Welcome to the Wintrust Financial Corporation's 2014 First Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. (Operator Instructions) As a reminder, this conference call is being recorded. Following a review of the results by Edward Wehmer, Chief Executive Officer and President; and David Dykstra, Senior Executive Vice President and Chief Operating Officer, there will be a formal question-and-answer session. The company's forward-looking assumptions are detailed in the 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 Edward Wehmer. Please go ahead.

Thank you very much. Good morning everybody and happy spring and welcome to our first quarter earnings call. With me is always our David Dykstra, Dave Stoehr, our Chief Financial Officer and Lisa Pattis, our General Counsel. We will follow the usual protocol for the meeting, I will provide some general comments about the quarter, Dave Dykstra will run through other income and other expense categories in detail and then back to me for some summary comments and thoughts about the future. All in all, it's a pretty good start to 2014 for Wintrust. Earnings of $34.5 million or $0.68 a share or 8% above the first quarter of 2013. Our margin increased 8 basis points to 3.61% versus the fourth quarter of 2013, earning asset yields were up 6 basis points and liability cost down 2, due to a better funding mix. We talked about the margin before in terms of a range of between 10 basis points plus or minus half of 3.5%. We are a little bit above that now. Higher loan deposit ratio helped in terms of increase in liquidity yield is up and in that regard. Other income and total was down really due to the mortgage environment. Our wealth management fees are up very nicely at $2 million year-over-year a lot of that as to do with the market, but a lot more has to do with our growth in assets under administration. We have a lot of momentum in this area. Our proprietary product is doing very well. And we have great emphasis on this going forward as we think all the pieces are in place now, it sounds like Dave wants to have when he was coaching the bears, I hope that is not an omen. But all the pieces are in…

Thanks Ed. As Ed mentioned I will just briefly touch on the major changes in the non-interest income and non-interest expense sections. Turning on interest income, our major revenue increased slightly to $16.8 million for the first quarter of this year from $16.3 million in the prior quarter and improved by $2 million when compared to the year ago quarter of $14.8 million. Brokers’ revenue was down slightly this quarter, but relatively stable at $7.1 million compared to the prior quarter. While our trust and asset management revenue showed an increase in revenue to $9.7 million from $9.1 million in the prior quarter and that increase was primarily attributable to growth in the assets under management due to the new customer acquisitions as well as market appreciation for the assets. Mortgage banking revenue as Ed mentioned declined 15% to $16.4 million in the first quarter from $19.3 million recorded in the prior quarter and was also down from the $30.1 million recorded in the first quarter of last year. The company originated $527 million of mortgage loans in the first quarter compared to $742 million of mortgage loans originated in the fourth quarter of last year and $974 million in the year ago quarter. Now, although the volume declined in the quarter again on sale margins increased over the fourth quarter primarily due to the shift in the mix of business originating from our retail and of course funding channels. The first quarter had a lower revenue component from the correspondent network which was lower margin business than our retail business. Also the first quarter showed a relatively strong mix of volume related to the purchased home activity which represented about 69% of our first quarter volume. And this was very similar to the percentage attributable to purchase activities in…

Thanks Steve. So to summarize it's a pretty good start to the year, going forward we expect continued good loan growth as I mentioned our pipelines are consistently strong, we have good traction in wealth management business, we feel good about that. We certainly expect a better mortgage environment at least for the near term going forward. Happy to be free of the first quarter anomalies and other expenses. We will continue to manage liquidity levels to maintain our margin, but this could be a little bit bumpy with the acquisitions we are doing. Remember, it is the net interest margin range that explain to you but remember that's really net interest that counts. So we will continue to try to manage that as efficient as possible, both these acquisitions come in bring us extra liquidity, they might take a quarter or so to lend those out or to get the loan volume to cover that. So we would expect to continue to be within that range within our net interest margin if, in fact, rates don’t raise, if they rise, then all bets are off and we feel very good about our interest rate sensitivity position, which we continue to become more sensitive everyday, hard to believe that I'm trying to become more sensitive, isn't it? Rates will go up and everyday we do get closer to rates growing up. So we look forward to not just the effect overall with raising rates, but the decompression of costs on deposits that will accompany that move remember we are 94%, 95% core funded with basic products of good demand, savings now, and as rates go up spreads will get wider on those also as we lag and when they hit their historical kind of caps that go on those products. So we're anxiously awaiting that day for the beach ball underwater to finally pop-up. We are going to continue to look for the expansion opportunities in a balanced way, this consolidation process in our opinion, I think I have said previously that it's going to be a five year sort of thing as banks continue to get healthier and then in a position to sell, most of these banks would be community banks under $1 billion dollar that fit our culture and will allow us to continue to expand our footprint. We are the right cultural acquirer for those banks where we see they all be seeking a safe haven from our great new world of banking. I really like how the company has positioned right now. We have got good momentum and good opportunities looking us on the face. We just have to execute properly and stay within – don't get out over our skies and continue to work to raise shareholder value in everyway possible. So thank you very much all for listening and now we have some time for the questions.

