Welcome to the Wintrust Financial Corporation's 2013 third 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 third quarter's earnings press release and the company's most recent Form 10-K and Form 10-Q on file with the SEC. I will now turn the conference call over to Mr. Edward Wehmer.

Thank you. Good morning everybody and welcome to our third quarter earnings call. Joining me as always are Dave Dykstra, our Chief Operating Officer; Dave Stoehr, our Chief Financial Officer; and Lisa Pattis, our General Counsel. We will follow our usual format, with me making some general comments regarding the quarter; Dave Dykstra will then get into some detail regarding other income and other expenses; back to me for some summary comments about the quarter and about the future and then always some time for questions. In general, we're very pleased with somewhat noiseless record third quarter. Net income of $35.6 million, was up 10% over the third quarter of 2012, earnings per share of $0.71, both records. Year-to-date we made $102 million or 26% over last year and $2.05 per share, up 21% over the previous year. Our net interest margin increased 7 basis points in the quarter to 3.57%. Net interest income also was up $6 million for the quarter, more than offsetting a decrease in our mortgage operations. The increase in the net interest margin was due to a lower cost of funds and really an optimal loan-to-deposit ratio. Going forward, we believe that there's more room for reducing our cost of funds. Cannot expect much more about the diverting asset yields without changing our risk profile, which we're really unwilling to do. Future net interest margin numbers will be predominantly dependent on maintaining an optimal loan-to-deposit ratio. That doesn't mean, however, that we don't expect increased growth in net interest income. Our loan pipelines remain strong and as stated in previous calls, core deposit growth opportunities remain good. At heart, we still are a growth company. On the other income and other expense side, Dave will take you into this in detail. In total, other income…

Thanks, Ed. And as normal, as Ed mentioned, I'll just briefly touch on the non-interest income and non-interest expense categories. As Ed mentioned in the non-interest income section, our Wealth Management revenue increased slightly to $16.1 million for the third quarter from $15.9 million in the second quarter of the year, and improved by $2.8 million when you compare to the year ago quarter of $13.3 million of revenue. Now, the brokerage revenue component was essentially flat at $7.4 million compared to the second quarter, while the trust and asset management revenue showed a slight increase to $8.7 million of revenue from $8.5 million in the prior quarter. Our mortgage banking revenue declined 19% to $25.7 million in the third quarter of 2013 from $31.7 million recorded in the prior quarter and was down 17% from the $31.1 million recorded in the third quarter of last year. The company originated and sold $941 million of mortgage loans in the third quarter compared to $1.05 billion of mortgage loans originated in the prior quarter and $1.1 billion in the year-ago quarter. We generated relatively strong volume related to purchased home activity, which represented approximately 70% of our volume during the third quarter compared to approximately 56% of the volume in the second quarter of this year. The value of company's mortgage servicing rights stayed relatively stable at $8.6 million as of the end of the second and the third quarters respectively. As you know, future mortgage origination volumes and mortgage servicing rights will obviously be impacted and be sensitive to changes in interest rates and the strength of housing market. And although, our pipeline for mortgage refinance business has softened recently with higher rates, some of the decline in the mortgage pipeline will be offset by the addition of volume related…

Thanks, Dave. I now understand tangible equity units. I never really did. I'm like these guys, just kidding. To summarize, we feel very, very good about where we stand right now. It's starting to really hit on all cylinders, hopefully we can continue that. Margins are hanging in there. Again, we still think there is room on cost of fund side to bring margins in a little bit, but it really will be dependent on maintaining an optimal loan-to-deposit ratio. Credit appears to be easing. Loan pipelines remain strong. The system has operating leverage to help support ongoing growth without commensurate increases in expenses. Wealth Management continues its steady progress. The mortgage market is moving away a bit, but we are quoting our expenses accordingly. The acquisition of Surety will help buffer the shrinking market. Further, we intend to continue to take advantage of the inevitable consolidation in this market through additional transactions like Surety as well as picking up displaced producers. We remain very, very busy right now in evaluating additional business combination opportunities in all aspects of our business. As always, we'll be discerning and prudent in our approach. The acquisition of Diamond Bank, well, it should close shortly. We're sure it'll add a couple hundred million to our balance sheet. It's a very nice location for us to continue our growth. So we feel pretty good about where we are. And if we could just get the regulators to back off a little, well, that's not going to happen. So we're going to live with it. In the words of Hyman Roth, as what he told Michael Corleone, this is the business we've chosen, we're going to have to deal with it. So we feel good, walking into the fourth quarter, which is historically a pretty strong quarter for us. And we should be very busy in that quarter continuing to execute the plans that we've laid out to you. So with that, I open it up for questions.

