Wintrust Financial Corp (WTFCN) 2016 Q1 法說會逐字稿

Welcome to Wintrust Financial Corporation's 2016 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. During the course of today's call, Wintrust management may make statements that constitute projections, expectations, beliefs, or similar forward-looking statements. Actual results could differ materially from the results anticipated or projected in any such forward-looking statements. The Company's forward-looking assumptions that could cause the actual results to differ materially from the information discussed during this call are detailed in the second-quarter and year-to-date earnings press release and in the Company's most recent form 10-K and any subsequent filings on file with the SEC.

As a reminder, this conference call is being recorded. I would now turn the conference call over to Mr. Edward Wehmer. Please go ahead.

Thanks very much. Welcome, everybody, to our first-quarter earnings call. With me, as always, are Dave Dykstra, our Chief Operating Officer; Dave Stoehr, our Chief Financial Officer; and Kate Boege, our General Counsel. The call will take on the same format as we've had in the past with me giving you a high-level summary of the quarterly results. Dave Dykstra will go into other income and other expense in some detail and Dave will turn it back over to me for some summary thoughts and some thoughts about the future. Then we'll have time for questions.

I don't know if you can hear that or not, but that's the sound of a quiet successful quarter, something we haven't had in a couple of quarters. But based on our results I think you can see that the investments that we made in the business last year are paying off. The pain of the noisy third and fourth quarters of last year, as we integrated these investments, were well worth the effort. It's really nice to be reporting a relatively clean uncluttered quarter.

Net income of $49.1 million, or $0.90 per share, was up 26% and 18%, respectively, from prior-year first quarter and 38% over the fourth quarter of last year. Given that math is hard and all of you look at core earnings differently, I will leave it to you to individually determine the core earnings period over period statistics.

I will tell you, however, that good progress was made in all aspects of our financial performance and results. Our margin increased three basis points over the fourth quarter and 3.32% due to higher rates on earning assets and consistent funding costs. Notwithstanding a move in the yield curve, we still expect our margin to stay within 10 basis points either side of the 3.30% mark, given our pipelines, expected portfolio repricing, expanding spreads in the market and our ability to control funding costs. If I was a betting man I'd probably bet the over on that particular item.

Net overhead ratio for the quarter was 1.49%, which was down significantly from previous quarters, as you would imagine, and ahead of our 1.5% goal. Even if you were to back out the securities gains and gains on the early extinguishment of trust preferred securities, net overhead ratio showed market improvement over prior years. And our goal still maintain to end the year with a 1.50% or better net overhead ratio.

Based upon our strategy of additional core growth, leverage our infrastructure, additional cost of acquisitions and a continued expense reductions that we expect to achieve, Dave will spend more time on this but the mortgage area exceeded our expectations in the first quarter. The rate drop occurred spurred on unexpected increase and a really slow first quarter. You would imagine pipelines for the second quarter would be exceptionally strong, given the low rates and onset of the spring buyers market.

On the wealth management front, first quarter volatility in the markets caused fees to drop by around $300,000. That being said, assets under administration grew approximately $200 million to $21.42 billion. We still believe this is an area of great opportunity for us.

On the balance sheet front, we experienced another consistent strong growth quarter. Total assets grew by $579 million or 10% annualized over the 12/31/15 levels. Average assets are starting the quarter approximately $450 million higher than that experienced for the entire [first] quarter. This bodes very well for Q2 and beyond.

What also bodes well for Q2 is the fact that our pipelines, which although have been consistently strong, at the highest level they've been for some time. Gross pipelines for commercial real estate loans are about $1.5 billion. And that weights close to $960 million if you weight for probability of close. Our pull-through rates have remained very strong and consistent so we feel comfortable with those numbers. Note that the numbers, however, do not include our leasing business but both provisions of our premium finance business, which too, are showing good growth opportunities.

Total loans excluding loans held for sale and covered loans were $328 million in the quarter or about 8%. Total deposits grew $577 million or 12% for the quarter. The majority of the growth was non-interest bearing deposits which grew $369 million, or 31% at an annualized basis. Demand deposits now make up 27% of our deposit base; that's a credit to our commercial initiative.

The acquisition of Generations, which took place on March 31, added $124 million of net asset growth, $96 million of deposit growth and $73 million of loan growth to quarter-end totals. When fully converted and absorbed, this deal will provide approximately 90% cost-out opportunity for Wintrust. Conversions here are scheduled for the beginning of the third quarter of this year.