Thank you. (Operator instructions) Our first question comes from Jon Arfstrom from RBC Capital Markets. Please go ahead.

Hey, thanks. Good morning.

Hi, Jon.

Just a question for you on expenses. The revenue environment looks pretty good. We have heard some grumbling on the expense trends. And, Ed, I put your clear as mud guidance into my earnings model, and I get an error. So I have to get some more detail on this. The question is, are there more mortgage banking expenses to come out and is there anything else out there in terms of expense pressures that are coming other than the acquisition?

Well, really I would say that, there is a lot of anomalies in the first quarter as we have mentioned that take place. But we – the mortgage expenses, we did consciously, we did not cutback all the way because we saw this – the levels returning to the $250 million sort of volume on a monthly basis. So rather than let everybody go and then have to hire everybody back and suffer the inefficiencies of that, we just bit the bullet, and in March, we had a very, very good month, and it looks like it should be good going forward at least for the foreseeable future. We are prepared too if we see a long term downturn in overall volumes to make those moves. But we still carry – what Dave said, if you look at all other aspects of our expenses, they were down or up negligibly. So, we still carry a lot of operating leverage in the system. Right now, what the market is giving us is acquisitions that are profitable to us. Good growth opportunities that are profitable to us, we buy these, we partner up with these banks, they are 50% liquid, we are able with our loan volume to lend them up relatively quickly and make them very, very profitable deals. But right now, it's the organic growth aspect of what we are doing., it is not what you experienced in the past. When rates rise, that is going to happen, we have a number of banks’ branches that are in towns that we really want to be in, they are under utilized right now. It's just hard to attract organic growth in the way we had in the past until rates move up. So we do have a lot of, what I call, kinetic leverage out there that we will be able to use when rates move up and we shift back to organic growth. Our theory, Jon, is that when rates move up, banks are going to become more expensive and it's really hard to pay all time multiples for these banks because taking trust preferred out of equation, all goodwill has to be backed with really common equity or expensive preferred. We think that the pricing models are going to move away from us and – but that – when that happens, it is going to open up the opportunity to leverage the system and take advantage of that leverage we have built into organic growth. So we are carrying a little bit more. We are not as efficient as we should be in a number of the banks. But this is -- we play this for the long-term, and we like the way we are positioned there. So overall, expenses I think you will see come back in the line in the second quarter, and we will go from there. Dave you want to add anything?

No, I think that explains.

Okay. Great. The other part is just on the sustainability in the NIM. You had a nice jump, and maybe, Dave, if you could touch on the liquidity management yields, and I think you touched on it earlier, Ed, but is this type of NIM sustainable?

Well, I will start and just say, again, it’s all dependent on the amount of liquidity we have on the balance sheet Jon. We are operating, right at the top of where we are comfortable at 90%, 91%, and that’s -- we’ve got a very efficient balance sheet as it relates to the net interest margin. If we pickup, we go to 86%, 88%, that is going to affect the margin. And as we said, the – as long as we are able to stay optimized, we should be at these numbers that we are at right now. However, you bring in some excess liquidity, I can't manage it quarter-over-quarter when some of the deals is going to come in a little lumpy, that will affect that, but right now we are optimized and I will let Dave talk about the liquidity management yields.