(Operator Instructions) Our first question comes from the line of Jon Arfstrom from RBC Capital Markets.

Question on the loan pipeline and you talked about, I guess people being on vacation in July and August. I'm just curious how true that is maybe comparing contrast July and August versus what you're seeing in September and October, and how do you feel about growth for the rest of the year?

Well, I think growth will be consistent with the rest. If you average it out, we've been growing averaging about $225 million worth of loan growth a quarter this year. I think that you can probably expect that, plus or minus a little bit. We don't know what pay offs are going to be, but we work very hard to get the pull-through then, and we'll continue to do that with the pipeline still is over $1 billion gross and close to $750 million on a weighted average basis, so we feel good about where that stands, and there is added incentive for our guys to continue to work at it. The market is still pretty good. Pricing has not moved outside of our fail-safe profitability analysis and terms and conditions have not moved out of our credit policy. So we feel very good about where we are as we continue to build relationships and expand our footprint. We're opening up a little bit of a new market for us with Lansing. Lansing is right on the Indiana border and moves into northwest Indiana. It's an area we have not concentrated on. There is a lot of business down there, and that's an area that we are concentrating on now as well as the Kenosha-Racine area, another area that we really haven't concentrated on. So, there are a couple of new markets where we're focusing. And hopefully that will continue to add to the pipeline as we get penetration in those markets.

And then just on mortgage, particularly on Surety, is there anything that changes with their production or mix, post-acquisition? I guess the reason I ask that is it's a pretty big percentage of your production, and obviously I think we're all expecting the numbers to come down. But with that -- can a production come in, and I'm curious if anything changes with those guys or we can assume that that stays on pace?

Well, they'll move with the market obviously. We won't pick up, they have a pipeline that's theirs that needs to be closed. I think their pipeline was close to $90 million that they needed to close, and then that goes back to them on their own dime. So it will take a while to pick up the actual volume there, we'll lose a month really. But Chicago still is one of the tougher markets and everything, including mortgages in terms of spreads. So, I think that the business we get there will be more profitable, and we are offering them a lot more tools than they had in the past in terms of places to sell the mortgages. A lot of their loans out there are jumbo loans and they did not have access to a number of sources that we have access to replace those loans. So, we will be giving them a competitive advantage in that regard and then notwithstanding our ability to fund their warehouse less expensively than they were. So they're all pumped up out there. It's a great group of people, they really are, and we're excited to have them on the team and they are motivated by the terms -- just because they are motivated people, number one. But the business itself is eat what you kill sort of thing, but also the majority of their purchase price on this is based on an earn-out. So that doesn't mean that our quality control will be in place, but we expect there, hopefully, they can pick up market share there, because of the additional tools that we're giving them.

And then, just last question. How did you get the purchase volumes up to 70%? It seems like it was a pretty big jump.

Well, they've been trending up for a long time, but I think I talked about this in a previous call. We're very disciplined in our mortgage area. We don't take on a lot of volume when we can't support it. We really focus on time from application to close and servicing customers that comes first as it's really the quality of our business, so when things were really going hot and where we're hot and bother, we knew we could take 120 applications a day and service them properly and work them through. When the market got more frothy, we would actually raise the pricing on the refi type of business and lower down the purchase price. Because for the last year, we have been working on developing strategic relationships with people in the real estate sales business to have them direct their business to us. We've been focusing very hard on that knowing that the refi market would come to an end. So I think it's a function of how we price our business, how we control our business. But also the strategic move to align ourselves with people associated with the purchase process, be it attorneys, be it realtors and the like to continue to build that business, because historically it's been probably a 60-40 business in terms of purchase versus refi. So, we're going to continue to work very hard on those channels.

And our next question comes from the line of Chris McGratty from KBW.

Dave, on the securities book, the yields were up about 15 basis points. Can you speak to the reason why was it lower premium and/or is it maybe getting a little bit better yield on what you're buying or a combination of both?

I'd say the primary reason is that if you look at the average balance on our liquidity portfolio, it went down quarter-over-quarter and where we utilized the funds was taking them out of liquidity that was sitting at the Fed earning 25 basis points. So, if you take out 25 basis points and leave the rest of your portfolio there, the higher yielding stuff stays on the portfolio and you get rid of the 25 basis points liquidity, it's just going to bring your yield up because you’ve gotten rid of the lower yielding assets. So, we didn't go out and extend the portfolio or do anything funky like that. We just got rid of some of the lower yielding assets in there, which caused the remainder to have a little bit higher yields. It is just a mix issue, right.