On the credit front, all of our vital statistics on credit remain very strong. NPAs remain constant from the first quarter of 0.56% total assets. Net charge-offs were down approximately $3 million from the fourth quarter of 2015 to $3.5 million, while the provision was a relatively constant $700,000 down quarter over quarter.

The allowance for credit losses grew 2 basis points and coverage NPAs stood relatively constant at 123%. We continue, as always, to cull the portfolio for any loans or assets which show even the most minute cracks, in order to move them out, which is relatively easy in this continued voracious credit market. On the capital front, our capital ratios remain very strong.

Now over to Dave who's going to give you a detailed review on other income and other expenses.

Thanks, Ed.

I'll start with the non-interest income portion of the income statement. Our wealth management revenue totaled $18.3 million for the first quarter of 2016 which was down slightly from the $18.6 million recorded in the prior quarter, and was up from the $18.1 million recorded in the year-ago quarter. The trust in asset management component of this revenue category increased to $12.3 million in the current quarter compared to $11.8 million in the prior quarter. However, brokerage revenue declined on lower customer trading activity to approximately $6.1 million in the first quarter compared to $6.8 million in the fourth quarter of last year.

Mortgage banking revenue decreased $1.6 million to $21.7 million in the first quarter from $23.3 million recorded in the prior quarter, and was lower than the $27.8 million recorded in the first quarter of last year. The Company originated and sold approximately $737 million of mortgage loans in the first quarter compared to $809 million originated in the prior quarter and $942 million in the year-ago quarter. As for the mix of the production, we had approximately 56% related to purchased home activity and that compared to, roughly, the low 60% range in the prior quarter.

Fees from the covered call options were $1.7 million in the first quarter compared to $3.6 million in the previous quarter and $4.4 million recorded in the first quarter of last year. As we've discussed previously, we consistently utilize this program to supplement the total return on treasury and agency securities held in our portfolio, in an effort to hedge to the margin pressures caused during low interest rate environment.

The revenue in the first quarter of 2016 for operating leases totaled $2.8 million compared to $2.0 million in the prior quarter, increasing 42% during the quarter. The revenue growth was consistent with the trend of the balance sheet growth, whereas the outstanding balances of operating leases grew 41% during the quarter from $63.2 million at December 31 to $89.3 million at the end of the first quarter. To be clear, these are the amounts that relate to the operating leases only, as the capital leases are carried in the loan section of the balance sheet.

Our other non-interest income includes fees generated from transactions related to customer-based interest rate swaps when market conditions for such products were more attractive to our customers in the first quarter, resulting in $2.1 million of additional revenue compared to the prior quarter. In total, the Company recognized $4.4 million in interest rate swap revenue in the first quarter of 2016 compared to $2.3 million and $2.2 million compared to the prior and year-ago quarters, respectively.

Additionally on January 21 of 2016, the Company acquired $15.0 million of trust preferred securities issued by Wintrust Capital Trust 8 from a third-party investor at 71.3% of our recorded value. The purchase effectively extinguished the $15 million of junior subordinated debentures related to Wintrust Capital Trust 8 and resulted in a $4.3 million gain.

Turning to the non-interest expense categories. Non-interest expenses totaled $153.7 million in the first quarter of 2016, decreasing approximately $13.1 million compared to the prior quarter. The biggest drivers of this decline were related to net reduction in salaries and employee benefits expenses, reduced OREO cost and decline in marketing expenses and the current quarter having approximately $5.6 million less of acquisition-related costs and non-acquisition-related severance costs and pension obligation charges that were incurred in the prior quarter.

I'll talk about these changes in more detail now. Salaries and employee benefits expense decreased approximately $4 million in the first quarter compared to the fourth quarter of 2015. Net of the acquisition-related severance and pension costs incurred in the fourth quarter of 2015, this category of expense declined $1.2 million.

The base salary component was down approximately $700,000 in the first quarter of 2016 from the prior quarter. The first quarter included the impact of our annual base salary increases for employees which were generally in the 3% range. However, those increases were offset by savings from the reductions in the transitional staffing connected with the acquisitions that we did in the second half of 2015 and not having the acquisition-related severance charges in the current quarter.