And so, I think Ed is right there on the liquidity side and --

Thanks Dave.

He is very sensitive too, I have noticed that. As he mentioned, I think that make sense, we also have been seeing that our long yields on new loans have been fairly stable portfolio wide, and the funding costs have hedged down. So we don't see the compression on the core portfolio, so it is really just the amount of liquidity. As far as the yield on liquidity at management assets, we did get a -- some extra deposits, and you will notice also in the deposit table that we have some wealth management deposits, so we have one wealth management client that we obtain some additional deposit for, and we use that to lever the balance sheet a little bit to both our longer term as far as maturity deposits floating with low rates, which we used one of our interest rate caps to lock in that rate, and then we went and we used some of that liquidity to buy some Fannie Maes, some agencies, and some municipals. So we extended out a little bit with some higher rate securities using those funds that we locked in with our interest rate cap, and so that caused liquidity management assets to go up. But on balance, we still maintain a fair amount of cash on the balance sheet at 25 basis points, and so we feel good from a liquidity perspective, but with that additional funding coming in, we thought it was a good opportunity to put some of that money to work.

And we basically took $300 million and extended it out, but locked the spread for three years. And if rates go up in that three year time period, Jon, we will be making a lot more money, hopefully, knock on wood. But we are positioned to do that. So this seemed like to be a good play right now that we could lock in the spread for three years. And if rates don't move, we will be fine; if rates go up, we would be making a lot more money. So Peyton Green, wherever you are, we probably should have done it a little bit earlier.

Okay. All right. Thanks.

Thank you. Our next question comes from Brad Milsaps from Sandler O'Neill. Please go ahead.

Hey, good morning.

Hey, good morning.

Good morning Brad.

Just a follow-up on Jon's question. Dave, I just want to see if you could maybe breakdown sort of how – any change in the liquidity management asset, just curious the composition, how much actual cash or fed funds makes up the $2.6 billion on average, I see the period in numbers but on average for the quarter versus December 31st?

Just a follow-up on Jon's question. Dave, I just want to see if you could maybe breakdown sort of how – any change in the liquidity management asset, just curious the composition, how much actual cash or fed funds makes up the $2.6 billion on average, I see the period in numbers but on average for the quarter versus December 31st?

All right. So at the end of the fourth quarter we had about $2.6 billion of liquidity asset managements and about $1.85 billion on average was in all of our securities and the rest of that was really overnight money. And at the end of the first quarter, we again had a little over $2.6 billion and the securities made up $2.1 billion, so we are up about $250 million on the securities side and down about that on the cash side.

Okay. And so that essentially represents that $300 million or so that you just discussed?

Okay. And so that essentially represents that $300 million or so that you just discussed?

Right.

Okay. And then just a follow-up on expenses, the $5 million-some-odd number you talked about in long-term incentive accrual, is that a bit of a catch-up, or is that something that will stay on a run rate, or you expect that to maybe dissipate even more in the second quarter?

Okay. And then just a follow-up on expenses, the $5 million-some-odd number you talked about in long-term incentive accrual, is that a bit of a catch-up, or is that something that will stay on a run rate, or you expect that to maybe dissipate even more in the second quarter?

Those numbers bounce around a little bit because there is three years what that plans and they each have different target percentages, some of that was a little bit of a catch up for prior years as when we made the final determinations of the payout in early 2014 on the first go around. But there is a lot of moving parts in the first quarter with payroll taxes, the bonus accrual, the LTIP accrual, the commissions and the like. And so I think maybe the easy way to do this is, if you look at our total salaries and benefit expenses and back up the commission line that we disclosed because those really fluctuate based upon the mortgage volume. We should have --

And the wealth management volume?