And when looked at the EOP balances, it looked like it went up at the end of the quarter. So does this suggest maybe yields maybe moderate a little bit in the fourth quarter?

You're right. We did see a pretty good inflow of liquidity towards the end of the quarter. So on average, it was down, but at the end of the quarter it's fairly strong. So we got to put that liquidity to work. Some of that was maybe a little bit of enclosed from municipality, because tax payments came in September and some of that will go out as the municipalities spend the money. We probably were close to the low point of that. It can fluctuate. As Ed has said in the past, liquidity can go up and down. We can't manage it precisely with customer input at the end of the quarter. But we'll try to put that money to work and it should be fine in the fourth quarter.

And just to follow-up on the NII comment, I think, Ed, you made. If I add up your comments on the securities book and what you said about the loan book, should we be expecting NII to grow? Did I hear that correctly, in the fourth quarter, from the third quarter?

Well, I think that if we continue to grow and put assets on the books without a commensurate increase in expenses plus just the truck repricing alone will bring you down $1 million. Yes, we would hope that. That's the name of the game. We've always said its asset stupid, but not stupid assets. Our ability to generate assets and our approach forever, up until we did a rope-a-dope was to be an asset-driven company. We always generated more assets than we needed, which allowed us to go out and gain market share on the right-hand side of the balance sheet, which we consider that will franchise value to the organization. So as long as we can maintain our asset driven stature, we're in good shape to continue to grow and hopefully grow without that increase in expenses. It's organic growth, because we have some leverage in the system. So that's the game plan. As of now, is to get back to the future, as we said to get back to what we use to do so well in the past and that's good growth. I've always said that the one thing that could screw this model up is if rates and/or terms move outside of our, what we call our circuit breakers, our profitability analysis and our credit policies. We don't change our credit policies to follow the times. You've heard me say before, Omar Bradley's quote, we set our course by the stars and not by the lights of other passing ships. So if the market moves away from us then we fall back into a rope-a-dope situation. But we don't see that happening now. Our pipelines remain strong and they're well within our risk parameters and our profitability parameter. So we would hope and that's the name of the game, now is to continue to grow that and build up this franchise.

Last one, Ed, for you on M&A. You allocated more capital to mortgage this quarter and obviously everything has a price. So I'm assuming that's why the decision was made. Can you speak to whole bank acquisitions or deposit acquisitions, obviously the rumor in the market is Charter One, whether this would be a transaction if it were to be sold in pieces that you would consider?

Well, we don't comment on any specific things we're working on. All I can tell you is that we get at best if anything that comes along. We in the past have found that the smaller acquisitions have been to our liking. They bolt right on. They really don't provide a disruption and there is a great cultural fit there. So we're very active and continuing to look those. But if you think about it, the banks that are wanting to linkup are community banks. And our philosophy and our approach really fits hand in glove with them. So we're very, very busy in that regard. There are some larger opportunities that they've talked about, that may come along. That doesn't mean we won't look at those. But we have to balance it all out, look at our odds and see what's going on. So we don't leave any stone unturned and we certainly have a goal to be Chicago's bank and to continue to fill out our franchise in the Chicago and Milwaukee markets. And if opportunities come along, we certainly will give them a hard look.

Our next question comes from the line of Brad Milsaps from Sandler O'Neill.

Most of my questions have been asked, but I just wanted to follow-up on the mortgage banking piece. Can you guys comment on the gain on loan sale margin, it looks like it was maybe down 30 basis points? I know we have talked about it in the past, but kind of directionally, what are your thoughts there and maybe how does it compare to what the folks at Surety were receiving?

The gain on sales did come in a little bit on our retail side. So I mean, as volumes were way up, there is a lot of more flow coming in, which you saw us do and our competitors do is as that flow came in, you try to governor it by raising your prices a little bit. So as the volumes have come down, spreads have tightened a little bit on the retail side. The other thing is we did a little bit more in the correspondent channel this time. And maybe 8% of our volume in the second quarter was correspondent about 18% was corresponded in the third quarter. Spreads in the correspondent are a little less, but the expenses associated with that are a little less also. And the Surety business, as Ed mentioned in his opening comments or in a response along the questions, I don't recall, but the spreads on the business outside of Illinois are generally higher. So it really depends on the product mix and the marketplace. But we see in other parts of the country that some times those spreads are 15, 20, 30 basis points wider than what we get in Illinois. So we're hopeful that that holds up in California. We'll have to see how that works. But not too dramatic, I think it's just competitive pricing and a little bit of a mix change between retail and correspondent on our part.