Employee benefits expense was up approximately $1.6 million in the current quarter compared to the prior quarter. Significantly impacting this category was payroll tax expense which was up approximately $3.7 million compared to the fourth quarter of 2015. Payroll taxes are always higher in the first quarter of the year as the social security tax limitations were reset at the beginning of the year. I should also note that in the fourth quarter of 2015 the employee benefit category also had approximately $1.6 million of acquisition-related and pension costs that did not similarly impact the current quarter.

Moving on to the commissions and compensation category. This category of expense decreased approximately $4.8 million to $26.4 million from $31.2 million in the prior quarter. The Company experienced a decline in commission expense related to reduced mortgage revenue and reduced revenue in the wealth management brokerage area, along with the decline in the accrued incentive compensation from the higher fourth quarter of 2015 levels.

The occupancy expense category decreased by approximately $1.1 million in the first quarter compared to the prior quarter. The decrease in the current quarter compared to the fourth quarter of 2015 is primarily the result of approximately $605,000 of acquisition-related charges incurred in the fourth quarter of 2015 to exit certain banking locations.

As I discussed in regard to the operating leases in the non-interest income section, the Company had a similar increase in expenses related to the operating leases, as that portfolio has grown. Again, we would expect this category expense to grow at a similar rate as the revenue side, as the portfolio continues to expand.

Our data processing expense decreased approximately $765,000 from the prior quarter to $6.5 million. The primary reason for the decline in expense in the current quarter was that the prior quarter had approximately $1.5 million of acquisition-related conversion costs, whereas no similar costs were incurred in the current quarter.

Marketing expenses declined approximately $1.6 million from the fourth quarter of 2015 but was relatively consistent with the first quarter of last year. The first quarter of the year tends to be our lowest quarter of marketing spending. We would expect this category of expenses to increase in the next couple of quarters to levels similar to the mid-year 2015 amounts, as our corporate sponsorships tend to be higher in the second and third quarter of the fiscal year.

Other real estate-owned expenses decreased by $2 million in the first quarter compared to the previous quarter. Total OREO expenses totaled $560,000 in the current quarter compared to $2.6 million in the fourth quarter of 2015. The decrease was primarily due to less valuation allowances of approximately $700,000, decreased operating costs of approximately $700,000 and recognizing higher gains of approximately $600,000 on OREO sales during the current quarter.

As we discussed in the last quarter and as Ed mentioned earlier, we have a goal of reducing our net overhead ratio to approximately 1.5% or better in 2016. Given the steps we took in the last half of 2015, particularly related to the recent acquisitions, to consolidate our operations including facilities and staffing and our ability to leverage our existing infrastructure to support the growth of the Company, we saw progress in that goal in the first quarter. Our net overhead ratio stood at 1.49% and excluding the gain on the extinguishment of the trust preferred securities it stood at 1.57%. We'll continue to work hard to achieve that goal that we've mentioned and will keep you posted on our progress as we proceed throughout the year.

So with that, I will conclude my comments and throw it back over to Ed.

Thank you, Dave. Now, so, summary and some thoughts about the future.

As you can see, we experienced a strong quarter and entered the second quarter at a great deal of momentum in all aspects of our business. Loan pipelines were strong, mortgages should deliver a strong second quarter, wealth management has momentum and we continue to seek out and execute on additional cost-cutting moves. Organic growth opportunities remain good.

Acquisition pipelines are active. We continue to concentrate on banks less than $1 billion in assets. A perfect candidate for us would be one where we achieve greater geography but still have enough overlap to achieve significant cost-out opportunities. We also continue to explore acquisition opportunities in all areas of our business.

On the overall acquisition front, you can be assured of our consistent and conservative approach which has served us so well. We hate dilution. Buying these smaller banks with cash and securities allows us to buy at lesser multiples than larger banks. Dilution is forever. It's a four-letter word in our organization. I personally consider big dilution on any deal to be a crime against humanity, if you will. So you can be assured that we will continue to work out of the granddad of [cattle] finance book as we look at deals and we look at growing tangible book value per share as a real measure of how well we are achieving growth and value for our shareholders.

We are working hard on the asset front to get paid for the risks we are taking. Recent widening of the overall market spreads helps us there. That being said, we will never vacillate from our proven credit metrics which has served us so well in the past, and our proven profitability models which served us so well in past. That is, we're going to get business on our terms, at our pricing, get paid for our risk.