And the wealth management volume. But they fluctuate there much more dramatically with increases and decreases and with the mortgage business. So if you took our total salaries and employee benefits and exclude the commission line, we think sort of our run rate in this area is probably in the $66 million to $67 million range. So if you take that number excluding any acquisitions that we do our – expansion plans that we do in the future, so if you take that number and then if you -- you can all make your guesses on where you think the mortgage market is going to go and where that commission line is going to go and that is probably the best guidance I can give you on the salaries without going through line by line and we are talking about it, but probably a little extra in the LTIP, but you know if we do better some of that may stick around next quarter. And so I'm hesitant to make line by line projection going through that section. But I think that's probably the best way to look at it if you boil it down to the two components commissions and everything else.

Okay. Thank you very helpful. I appreciate it.

Thank you and our next question comes from Peyton Green from Sterne Agee. Please go ahead.

Good morning, just a question maybe Ed, for you it is on the loan-loss reserve, and I know the credit quality, the charge-off rate certainly are coming down, and I would think you all would expect them to come down to a more normal level going forward. What is the right way to think about just the loan-loss reserve that you had kind of allocated at the end of the first quarter? I mean, do you feel like you are at a level that you would kind of keep it at that level, or is there still some ability to take it – I mean, is a 1%-ish number the right level for the portfolio, ex-niche businesses, or how should we be thinking about that? Edward Wehmer Well, we are backdated and I hope you appreciated the shoutout I gave you, Peyton. The – was at to the level we were at pre-crisis you know right around 70 basis points, 69, 68, 70 basis points right on that level. And as I have mentioned in previous calls this, the calculation of the reserve has become this massive mechanical exercise that looks at note by note by note by risk rating, by collateral code and it's really a voluminous process we go through here to get these numbers. So as the losses go down, you could see if historical losses go down and time goes forward you could see a drop on a little bit more, there is not a lot of room there Peyton because I think this is a level that we are comfortable at, but couple of basis points here or there, what could screw it up Peyton is, when you buy a bank you do not bring the loan-loss reserve over. And if we were to do an acquisition of size or a couple of $200 million, $300 million deals when you bring the loan portfolios over they come without a return. So the number gets a little funky and that's why we pointed out on page 25 exactly how we have allocated this reserve to the various elements of the portfolio. So that's the long answer, the short answer is we think they are appropriate right now above 1% is a good number you can see if you look at page 25, residential construction we keep a 2.2% reserve land that's almost a 3% reserve we are not doing a lot of that stuff as those portfolios let off you will see that the numbers could come down a little bit more. But they will be hiccups. We are not perfect there. There will be issues here and there. But it will make this thing move. But you really have to study the chart on page 25. But right now I see we will probably in the comfort range but it could go lower or higher by 5 or 10 basis points I guess would be the way to put it.

Okay. I guess where I am really coming from is modeling out the future – and I guess we all have charge-off rates that are probably higher than the pre-cycle levels that you all – on the high end were 25 basis points before you really got into the premium finance business, and they dropped down to 10 basis points or below on an annualized basis once you did get into the premium finance business. I mean, how do you view normalized charge-offs for the economy as you would expect it to exist over the next two or three years?

The payments, as Ed mentioned the things we can get a little lumpy here and there. But I think when we look at it we sort of think that the charge offs or for what we do and how the portfolio is any the acquisitions because of that that you don't find that or you don't bring that reserve over and your initial charges on those would go against your credit reserves that you set up against those purchase portfolios. But we sort of think of ourselves as originating loans and probably in the 25 to 35 basis point charge off range, and we hope to do better than that, but we are prepared for that kind of the charge.

Okay. All right. Great. So that helps very much. Ed, how did you see the competitive conditions change over the course of this quarter? I know it – I guess it has been two quarters now where you have commented that competitive conditions have gotten a bit more intense than maybe – like they were in 2006. How would you characterize it this quarter?