But do you guys kind of see, I mean obviously, there's a lot of moving parts. But you can kind of hold it in this range or you potentially have got further downside because the fourth quarter is a little bit weaker and maybe you'd get some bounceback, as volumes pick up into the stronger months in 2014?

It's reverting to the mean. The spreads are just coming back to what are normal. So I think what you saw this quarter is more normalized spreads. When I look at our budget and what we hold our mortgage guys accountable to, they were still this quarter a little bit above that. So we've seen abnormal spreads due to the cow going to the boa constrictor people are charging more. So when the volume runs off, the spreads are reverting to the mean, you're very close to this quarter to what the normal should be. It actually could come back a little and hopefully that will be offset by higher profitability of Surety. So it's just hard to tell whether we're dealing with nits and nats here. But what you this quarter is closer to what historically is the case.

And then I know, Ed, you've talked a lot about the lag between production slowing down and you're able to lower the expense base in the following month or the following quarter. If you had to try to pinpoint it, how much excess expense were you carrying in the third quarter that you think will fall off in the fourth, all else being equal in terms of volume?

Well, it's hard to say. In this line of business, there is a lot of moving parts there. Obviously commission expense, which glides a little bit will come down. And there are some people costs that will come down, but we're looking at that right now. And the mortgage department is -- they got this thing pretty cookie-cutter, Brad, where they look at what their projections are going to be, they know how many to keep our quality of service up. I mean, one thing we're very proud of here is the quality of the service that we provide. I can't tell you how many people, be them attorneys, be them fellows who own title companies, will say how happy they are when they go to a closing and see it's a Wintrust package because they know its right and it's good, so because of that we have our benchmarks set up. We know exactly how many processors, how many post-closures, how many pre-closures, the numbers that we need, and it will shrink proportionally with that. Obviously you lose a little bit because you don't get the leverage. Your executive staff is much over -- you're leveraging that over less volume, but proportional in terms of 80% maybe would be what I'd look at. If volume drops that percentage would be about 80% in terms of expense cost. And it depends how that would ratchet up. If it falls off the cliff and there's nothing, we'd be left with nothing, but overhead, right. So it's kind of like calculus, which I've got a D, and anyhow. But I can't give you the exact number.

Our next question comes from the line of Steve Scinicariello of UBS.

I just want to follow up on some questions around Surety, just given the significant origination generation potential that platform brings to you guys. Just curious, are there more types of Surety-like deals out there that can help mitigate the origination volume decline going forward?

That's the plan, Steve. And we've talked about that previously that we believe that that market will consolidate. We see it consolidating when this refi binge is over. A lot of the independents out there, which there are still many, and by independent, I mean those not affiliated with the financial institution. We will see Dodd-Frank coming down the road at them, and they wanted to hang around long enough to take advantage of this and they're going give up the ghosts. It's just they have not experienced, they have no idea, the pain -- the difference in operations, the compliance cost will bring to them and real scrutiny on compliance costs. So as I've talked in the past about, the more independent mortgage brokers at least in the state of Illinois, and we're looking nationally by the way. Our platform is national, but in the state of Illinois, the Department of Financial Institutions had two guys to look at close to a 1,000 mortgage producers. And they never had any scrutiny as Dodd-Frank comes into being and capital is required, and more strict penalties come for violations of that, these guys all are going to run out. So they're going to ride this horse as long as they can. And that's always been our theory. So yes, we believe there will be opportunities there, not just for platforms in Illinois and around the country, but also to pick up producers, real-quality producers, who would be leaving companies that are shutting the door or moving somewhere else that we can continue to build this up. So we think it's a displaced opportunity. And as you know we like taking advantage of dislocated assets and people. So we believe it's an opportunity for us to really build this platform and become a real force in this business.

No, and it makes sense, too, and that's why they are probably happy to get the kind of earn-out type of incentives that you are offering, I would assume.

They are motivated bunch.

And then, my second question, just in terms of the expense management looked really good this quarter. And just kind of putting together some of the comments in terms of having higher net interest income, getting a lot of the expense leverage, kind of starting to see that, out of the infrastructure, and then rightsizing the mortgage side. Just want to kind of check in and get any color. Any reason why we shouldn't see the efficiency ratio continue to kind of trend downward as we go forward?

That would certainly be our hope, Stephen. Obviously, part of the equation there is the margin too, so we've got to work on the margin aspect. But as Ed indicated, it looks like on the credit side, we hope that that continues to work its way through. And I think that you will get less professional fees with that, less collection costs with that, hopefully, and then as we build up these smaller facilities, and the leverage we have in them, I think so. And the mortgage business, although we hope it continues to stay high and we can fill in with other deals and picking up new producers, if that does fall off, that generally is a higher efficiency ratio business. So if it does come down then that would aid the efficiency ratio, although we would clearly prefer those revenues to stay up. So yes, I think we have leverage in those system and we would think that that would be the case. Obviously, we'd have to execute.

