Welcome to Wintrust Financial Corporation's 2016 Second Quarter and Year-to-date Earnings Conference Call. At this time all participants are in listen-only mode. [Operator Instructions] Following a review of the results by Edward Wehmer, Chief Executive Officer and President; and David Dykstra, Senior Executive Vice President and Chief Operating Officer, there will be a formal question-and-answer session. During the course of today's call, Wintrust management may make statements that constitute projections, expectations, beliefs or similar forward-looking statements. Actual results could differ materially from the results anticipated or projected in any such forward-looking statements. The company's forward-looking assumptions that could cause the actual results to differ materially from the information discussed during this call are detailed in the second quarter and year-to-date earnings press release in the company's most recent Form 10-K and any subsequent filings on file with the SEC. As a reminder, this conference call is being recorded. I will now turn the conference call over to Mr. Edward Wehmer.

Thank you. Good afternoon everybody and welcome to our second quarter 2016 earnings call. As said with me as always is Dave Dykstra, our Chief Operating Officer; Dave Stoehr, our Chief Financial Officer; and Kate Boege, our General Counsel, who is here to make sure that I don’t go off script and talk like Donald Trump about the huge quarter and how all the analyst love us. But with that we are going to have our usual format, I am going to give you some general comments on the quarter, Dave will get into some good detail on other income and other expense. I’ll follow up with some summary thoughts and thoughts about the future and then we will have time for questions. On with it, all-in-all we had a very positive quarter on all fronts with good momentum for the rest of the year. Net income for the quarter was $50 million or $0.90 a share, up from $43.8 million last and $0.85 a share or 14% and 6% respectively in terms of earnings growth. Year-to-date, we almost hit a $100 million, $99.2 million or $1.80 a share, up from $82.9 million last year or $1.61 a share that’s 20% and 12% respectively. These strong earnings were driven by first of all our balance sheet growth. Assets grew $932 million or 16% over this first quarter of the year and 3.6 billion or 17.5% over same period last year. Loans for the quarter grew almost $700 million, currently 16% over the first quarter and 2.6 billion and 16% over the last year. Loan growth, it was a balanced loan growth and all categories showed good expansion. Important to note that the earnings assets lagged total assets by about $622 million as did loans by $523 million, so that is…

Thanks Ed. As normal, I’ll briefly touch on the non-interest income and non-interest expense sections of the income statement, turning to non-interest income. Our wealth management revenue totalled $18.9 million for the second quarter of 2016, which is up from $18.3 million recorded in the prior quarter and also up from the $18.5 million recorded in the year ago quarter. The trust and asset management component of this revenue category increased to $12.6 million in the current quarter to $12.3 million in the prior quarter. The brokerage revenue component also increased to approximately $6.3 million in the second quarter compared to $6.1 million in the first quarter of the year. And overall the second quarter of 2016 represented the highest wealth management fee level in our company’s history and we look forward to continued growth in that category. Mortgage banking revenues increased $15.1 million or 69% compared to the $36.8 million in the second quarter of 2016 and it was also up from the $21.7 million recorded in the prior quarter and was slightly higher than the -- from the $21.7 million recorded in the prior quarter and was slightly higher than the $36 million recorded in the second quarter of last year. The company originated and sold approximately $1.2 billion of mortgage loans in the second quarter of both 2016 and 2015, and that was compared to $737 million recorded in the first quarter of 2016. As far as the mix goes, our volume related to purchase home activity was stronger in the second quarter instead of 65% compared to 56% in the prior quarter. Similar to our wealth management revenue, the second quarter of 2016 represented the highest mortgage banking fee level in our Company’s history. And as Ed said, the market continues to be strong and we…