I think there is a bit of feeding frenzy going on for earning assets that you would expect not to December after 9/11 when rates were kept probably low longer than they should have been and people would be – can't get anything in your securities portfolio. So people are -- bankers have amnesia. And they are very good at generating convenient logic when they want to book a deal. We are seeing the rates out there -- competitive rates have basically – they have bottomed out two, three quarters ago. But now you are here just seeing – you are just seeing some funky things going on unnatural things as I would like to refer to them where, a lot of them is a result of an over heated market and private equity side and people buying – people are buying businesses for huge multiples right now and that creates big air balls. And we see people extending air balls being the unsecured portion of a transaction but we are comfortable depending on the business two, three, four years something like that. We are seeing seven, eight years out there. And that's something we just don't play in. You are seeing guarantees go by the way side. And you are just seeing a loosening of terms out there. The rates have bottomed out two, three quarters ago. But, you are seeing loosening your terms. And the specific examples that I gave you are general examples specific to us, where the two loans that we had in our covered asset portfolio that we had huge discounts associated with although we are taking out in total during the quarter. Now, we don't get that income on to discounts right now that goes back into the pool and it is amortized over…

Okay. And then just on capital, I quit asking question, what do you think is the right all-in kind of TC ratio for the environment, how much dry powder do you want to keep?

Certainly comfortable. We actually think it could go down a little bit. Then said if you put in the conversion approaching 9% upper 8's, you could probably bring that down percentage point if you have to do that. And before the fed I think will start to get a little nervous as far as acquisition applications and the like. And we have had a good relationship so that's why we never had a hiccup in the road. But, I think that's because we kept the capital levels off. The couple we are at, we think that could go a little skinner but if they went down by more than 100.5 basis points and somewhere in that range. We probably start to think about something.

Okay. Great. Thank you for taking my questions.

You bet.

Thank you. Our next question comes from Steve Scinicariello from UBS. Please go ahead.

Just looking to get some color on the kind of deal pipeline that's out there, it's good to see you do those couple of branch deals and just kind of curious what the rest of the pipeline might look like here?

Well, you are aware we are still very active and talking to potential partners in really all areas of our business. As we have said in the past, most of the banks that consolidate, we think the consolidation in our market area, the banks with $1 billion and below as they work their way out. And they are all starting to get a little bit better and working out the problems. And they don't want to play in this very new world of very new regulatory and capital world and earning asset which is really in trouble, we are trying to generate earning assets. There will be a steady stream coming to us, our pipelines are good. But as I mentioned salary expectations have moved up a bit and people – it’s hard to explain to some of these fellows – folks that you are not going to see those old multiples any more which is not going to happen because dollar per dollar, if you have got common equity up against goodwill just not going to work. You look in the past, we have always financed our goodwill with trust preferreds it’s almost equal. So we were able to get leverage out of them now you can't do that. So there's got to be a little reconciliation in the minds of the buyers, their sellers that that it’s not going to be like it was in the old days. At the end of the day, again, it’s all relevant too, when your stock prices multiples; move up everything, they will move up. But, we see activity across the board, the gestation periods has become longer. We have been – we always sit down and cut a deal and move forward that's we are going to four, five months sort…

That makes perfect sense. And then also just curious for these mostly deposit acquisitions that you do about how long does it take you to kind of loan these things up to kind of get them to their kind of accrual kind of run rate where you would want it to be?

Well, we target core wealth around $250 million of core. We do pick up some loans and most of the deals that we do. So you could imagine that it could take – we are not seeing a lot of – we are seeing some organic growth but not what you have seen in the past. So it could take a couple of quarters to loan them up. Keep them at this optimized level that's right. So the margin maybe a little lumpy, we maybe – run a little more liquidity every now and then. But that's okay. It's again, concentrate on the net interest income that will come from the overall earnings that we are able to come from. And to say adds to our ability once rates move up and we can get some ability to go out and try to people to move over, its hard to get the family and the card, let's say with the 1% on the CD and they don't all jump on the station and come over to change all their banking accounts. But, they will going forward, when rates higher and we can actually put our package was out there and trying to do marketing out there to entice people to come over. So short answer, we want to stay optimized. But it could be a little lumpy. It could be running at a little bit more liquidity than we would like in the quarters three and four but you might find our earning asset that we pick up too.

And the other thing Steven is really depending on the deal, Pewaukee branch deal for example, we are getting $50 million more of loans than deposit. So and that deal it is loaned up right away plus. So they are all sort of unique.

Perfect. Thank you so much guys.