We actually -- the efficiency ratio because it is a function of the margin and your expenses, we don't manage with that because if we did, you'd just shrink it back to nothing, if you follow that logic. We look at net overhead ratio. This quarter it was 1.65%. We strive to be below 1.50% and our goal is to be 1.40% because of the little bit of a lag in the mortgage side of the business and just some other mix issues. It jumped from 1.50% to 1.65%. So although, the expense control on the surface of things looks good, in my mind we can do better. That's not -- a high-performance bank should have a net overhead ratio of 1.40% to 1.50% or anything below it. Some of our bigger banks run at net overhead ratios of 90 basis points. And we need to -- there is leverage in the system that needs to be build out, that has to happen. So yes, expense control looked pretty good on the surface of things, but in my mind our expenses were too high. We weren't below that, at 1.50% or below. So there is more to do there. That's how we look at it.

Our next question comes from the line of Herman Chan from Wells Fargo.

Following up on the loan pipeline, it does look like the pipeline has declined somewhat in the last couple of quarters. Is there anything of note you would point to there?

Better reporting. I think the opportunities, as the pipeline has evolved, we've been able to get more accurate reporting out of it. So I think that's one issue. The other issue is just in the third quarter, it's just probably slow. So probably I'd say, if you look at the you're look at the decrease, which is not that much, but not that material, but I'd say 20% of that decrease is due to better reporting of opportunities and 80% of it, is just due to a third quarter, kind of, everybody is on vacation and riding it out. So we would expect -- I'm still very pleased with that pipeline, where it is right now and off we go.

And with the few months after the announced deal to consolidate two of your competitors, have you seen any changes to the competitive dynamic in the commercial market?

Not really, same old, same old. Like I've said earlier, we've always competed with those two institutions and we continue to compete with them. No one has changed their approach. So no, I'd say it's still very competitive. But then again, I can't remember in my career when it wasn't very competitive in Chicago. So we have not seen any significant, really any change, since that announcement.

Our next question comes from the line of Peyton Green from Sterne, Agee.

A couple of questions, not just to beat a dead horse, but maybe to clarify on the mortgage business. One, do you all book on -- do you book your gains at lock or at funding? Sterne, Agee: A couple of questions, not just to beat a dead horse, but maybe to clarify on the mortgage business. One, do you all book on -- do you book your gains at lock or at funding?

It's funding.

And then maybe, Dave, on the margin, kind of thinking about the held for sale that existed a quarter ago, which was around roughly $540 million, and the held for sale was down to about $335 million at the end of the current quarter, or recent quarter. How is the margin on the volume, say that existed at June 30 that carried over and might have helped results versus the margin that you would carry over, so to speak, into the fourth quarter on the $335 million? Sterne, Agee: And then maybe, Dave, on the margin, kind of thinking about the held for sale that existed a quarter ago, which was around roughly $540 million, and the held for sale was down to about $335 million at the end of the current quarter, or recent quarter. How is the margin on the volume, say that existed at June 30 that carried over and might have helped results versus the margin that you would carry over, so to speak, into the fourth quarter on the $335 million?

If you look at the second quarter, our average mortgages held for sale were about $382 million and it yielded about $331 million. And on the third quarter the average -- even though it was low at end of the quarter, the average was higher $481 million and it yielded $361 million. So actually it had a little bit more average outstanding at about 30 basis points higher.

And then, Ed, what do you think has to happen to get to the net overhead goal of 1.40%? Is it something that you think is doable by the middle of next year or is it longer term? Sterne, Agee: And then, Ed, what do you think has to happen to get to the net overhead goal of 1.40%? Is it something that you think is doable by the middle of next year or is it longer term?

There is a lot of moving parts there, but really the building in, we were 1.50% last quarter. There were some mix issues there. I think some of the expenses, the accordioning of the mortgage business with lower volumes will be helpful there. But again, its kind of the leverage we have built into our system right now, that we do -- we are carrying a little bit more overhead then we would like for the size and the number of our branches, but we have not turned on the spigot, like we used to on the old days, because we were trying to maintain an optimal loan-to-deposit ratio. And we've been able to, through acquisitions pick up liquidity that we've been sucking up with our loan production. So we're going to need to start growing deposits at sometime and we need to take advantage to that leverage that's out there. In another words, that growth without commensurate increases in expenses, that will drop that number down.