Our interest rate sensitivity position remains very positively gapped and we are well prepared for the eventuality of higher rates. In fact, our interest rate sensitivity position actually got bigger in the first quarter. So all in all, I really like how we are positioned to achieve and exceed our stated goals for 2016 and beyond. I like where we stand.

With that, we'll open it up for questions.

(Operator Instructions)

Jon Arfstrom, RBC Capital Markets.

Thanks, good afternoon.

Hi, Jon.

One of the comments you just made, Ed, you also made earlier when you were talking about your pipeline and pricing. You talked about expanding spreads in the market and that's the first time I've heard you talk about that in quite a while. Can you expand on that a little bit more?

Sure. On the middle-market commercial side we've seen a little bit of move there, not as much as you would imagine. But again, on that side we have the opportunity to bring in core deposits to cross sell wealth management, treasury-managed and other opportunities. So that's just up a little.

Where we see it is on the real estate side, and that's moved markedly up almost a full point. You're doing deals at four spreads as opposed to three spreads and two and a half spreads before. So the market has moved on real estate.

You have to be careful on the real estate. We've seen a number of opportunities come our way, larger deals we would syndicate out. And you have to ask yourself why are these guys coming to us, and it's because the big guys aren't doing them.

So when we're doing these commercial real estate deals, they have to be well-sponsored and they have to have a lot of equity in the deal. They have to be well-underwritten and they have to be priced right. And we're getting our fair share of those but you got to be careful now in this market because you don't want to be the low-cost provider out there. But we are seeing those spreads get a little wider.

I think in the first insurance funding side, we seen those spreads move up a bit. And all in all as our portfolio reprices from that first quarter, or the increase that the Fed put in, it takes time for that to be absorbed. And you're seeing that happen little by little too.

But spreads seem to be getting better and our portfolio continues to reprice higher. We're able to -- at least in this quarter -- through the mix and through other -- the mix of more demand deposits coming on and then becoming a bigger part of what we're doing, maintaining our cost of funds. And our margin, it looks pretty good to -- we're able to execute to continue to show increases going forward.

Okay, good, that helps. And then another one of your quotes, you describe mortgages being exceptionally strong. I look back and you typically have a better Q2 in general, but exceptionally strong is a big statement. I'm curious if you can help us understand what you're seeing so far.

Well I'll let Dave go through the numbers, but I will tell you, I think I've said in previous calls, when we hit 100 applications a day, we start raising our pricing. You've seen this happen, as volume picks up we're able to actually get better spreads and better pricing. We've been averaging 118 to 120 applications a day for the past almost six weeks to two months.

So pricing is getting better. Volumes look very strong. Dave, I don't know if you want to go over any numbers there. But we feel very good about both the margins that we should achieve and the volumes that we should pick up in the second quarter.

Yes, and Jon, for the current quarter, like I said in my remarks, we originated $737 million. My guess is that given where the pipelines are at right now, obviously they have to close. June isn't as clear to us as obviously April or May is, but I would expect that number to be over $1 billion in the second quarter.

Okay, all right, good, that helps. Okay, I'll hop out of the queue, but thank you.

Thank you.

David Long, Raymond James.

Good afternoon, guys.

Hi, Dave.

Coming off of a strong quarter, your capital levels did decline a bit here. Growth prospects still seem pretty good; M&A pipeline seems pretty good. How are you thinking about managing that capital against what how you'd like to grow for the rest of the year?

Well I think it will be a function of how we grow and whether growth exceeds what our expectations are. We think that our earnings should be able to support it, notwithstanding acquisitions and the like in the pipeline which could change how we're thinking about things. But right now, we're projecting earnings and you would imagine that I think we should be able to maintain these ratios and support growth going forward, you never know. It just depends on these growth prospects are pretty strong and hopefully the earnings will result from these growth prospects. But hopefully we will be able to withstand it and self-fund going forward.

If that's not the case, we always want to maintain good capital and be ahead of the game. In the past we've always used -- tried to use shareholder-friendly vehicles, like converts and the like, where we can basically borrow the money while we achieve a higher stock price. Again, we look at book value per share and dilution as being a very bad thing. So we can be assured if growth exceeds our expectations, that we would have to avail ourselves of something. But right now, we evaluate it every month and we'll see where we go.