Thank you. Our next question comes from Emlen Harmon from Jefferies. Please go ahead.

Hey, good morning guys. One, just a quick follow up on that last line of discussion on acquisitions and what the pipeline looks like. A lot of what you guys done obviously is kind of in the $200 million, $300 million, $400 million area in terms of balance sheet. I mean are you – as far as your pipeline specifically is concerned, do you see kind of a lot of opportunity in that $500 million to $1 billion space, or do you think in terms of the deals you guys are focused on, do you kind of stay with those smaller several branch type acquisitions?

Well, there is not too many banks over $1 billion in Chicago, four of five of them that are kind of independent out there. But there is a lot more smaller $100 million to $1 million branches to the bank. So it really depends on a footprint that these banks have. Some of them are footprints we are already in. And it really don't make a lot of sense for us just too smaller to be an add on or provide anything strategic to us for the prices that they want. But, I would imagine that you would – if you built a cover, it would be mostly in the 0 to $500 million range of opportunities that would – that's where you have most of your opportunity $500 million to $1 billion would be the second and then over $1 billion would the third. So probably on a 3, 2, 1 sort of basis if you looked at it that way.

Got it.

When we certainly on adverse to the $500 million to $1 million, I mean we like those a lot. It's a nice size for us. It can easily accommodate integrations into the company. They have been the ones that have been the guys that are below $500 million range here.

Got it. Perfect. That is what I was kind of hoping to get at there. And then, could you give us a sense what the term origination levels have been out of surety, and are they basically seeing a lot of declines in origination volumes that are kind of in line with what you are seeing from the broader industry? And I know last quarter you had said that maybe revenues were not quite there yet, but were you kind of at a full run rate for the surety mortgage originations yet?

Yes. The first quarter was pretty full quarter maturity. I think the market in California has been a little bit more competitive on the jumbo side and the like. But, they certainly are contributing their fully up to speed, its probably some more 20% of our volume area. But before we bought them they maybe more 25% of our volume, it's a couple of programs that they did. But they had joint ventures that we did continue. So we are happy with the production that they are doing after it's actually fairly competitive California but they are holding their own and fully integrated now. Emlen Harmon – Jefferies: Got it. Perfect. Thanks for taking the question. Appreciate it.

Thank you.

Your next question comes from Chris McGratty from KBW. Please go ahead.

Ed, you had 20% commercial loan growth in the quarter, but your loan yields were actually pretty stable. Can you comment – and I know it is maybe some other asset classes contributing to that. Can you comment on commercial load yield trends?

Well, yes. I think pricing basically has bottomed stabilized. They have been for the last three quarters. So from a commercial side of the equation I think that we are – right where we are going to be to until rates move. Not much farther to go there. And again, we look at the overall relationship and profitability, the overall relationship, the wealth management, the treasury management and the like one we bring these in. So I think that you should see relatively stable rates in that commercial area still such time as rates actually move.

And what were the absolute – just so I have a sense of where they bought them that were kind of low trade, or can you give a little color there?

No. It's been pretty stable in the low four range between – probably between 4 and 4.25 depending on the month but then the low fours, 90 closer to 4 and 4.25 now. But its been pretty stable on that range.

Bigger deals in the middle market are commanding lower rates – the LIBOR plus 2.25 somewhere in there. But then you were able to get in the smaller business and the SBA and all the things we – the other businesses that – the small business lending and likely we are able to get higher rates. So we are seeing good growth across the board. Obviously, the middle market are bigger kick in sizes. But, we try to – we have an internal hold limit, and we try to keep it as diversified as possible. And that's always been the way we have done it. So…

Great. Just want to follow up on your decision of kind of expanding Wisconsin, is this telling you something more about Chicago, or is this telling you more – telling us more that you are just looking to broaden the footprint?