And Peyton, I mean if you look at the prior four quarters before this one, we were in the upper 1.40% and this one popped up a little bit, and part of that is the cap loss, the trading loss in there also hurt that ratio a little bit this quarter.

And then maybe thinking about the overall deposit growth, I mean, looking at your loan-to-deposit ratio is around 94%, which I know was above your targeted range long term of 85% to 90%. And the strong loan growth also has pushed the loan-to-earning asset mix up to about 86%, which is about 300 basis points higher year-over-year in late quarter. How much more leveraged are you, comfortable running those over the next two to three quarters? Sterne, Agee: And then maybe thinking about the overall deposit growth, I mean, looking at your loan-to-deposit ratio is around 94%, which I know was above your targeted range long term of 85% to 90%. And the strong loan growth also has pushed the loan-to-earning asset mix up to about 86%, which is about 300 basis points higher year-over-year in late quarter. How much more leveraged are you, comfortable running those over the next two to three quarters?

Not much. We look at it -- we take the covered loans out when we're looking at the non-performers. They are the loan-to-deposit right now, little bit kind of running off, so we have allowed ourselves to go little bit above our -- what we've stated as our normal operating parameters, but we're right in the parameters, if you look at kind of core loan growth, or core loans to deposits.

At the end of the quarter we were at more on 89%, so that inflow of deposits towards the end of the quarter, although the average was a little higher, at the end of quarter it was closer to the target.

And then I guess, maybe another question. I mean, Ed, do you get any sense that the deposit environment is changing where it may be worth spending a little extra now to go out and get some additional deposit flows, or is it still not there yet? Sterne, Agee: And then I guess, maybe another question. I mean, Ed, do you get any sense that the deposit environment is changing where it may be worth spending a little extra now to go out and get some additional deposit flows, or is it still not there yet?

Well, you can always go get them if you want to pay for them. But we have not really pulled -- we have not uncorked our age-old marketing in a number of places yet, because we don't have the loans to cover it. So when we do, that's the leverage they talk about. We do have the ability. Because of our structure, we can go out and raise deposits in Park Ridge, for example, where we have a smaller branch, but in a wonderful community. And we can do that without having to raise them across the system. So we don't cannibalize ourselves, your marginal cost of funds are relatively low. That's what we're looking forward to doing. If you recall in the past, when we'd go into the town, we would move a lot of market here very quickly. But we have not done that because we haven't had the loans to cover yet and we're picking up -- with the acquisitions that we've been able to do, we pick up, most of those guys at 50% loan to deposit, when we get them. We pick up that liquidity and we sap that up with our loan growth. So from our perspective that's all are going to come down the road when maybe the acquisitions dry up. And we do have a number of outposts that we can start growing organically with our age-old approach and be able to fund loans that way. But again, being asset-driven and managing, not carrying too much liquidity in this rate environment right now is what we want to do. We're just holding off on that. You don't want to go out and make a big splash now. We'd rather do it when we have the assets to cover, or at least you can get some spread on the investment portfolio. I know you've always been one to say, we should extend out there, but you and I don't agree on that. We're going to barbell for the time being.

That was three years ago, not necessarily now. Sterne Agee: That was three years ago, not necessarily now.

He's got a long memory, Peyton.

Anyway, some times. And I guess, maybe Ed, it seems like we are all waiting for a bit of a consolidation wave to start rolling. Do you get any sense that anything is picking up or is it still chatter? With currencies higher, has the bid/ask spread tightened, maybe some color on that? Sterne, Agee: Anyway, some times. And I guess, maybe Ed, it seems like we are all waiting for a bit of a consolidation wave to start rolling. Do you get any sense that anything is picking up or is it still chatter? With currencies higher, has the bid/ask spread tightened, maybe some color on that?

Well, I think our opinion has been consistently that this is going to be -- at year ago, we said that'd be a five-year consolidation. It's just going to take time. There is still a lot of pain out there in the number of banks. We've talked about the number of banks that we've been in and that once we apply our marks to their portfolio, know they still have a lot of work to do to get anything out of it. So I think it's just for the banks of billion dollars and under, they're going to have to do something, just because the market does not set up for them to get reasonable returns. They just can't afford this regulatory environment, nor can they get the earning assets to cover the real estate. They can't play more real estate on. So they've just got to get healthy. So that's what's going to happen in that regard. Our price expectation is high. Yes, I think they they have gone up a little bit, but reality is also setting in, too. I mean, it's offset by fatigue. These guys, another year in the coal mines trying to work out of their credit problems, and another year of the regulatory burden and another year of taking liquidity and not being able to deploy it is making them very tired. So you just got to find the right place at the right time. But I would say that expectations are rising. And I think that there hasn't really been anything, any precedent set in the market other than the Taylor deal, which was pretty good multiple on that. There haven't been any precedent set for these smaller banks at big, big, big multiples. But I think a lot of investment bankers are out there selling happy gas, is the only way I can put it, that things that they can get too again, if they just hang on. So it is interesting, but that all being said we're not at a loss for things to do.