Okay, great, thanks for that color. And then secondly, on the growth front, looking at the marketplace, what is your appetite for hiring veteran bankers at this point? This is usually the time of the year you start hearing about some moves. Have you been active talking to others out there?

We're always active talking to people. People call -- we're not a bad place to work, despite me being here, but we're always looking to make investments in the future. We continue -- we always cull the herd here where people are not performing or we'll help them find maybe a better opportunity to advance their careers, it may not be here. We consistently look at opportunities to bring seasoned bankers in to build the business.

We also will continue to look at -- we certainly believe and always have -- that diversification of our portfolio is important and one of the strengths and one of the attributes that keeps our credit cost at half of what peer group is historically. We'll continue to look at opportunities to enter into new lines of lending businesses that we'll have vetted fully and we will not be afraid to invest in those going forward. We're having some success there.

I can't comment on it now but there are some opportunities in the market to enhance some of the areas that we're in, on the leasing side, on the franchise side and the like. And we'll continue to look at those.

Excellent, thanks, Ed. Go Blackhawks.

Go Hawks.

Emlen Harmon, Jefferies.

Hi and good afternoon. In your prepared remarks you noted the drop in variable comp was mortgage, wealth management and the incentive accrual. On the incentive accrual, could you give us the delta on that specifically from the fourth quarter? What are the key performance factors that can drive that difference as we go through the rest of the year?

Emlen, this is Dave. Our short-term plan is heavily weighted towards achieving our budget to net income and then we have personal objectives. On our long term incentive plan, we've got -- it's a rolling three-year plan, so it might be awards and there's a three-year performance there before we measure it. For the awards we did it at the beginning of 2016 and the beginning of 2015, they were based upon achievement of earnings per share.

The awards that were done in 2014 that the performance period ends this year, it's a combination of asset growth, tangible book value per share growth and return on assets. Probably two-thirds of it now is really achieving our earnings per share. The other half is growth and ROA and tangible book value-related.

But last year at the end of the year we had significant growth which, for the awards that were to be paid out of January affected that accrual and drove it up in the fourth quarter. We only have one more year of that type of award out there and the rest would just be based on cumulative earnings per share. So you won't have the same volatility, I don't believe, as you did when we were using asset growth and ROA.

Got it. So maybe one more year of that volatility in the fourth quarter and then in future years it starts to smooth out?

Yes, well, one year with a third of it as opposed to last year it was two-thirds of it. But this is now one-third of the accrual, so it should be more predictable and steady prospectively.

Got you, thank you that's very helpful. And then going to the NIM and look at the loan yields, those were flat quarter-over-quarter. I know a component of that is the accretion was down probably $0.5 million quarter over quarter. Could you talk a little bit about the effect of short-term interest rates on a loan yield in the quarter. And if there's any follow-through as we get -- if we don't get another increase, if there's any follow through on the loan yields as we get through the rest of the year here?

Well, I think that, first of all, like our premium finance portfolio is being priced over the period of a year. So we're still achieving the positive effects of the 25% bump that they did at the end of last year. The life insurance is one-twelfth of the year, or one-twelfth a month that's repriced. The other premium financed for prices over a nine-month period, so we are still achieving that which should be helpful.

The rising spreads on the real estate side should be helpful for both new business and for renewals. And on the commercial side, as I said, we're seeing a little bit of a bump, not much but a little bit, which is heartening. Our leasing portfolio continues to grow nicely; their pipelines are strong. Again, those are higher yielding assets. So we would hope to see that increase in earning in the loan side of the earning assets continue to move up. We highlight for you in the report the accretion that's running off, and it is what it is. We'll pick up additional accretion if we do other deals but certainly not -- unless we did a big deal -- not to the level that's running off right now. Those were generated at different times in the cycle and there were a lot more of them out there.

But like I said in the past, accretion is like dope. If you buy a big bank and take another hit of it or you got to wean yourself off. We're in the process of, with our acquisition strategy of weaning ourselves off of that and trying to just stay ahead of the game by getting paid for our risks and by staying diversified and continuing to get the repricing effects from the first one-quarter jump that the Fed made.

Got it, thanks, appreciate it.

Brad Milsaps, Sandler O'Neill.

Hey, Ed, Dave, how are you?

Great, Brad, how are you?