No. We are focused on both, but we really put some additional emphasis in Wisconsin because we expected there to be more opportunities in Wisconsin during the cycle than they actually where. We expect there to be more banks that they went under them there they actually where. So we went through three or four years and that franchise was $1 billion in and of itself plus about $900 million in and of itself. We had expected opportunities to come back but once they did come up, we were really – we priced foolishly, in our opinion. We weren’t willing to pay that much. So we really – we didn't want to abandon that market we kind of felt a little bit like our foster child up there. We wanted to spend some time and really work that market hard to continue to increase our franchise. We did bid on that first banking center when it went under and we obviously, didn't – we were not the winner. But we felt that was just a beautiful fill-in for us between the Milwaukee, Madison corridor and Illinois border. So this really fills them and add 50% isn't enough to do for next year. So but we will continue to look up there. We think Wisconsin is a great market and then we think that the consolidation will take place up there also. And if we can get some momentum in terms of culturally and people understand who we are and how we work and how we doing these deals and our desire to grow these franchises once we get them really differentiates us in that market. So they got enough to do for the time being. It was a pointed move on our part to really work hard in Wisconsin to help build that franchise as we have. There is nothing about Chicago. So very happy here and looking to continue to both de novo and we are partnering up with some folks, continue to grow this footprint also.

Thanks Ed.

Thank you.

Thank you. Our next question comes from Stephen Geyen from D.A. Davidson. Please go ahead.

The C&I growth, you mentioned that the growth came primarily from new customers. Just based on your discussions with existing customers, is there any increased optimism versus a year ago and I guess any movement toward line usage or new loans?

There is increased optimism. We think – I mentioned this once we hosted a WBBM, the News Radio Station here in Chicago hosted a business lunch here. And we had 200 of our customers were here. And they did a whole thing its going to be better, everybody raised their hand. I was the only guy I didn't raise my hand and I was sitting there. But, I just come out of a budget meeting. So the first throw for the budget meeting so I was a little jaundiced on the subject. But, I think people are feeling very good. They are still some trepidation in Illinois. The Chicago/Illinois fiscal situation is not the best. And I think if we could get that squared away and then its political situation but we can get that squared away I think then people would feel much better about their expansion plans and the like. But our customers are all doing very, very well. They are all feeling very good about what they are doing. They go through the cycle very well. They have been able to pick up lines in other businesses dislocations and make their businesses stronger. Many of them, we like to see them have fortress balance sheet, and most of them do. So they are all feeling a little bit better but everybody still would love to see the state get its act together that would be a big, big move. I hate driving them to city Chicago and seeing signs from Indiana saying are you Illinoyed, come and bank here or come and bring your business here. And it seems they move across the border to Hammond and the like, but we are moving to Northwest Indiana also, and that would be helpful and some of guys into Wisconsin where there are friendlier states as it relates to the tax environment and the fiscal environment. But that's really the only thing hanging things up right now. I think people feel pretty good about where their businesses are. Feel pretty good about that.

Is that kind of the same thing you are seeing for commercial real estate beyond multifamily? Any kind of spec building out there or additional building?

There is, we are not per taking in the lot of – there is apartment buildings going up left and right over the city. I mean, its almost time to start count the cranes again. Like I always say when you count more than 10 cranes over the loop, its time to hunker down. But, we are not at that level yet. So there is some spec real estate going on, a lot of apartment building is going on. Not a lot of condos stuff going on. So a lot of resi and we are seeing some commercial growth here. Not a lot of the land market and housing market, there is still a lot of them chewing a lot of farm land out there that needs to be developed before you see that. It's still kind of working out of that. But a lot of the bigger land companies or new house builders have swooped in and bought a lot of cheap land from banks that took back in foreclosure. So there will be a lot of inventory there. That's not a market we are going to play in. I think the housing industry is very cyclical as you know. It's almost like the airline industry. I think if you put land developers together and you added up their profits and losses for the last 100 years will be an absolute breakeven. So we are going to stay out of that. We have played in it a little and that's where we took most of our losses during the cycle. So we are not going to play that anymore. We will do the onesies, twoies with very strong developers but we are not going to play the big game anymore. But we are seeing good real estate opportunities for our own customers too.

Okay. And on deposit growth, it is very strong. Just curious if it is mostly driven by commercial relationships or retail? And then, a follow-on, the average cost of the new deposits, is it roughly in line relative to the mix currently?