Our next question comes from the line of Emlen Harmon from Jefferies.

I had kind of one, a little bit more technical question left for you, I guess. In terms of the gains on the interest rate caps, what part of the yield curve should we be looking at in terms of where that becomes kind of a more consistent source of income for you?

We put the maturities of each of the cap contracts in the 10-Q. So people can go out and look at those, but generally what we were doing was buying caps that had a life of 3.5 years to 4 years on them. And we haven't bought any in the last quarter or so. So they have moved down the curve a little bit. But I think if you're sort of in the 2.5 year to 3.5 year part of the curve that's probably where we would get the most benefit. And volatility, I mean, rates didn't moved tremendously during the quarter. I mean they moved up and down. There is a fair amount of movement. But volatility has a pretty big impact on it too.

Our next question comes from the line of Terry McEvoy from Oppenheimer & Company. Terry McEvoy - Oppenheimer & Company: About 75% of the call has been discussing the mortgage business, which over the years has been volatile and a low multiple business. How do you think about continuing to invest in mortgage versus, say wealth management or specialized lending? And is it just the mortgage producers and platforms are available today, so you're taking advantage of that or do you see better risk-adjusted returns in mortgage versus some of the other options, looking ahead?

We do not do it to the exclusion of the other options. We continue to look at all the facets of our business where we are active in looking at opportunities. On the mortgage side, that is what the market is giving us right now. We are able to pickup this type of production going forward. Being able to control the cost, it can be a nice, profitable business for us where you don't have to really put a lot of capital into it if you are not holding -- if you don't run into MSR issues with the Basel stuff. So returns can be very good if you look at that the same as wealth management. But we don't shortchange any one of our businesses, but right now this is what the market has given us. And it's just like the banking side, these banks under $1 billion, these types of consolidations take place a couple of times in the career, and you need to be able to take advantage of them. And they all work together in kind of an internally-hedged balance sheet, something that's -- something is not working, something does. Rates go down, your margin gets hit, but mortgages go up. I mean wealth management is always there. And as I said earlier, we're on the cusp there, of that $16 billion and really starting to get some traction in that business. Our results on the reported -- our managed funds that are reported out there by Morningstar and the like are well above benchmarks and have been for a period of time. So that's starting to take hold and grow that business, too. We continue to look at filling out our wealth management business, but we've been able to some of that internally. So organically by starting different funds ourselves. So we don't shortchange any business anywhere. This is what the market has given us here. At the same time we're looking in other asset generators and we're looking at other banks. Terry McEvoy - Oppenheimer & Company: And then just one quick follow-up. Ed, you said normal credit expense is $7 million to $9 million. They were roughly $11 million last quarter. Where in, I am guessing CRE, do you expect to see the improvement over the near-term to bring that number down?

We're surprised by some of the ones that pop-up. You never know what's going to happen on credit. It looks to us when you look at migration of risk rating. They're getting better and better. The things just pop-up out of the blue, but all the big baddies are gone, basically. We've got to clear-out the rest of the OREO, which we're doing as quickly as we can, as the market turns, that's been helpful to us. We have been very religious about writing them down. So the OREO portfolio and a lot of the bigger baddies have made their way through the system. So we're seeing smaller deals come on right now. And those are usually not as some of the bigger brand deals. But it's mostly real estate, where you're going to see just the rest of this thing just going to shake out. We have seen an increase in home equity loans, smaller transactions and increase in the non-performers there as of late, but usually there's a lot there that are not that bad.

Our next question comes from the line of John Moran from Macquarie Capital.

Just really one or two ticky-tack questions left for me. On the indemnification asset and the change in assumptions, I just want to make sure that I am clear here. We should look at this quarter's run rate as kind of what we should have get, granted there is some noise and bumpiness in this number, right, but this is kind of the new run rate going forward, where was this quarter just kind of one-time catch-up? Macquarie: Just really one or two ticky-tack questions left for me. On the indemnification asset and the change in assumptions, I just want to make sure that I am clear here. We should look at this quarter's run rate as kind of what we should have get, granted there is some noise and bumpiness in this number, right, but this is kind of the new run rate going forward, where was this quarter just kind of one-time catch-up?