Good, good, nice quarter. Just wanted to follow up on the NIM discussion. Was going to see if you could give us a little more color on the increase in the yield on the liquidity management assets. I know that mix can move around a lot but it was up about 13 basis points. Just curious if you did reinvest more cash or what drove that?

Brad, this is Dave. There's a few reasons for it. We probably had $100 million more in securities this quarter than we did last quarter on average, and so that helped the margin by a few basis points. Also, a lot of our liquidity is sitting at the Fed in overnight money and the quarter basis point rise in rates in the fourth quarter certainly helped in that regard. So that was another 5 basis points.

Then the way we calculate it is on actual days and last quarter there was 92 days in the quarter; this quarter there's 91. So those securities that are [3360] actually get a little bit of a benefit there. The 25 basis point rise on our overnight money of $100 million more invested in securities versus overnight funds and then the basis change.

That's helpful. And then on the other side, it looked like average federal home loan bank advances were higher than they had been running. Any specific strategy there? Or is it just locking in some lower funding, taking advantage of that? Or any other color there?

We use that a little bit with our mortgage business and our mortgage warehouse business. So a lot of that is real short-term overnight type of money. We also -- sometimes we just take a little bit extra at the end of the quarter to manage our liquidity.

Okay, great.

We didn't extend in that portfolio, it was all really short-term overnight advances.

Okay, and then I was writing feverishly during all the expense discussion but on miscellaneous expenses, I think they were up $2 million or $3 million. You alluded to a number of things in the release. Just curious if you think that miscellaneous number is run rate or will that build through the year?

And then bigger picture, the 1.50% net overhead ratio, is that where you expect run rate to be by the end of the year? Or is that more an annual average for 2016?

No, the 1.50% or better was the full year. If you think about it, that would mean it should be better than that at the end of the year. So that was a full-year calculation.

Notwithstanding any acquisitions we may do or one-time charges that may pop up between.

Sure.

They're miscellaneous. Obviously there's a lot of stuff in there like travel and entertainment. As you get into the summer months there tend to be a little more of that. We are a big enough Company now that there are things that move up and move down here. So there could be a little bit upward pressure there, but it's not going to be -- nothing dramatic, I don't think.

Okay great, thank you, guys.

Chris McGratty, KBW.

Good afternoon thanks for taking my question. Ed or Dave, on credit your numbers look great and you're providing a, call it, 20 basis point rate. Given what you're putting on the balance sheet, what should we be thinking about as an appropriate provisioning rate for the near term?

Well, our mix of business I don't think has changed too much. Leases are growing but other than that, the mix isn't changing dramatically. But the allowance has been in the mid 60s and you got some of the credit stuff out there that increases it. It's probably going to be in the 75 basis point range.

I think the easy way to do this would be just to go to the schedule that we put in the press release that talks about how we have reserved against all of the various components of the loan portfolio. So you know that on life insurance loans it's what, four basis points or something, and on the premium finance, the commercial loans, it's 20 or something like that. And if you just project out where you see our growth, I think that you can just do the math and determine where we will be.

The life insurance loans continue to grow. The property and casualty has fallen off a little bit; we expect that to pick up a bit going forward. The leases will have obviously a higher number associated with it and we expect growth there. Growth in commercial real estate, growth in the like. In commercial, commercial real estate leases, in those aspects of our business, they may, because of our size and the momentum we have, the provision might be going up prospectively just because of the mix that's coming, or the mix of the growth coming in.

So you can project the growth out and put those factors against it and come up with a pretty good estimate of where provisions should be. Hopefully those are coming in at higher rates. Certainly, the income we'll earn from them will offset any increase in the provision.

And schedule that Ed's referring to is on page 25 of our press release. But we break it down fairly granular by loan type.

Okay, thanks for the color. Just a follow-up. I'm interested if the quarter included any material changes in pre-payments. If or if it didn't add, what might a reasonable rate of -- I think in the past you've quoted quarterly production or quarterly loan growth of a few hundred million dollars. Any specificity on that would be great. Thanks.

We shoot for $250 million to $300 million of core growth. We were about there, we had a little bit -- $70 million come in from the acquisition. We had some large pay-downs in the life insurance portfolio that affected us, which was okay by the way. It was like a 100-year old lady and she paid it off. She figured she doesn't need anymore insurance on that. But that was a big deal that got paid off. So we had a number of those paid down.