Very much in line. We have a number of smaller promotions going on. Remember the old days we would open a bank and it would skew our cost deposits. We went out and bought business basically. But now, there are only just de novo branches that we open. We will run founders ads that do have teaser rates on them. But, its so negligible given the size of the organization right now that you will never see it. The organic growth in our established branches is coming in at the same levels as nearly not a lot of teasers out there. So coming in at the same levels we see report in our financials. But again, organic growth is kind of hard; we see these are running out the door. Have you seen mix change a lot in the last year, the money and people are putting CDs in the market. They can get 1% or 2% dividend yield. But the market is supposed to keep in the money in cash. Some of the online guys are taking it. But, if that money can come back, if we ever need it then rates rise. So we like the way our balance sheet is positioned right now. We believe that we will have plenty of opportunity to grow and want to grow organically. But right now, given our desire to keep an optimized balance sheet, we are able to pick up pretty much all the liquidity we need in these deals we are doing. So but again, I will add that you said commercial growth, but our demand growth is a little smaller than it had been in previous quarters. But we continue as you see that commercial portfolio grow, you will see more and more demand deposits coming on. It will give close to 19%, we like to be in the 20s in terms of overall demand deposits as a present of total deposits, we think that will happen as we continue to make headway into the commercial side. So broad based approach in terms of organic growth with commercial basically leading the way for the most part. And most of our acquisitions are bringing the real growth into the deposit side.

Okay. I think you might have answered my next question. As far as the origination of one-to-four family arms, is there any interest of holding those on the balance sheet?

Yes, there is. We used to do that all the time. And then when you hit the 2000, when you could get pretty much any deal done as a 30-year fixed, there was no really niche there. Now, with the new QRM rules and the like, there is an opportunity to build an on balance sheet arm portfolio. We think that we could build that over the next three or four years up to about $0.5 billion starting to move. These are for the guys that can't qualify that are certainly credit worthy. We can house them in there for a year or two and then whenever the condition that makes them unqualified goes away like self-employed or co-signing with a child or that sort of thing, who is buying a house. There are so many different ways that these come up when those conditions go away we will be able to push them in the secondary market. So we are pushing that product. It is going to be slow and steady, is going to win that race. But we finally see there is an opportunity to – there is a niche out there that we can fill and that's what we are trying to do.

Okay. And last question, just curious, as far as the Talmer branches, any thoughts on any guidance you can provide us on the potential impact as far as costs, like one-time costs and maybe operating costs?

Yes. No, we haven't disclosed any of that Stephen.

Okay. All right. Thanks for your time.

Thank you. And our next question comes from John Rodis from FIG Partners. Please go ahead.

Good morning guys.

Hi, John.

Dave, just a follow-up question for you on the salary and benefit line. You said a run rate, I think, of $66 million to $67 million. What did that include or not include?

As I said including everything but the commission plan.

Okay. So when you say commissions, does that include the bonus line or --?

No. Just the commissions on or mortgage and wealth management area.

Okay. And so what was that this quarter, Dave? It wasn't the full $21 million, right?

The commissions number this quarter was hold on about $11 million.

Okay. So the 60 – so this quarter that number would have been the 44 plus the – so the 58, so about $70 million, I guess, roughly?

I'm saying if you – this quarter commissions were about $11 million. If you use the base of $67 million everything else should be at $78 million.

Okay.

Our commissions go off next quarter because mortgage volume goes up for wealth management volume goes up. And the $11 million is going to up.

$67 million plus X, notwithstanding acquisitions and the like. I think that's what Dave saying. So whatever commissions at variable comp in terms of commissions. And the commissions of wealth management and mortgages wherever that number is plus $67 million is a reasonable run rate notwithstanding acquisitions.

Okay. Fair enough guys. Thanks.

Thanks John.

Thank you. And I'm showing no further questions on the queue. I would like to turn the call back over to management for any closing remarks.

Thank you very much everybody. It's been a longer call than I anticipated. But, I'm happy that you have interest in us. So everybody have a happy Passover or Easter whatever. And we will talk to you again when, hopefully, it is warm in July. Thank you.

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.