Just really one or two ticky-tack questions left for me. On the indemnification asset and the change in assumptions, I just want to make sure that I am clear here. We should look at this quarter's run rate as kind of what we should have get, granted there is some noise and bumpiness in this number, right, but this is kind of the new run rate going forward, where was this quarter just kind of one-time catch-up?

I think this quarter is a little bit of catch-up. So you can probably go back to Page 15 on the release and look at the past five quarters and kind of smooth it out. It does go up and down. You do get some quarter, if you get things paying-off faster and your projected lives slow down and sometimes they slow down and they extend out. But we think we're just a little bit conservative on our servicing cost estimates in prior quarters, and we really did a deep dive on those and fine tuned those calculation a little bit better.

And then, Dave, I missed the number here in your prepared remarks, but I think you had called out, on the expense side, maybe some conversion expenses and a couple of other smaller things that might be non-recurring in nature. Could you just run through that real quick, again? Macquarie: And then, Dave, I missed the number here in your prepared remarks, but I think you had called out, on the expense side, maybe some conversion expenses and a couple of other smaller things that might be non-recurring in nature. Could you just run through that real quick, again?

And then, Dave, I missed the number here in your prepared remarks, but I think you had called out, on the expense side, maybe some conversion expenses and a couple of other smaller things that might be non-recurring in nature. Could you just run through that real quick, again?

Yes, the conversion expenses, we had about $337,000 related to conversions costs that occurred during the quarter. So that's one number that we called out. There wasn't anything really, other than that real special. We had some changes in professional fees, where we're better. And one thing that a lot of people ask me, and so I talk about it during the remarks is of our OREO costs, and we had $2.5 million of those, how much of that was valuation and how much was operating. So people want to sort of understand if we're getting gains or losses on that. And $2 million or the $2.5 million was operating costs. So those were the specific numbers, I really called out. And the other one I guess is there is an extra $800,000 of cost related to the First Lansing acquisition having it for three months during the quarter versus just two, last time.

Our next comes from the line of Stephen Geyen from D.A. Davidson.

Ed, you talked a bit about the pipeline and the strength of it and then you mentioned pull-through. And I was just curious, if you've seen any changes in pull-through as far as when deals are coming to close, if there is a bit more surprise as far as somebody else jumping in with more competitive bidding?

No. Our pull-through rates have been pretty good. It actually got sneaked up a bit just because I think our data -- we're more discerning on the data going in there and looking at it a little bit harder. So I think our pull-through rates are still pretty good, so we feel okay on that.

And if I remember back a few quarters ago, you had mentioned, I guess, the roughly $750 million, maybe $800 million in loans that are on a weighted basis in the pipeline, and that you typically see a good portion of those come to fruition in six months or so. Is that a good measure?

Yes. It's usually weighted towards for the first 90 days, actually. But remember too, that a lot of the lines we're putting on, I mean our average draw remains around 52%. So when you say you've got $700 million, you're going to draw on that and if two-thirds of that are lines of credit and what have you, then only half of that's going to show as outstanding balances. So you have to remember that. That's why we've been averaging -- premium finance has been doing very well also, both on the life side and the property and casualty side. Property and casualty side, we continue to gain market share in terms of number of tickets processed. For the past, I think I mentioned in last call, for the past X number of years, we've had double-digit growth. Now, the wild large numbers are catching up and we're 8% or 9% in terms of actual tickets processed for the number of volume of loans we're doing. But the average ticket size continues to move up where from the low of 19 a couple of years ago, up to over 24 right now. So as that continues to move, and again, the 27 to 28 is the average for an average markets. So there is still some room there. You can pickup an extra $3,000 or $4,000 on the number of contracts we're processing, that adds to some growth too. And the life business continues, although that's always competitive, as people pulse in and pulse out of that, but he's been able to continue to grow that business. So you add those with the other businesses, the consumer business and the SBA, they don't fall into our pipelines here. We still see pretty good loan growth and 200 to 250 a quarter in not bad loan growth for us. Surely, we'd like to see more, but that's good steady growth. This is slow and steady is going to win this race here. And you often said, why you guys got to be at 1%. And I say, well, if we took zero provision, we'd be over 1%. So slow, but steady. We're making our way up, 80 basis points and hopefully next year we can get higher than that and continue to work towards those numbers. But we're not going to change our risk parameters to get there. We're going to take advantage of the growth that's out there. The opportunities that are there and we can continue to put up double-digit earnings growth. I don't think anybody will complain too much. So there you have it.

That concludes our question-and-answer session. I will now turn the conference back to Edward Wehmer for closing remarks.

Thanks very much, everybody, for dialing in. If you do have any questions, you know where to find Dave or myself. And everybody have a great week. We'll talk to you soon.

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