So growth was still between $250 million and $300 million. Given our pipelines right now, I would ratchet that up just a bit, just because our pipelines are stronger than they have been and our pull-through rates are remaining relatively constant. Pre-payments have been relatively constant. We have not seen a lot of pre-payments. We still are showing the door to -- as I said during the prepared remarks, if there's any crack we're ushering those folks out to the world where they usually are able to achieve probably a better deal than we were giving them. So pre-payments have been relatively constant and loan growth looks pretty strong, at least for the foreseeable future.

Great, thanks, appreciate it.

Terry McEvoy, Stephens.

Hi, thanks, good afternoon. Question for Dave. What's left on the cost savings from the 2015 acquisitions, if anything? And then what is Generations going to add in terms of a core run rate to expenses? And do you have a feel yet for any merger charges?

Well, I think we pretty much have realized the expense savings on the three deals we did last July. I think we're through that and we've got them all converted. We've got all the transitional staff pretty well gone. We had $285,000 worth of charges this quarter for it but I think that's pretty much the end of the road. So this should really be a fairly clean quarter from that perspective.

Generations, it's just a one-bank location. We'll convert them in the middle part of July of this year. We'll have some additional staff on through the July period to get that done. And then we'll have the deconversion charges and the like in the third quarter.

But Generations, it's a little over $100 million bank and they were running $0.5 million or so of expenses pretax. We'll certainly be able to cut that. We've got another location that's in the vicinity, so once we get it converted we'll close one of those locations. The cost saves are going to be substantial there. But for a quarter here we'll probably have a few hundred thousand dollars of expense related to that.

Okay, great. And then, Ed, in your prepared remarks you talked about, I think you said clutter in the third and fourth quarter because of the deals and some of the expenses. I would fully agree in January after fourth-quarter earnings, that was definitely the case.

As you think about deals going forward, are you going to be more selective in terms of the timing and the size just to space out some of that clutter so we're not in that same situation again like we were in Q3 and Q4 where it looked like you were about to be highlighted on that hoarder show because there was so much clutter, and it was tough to see the underlying growth potential of Wintrust. And it's nice to see today the clutter disappears and the stock goes up. So how do we not get in that same situation again?

Well, we're still going to be opportunistic. If you look at the pay-back on what we just did, it was huge. We were able to knock out about 80%-some odd of the cost of a $1 billion-plus of assets. Will those opportunities be clustered like they were the farther you get away from the cycle? I would imagine that they won't be as clustered, or we won't do as many.

And I think maybe, now that maybe we've made believers out of you guys, a lot of you, that we can do a better job of communicating exactly where these costs are. What we did a bad job of in communicating to all of you was we took one-time charges but those were severance charges or data processing charges. But what we didn't show you was here are the run rates that are going to go away that we're using as periodic expense for the people as they worked until they hit their point of departure, or the costs of the facilities until we were able to shut them down and put them together. If we did it again it would be a much better job, I think, of presenting that to you than we did this time. We did a poor job of explaining that to you.

But if you look at what the alternative is, if you look at buying $1 billion or $2 billion or $3 billion bank and paying [2.30] times book for it and suffering that dilution, we got all that done with really no dilution when you think about it. We were able to get them at a really good price. We were able to -- we suffered through the income statement but at the same time we didn't go back and say it's going to take you five years at book value dilution. It was we added our book value and then now we're really adding to it by achieving those results.

So if we were to be presented with that opportunity again like we were in the past, I'd do it again. We'd do a better job of it but I don't see that in the future. I think they will be a little bit more spaced out. I think we'll be able to give you -- having gone now through that on our own front -- a much better, in terms of how we communicate that to you. And hopefully, this quarter shows that we gain a little bit of credibility with all of you that we always do what we say we're going to do around here. We try to and we've been very successful at doing it.

Long-winded answer to your question. But again, if I was faced with that same opportunity, probably do the same thing again. But I think as we get farther away from the cycle, you're not going to see that much -- you won't see that volume coming too quickly.

I appreciate that, thank you.

Thank you. That does conclude today's Q&A portion of the call. I'd like to turn the call back over to Ed Wehmer for any closing remarks.

Thank you all very much for listening in. We hope to present you with another nice quiet successful quarter when we talk in July. Thanks again for listening in. Talk to you soon. If you have any other questions that pop of this, please feel free to call Dave Stoehr, Dave Dykstra or myself. Thanks.

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