going to have to build into 2016?

I think we're close to the peak. It will be volume oriented as we pick on other banks, but I think we can take the costs out of the smaller banks and be much more efficient in doing it, but the stress tests are in and done and the infrastructure is done. That cost a good deal of money to get that up and running.

The -- we don't have the CFPB, which is a good thing because all of our banks are under $10 billion, but I think they are right about where they should be. We do know we spent probably a little bit more than peer group on regulatory costs because our approach to the regulations is they are the refs, they make the rules, we've got to play the game, so we might as well beat them at their own game.

As such, we strive to get the highest ratings we can from the regulators and have been very successful in doing that and have very good relations with our regulators. And when you are in acquisitive mode, you don't want one little hiccup to stop the boat like it's doing for M&P out there.

So we do spend probably a little bit more than our peer group does, but we really get the good results out of them. But to answer your question, I think they kind of peaked unless they come up with something new which wouldn't surprise me.

Okay. And then just on the M&A side, the companies who you're buying, what are the management saying? Why do they want to sell now? What are some of the common themes?

A couple common themes, to some, many of them struggled through the cycle and did some recaps. And these are really the zero to $1 billion banks that are real community banks. Culturally, they fit us very nicely. We seem to be the preferred buyer for those but a couple of these have gone through recaps that have had some tough times and they've got their head above water now and they actually can get something for their franchise.

And their decision is, especially the zero billion to $1 billion banks, should they stay in the business, absorb these regulatory costs, and their inability to generate good earning assets, they're still up to their ears in real estate, they can't put much more on under the regulatory rules, and the rest of us are digging a little bit deeper into nor do they have the expertise to get involved with some of the other asset classes. So they really can't generate earning assets, so they're stuck with liquidity at zero spreads, and they can never get those earnings up, so many want to just -- they can jump on board with us. We can use our loan volume to lend them up and off it goes, but it's just hard in a metropolitan area for a zero billion to $1 billion bank to generate the assets necessary to cover all these extra costs that they have to put on the books and quite frankly it's probably not as much fun for them.

Many of them, as I said, have come out of recaps or come out of the cycle and I've said before, it's like if you are a bank that's troubled during a cycle it's like being in a submarine getting depth charged. Once you can finally break the surface and get some fresh air you go, do I want to do that again? And many of them would rather team up knowing that our culture will fit theirs, their customers would be taken care of, and so that's a long answer to your question. I hope that helps.

Thanks. This is the last one. Your premium finance business is something that differentiates you. And what are the competitive pressures in that business, and what's its role in the Company going forward as you make more acquisitions?

Well, as in every earning asset class, we've seen the competition is pretty stiff. But we picked up again, we had an increase in units processed in the first quarter.

Interestingly enough, the average ticket size went down by about say, $1,000. And our normal ticket size is $27,000. We had worked our way up to $24,000 and it dropped back last quarter meaning where there's more capacity in the insurance market, which surprised us.

Also, the larger deals that come through are because you can do $1 million, $2 million, $3 million deals in this business and those come in at lower rates than what we're used to in the smaller deals, and there's a lot of pressure for those deals. And as a result, we are not getting as many as we used to because they just don't fit our profitability parameters. But the business continues to grow in terms of market share units processed. And there's a lot of upside there.

If you ever get back to the $27,000, which for years was in the normal market, that was the average ticket size. And the hard market was up in the $40,000 range. That's always a good thing when that happens once every 10 years for us.

But competitively, just like everything else in the earning asset side, it is competitive. But we continue to build and grow that business.

Thank you. I'm showing no further questions at this time. I would like to turn the conference back over to Edward Wehmer for closing remarks.

Thanks, everybody for dialing in. We look forward to talking to you offline or next quarter. And go Cubs. Thanks so much.

Ladies and gentlemen, this concludes today's conference. Thank you for your participation, and have a wonderful day.