Thanks, Dave. So to summary, second quarter was pretty solid across the board for us and we entered the third quarter with a great deal of momentum. The prospects for continued organic growth appears strong. As I mentioned, the loan pipelines are stronger than ever. We ended the quarter with the head start in the average loans and average assets side, $523 million and over $600 million ahead respectively. We will close on a GE transaction in the mid third quarter, which should again add to our earnings and our growth and our overall net interest income. Mortgages should continue to be strong. The cost out of the Foundations acquisition will be executed and will be experienced. Wealth management will continue its slow and steady climb even in this volatile market. We see no signs if credit is going sidewise on us and it should continue strong. And all these expected growth as Dave was alluding to should be accomplished with the fraction of the commensurate growth in operating expenses, we basically anticipate very little expense growth in the fourth quarter or in the third quarter. So this should far outweigh any margin pressure that those markets going to bring, that this rate market is wearing on us. That being said, we still think 330 plus or minus 10 is a good way to look at our margin and our acquisition pipeline remains strong in all areas of our business. We are not going to be stupid though, we are going to take our time and again earnings accretion is what's important to us. You know we have talked earlier that the last four, five, six maybe conference calls about what we were trying accomplish and that is we knew we had a lot of excess for contingent operating leverage that we needed to employ. You can see that through the acquisition, the cost out acquisitions that we have accomplished through organic growth, through portfolio purchases and the like we’ve been able to continue to utilize that and there is still plenty left by the way. We still believe that there is lots of room for us to grow without commensurate increases in expenses. And we think that’s the logical thing to do and at time when your margin -- your net interest margin is going to be under compression if we can grow net interest income maintain our solid interest rate sensitivity position for if and when rates ever do go up. I think we positioned ourselves very well for great price -- good prospects for strong earnings momentum going forward. So with that I would turn it over to questions.

[Operator Instruction] Our first question comes from line of John Arfstrom of RBC Capital Markets. Your line is now open.

Just maybe to start with loan growth, we had a big quarter organically and huge as you said Ed.

No I wasn’t allowed to say that John.

You weren’t allowed to that okay, you inferred it. The C&I number I guess is the one I was looking at. That was a very strong quarter and I'm just curious if you could give us any idea what's driving that and particularly also maybe in overall loans maybe the quarter end strength versus the average strength, give us an idea what's happening there?

Well, it's been across -- the growth has been across to the board, I mean we started the year with premium finance loans going longer little bit a pressure because of some regulatory guidelines that came out and we have been able -- they’ve hurt us a little bit regarding know your customer's stuff. We have been able to fight back from that and bring those balances back, I’m very proud of that guys for doing that. On the C&I side, this is not again a show of the economy expanding. I think our draw rates have been consistent, our lines have been consistent along, this is just the momentum that we have as a franchise here in the market is, our market is playing off, there is not a deal in Chicago we don’t get a bat at, so that's very helpful for us. Mortgage warehouses lending by the way, we have that division of mortgage warehouse lending to outside third parties those were up $77 million also. So some of that growth can be attributed to that, but we really -- our leasing division is going well, we expect good growth even in the franchise division, even after that's done when we get the GE deal done we expect continued good growth there and as we, we basically hired the players prior to even getting into this deal we had hired player who were with that firm and had no other customers and are well known in that space. So it's hard to point -- pinpoint one thing John, it's just a lot of good momentum in a lot of places without violating our core underwriting parameters and profitability parameters and principle. So it's kind of more or the same, but just very good momentum.

Okay. That's good. And just on the GE piece, you talked about maybe adding some expenses earlier on. Is it fair to say that the hiring is done in that business and it's just basically as simple as pulling the assets. Do you feel like you need to hire some more people in that business?

We will be hiring more people in that business as the transaction closes and -- but we did, we hired the main players, the senior people. I would imagine that there will be maybe one more senior person that might join us and then maybe six support and junior officer types, to help support that business as we bring it on. So that's in process as we speak right now. So nothing material, the senior guys we had on board.

Okay. So very little really in terms of --.

Very little I would say.

Okay, good alright.

We had a business, we had about 300 million in it, so we did have a staff already that was familiar with this business this is just a giant step forward. So this isn’t like new to us, we knew a lot of these people already and this is something we’ve been working on for a long of time.

Okay, alright. Thank you.

Thank you. Our next question comes from the line of Emlen Harmon of Jefferies. Your line is now open.

Could you quantify just how meaningful the profit margin opportunity is in the mortgage banking business and I guess really just thinking, where do you think you can go from 13% that you did this quarter?

Well, that number I should -- you almost have to bracket it because of where volumes are. Right now volumes are very strong so pricing gets a little bit better. But I think that that number should be at least 4% or 5% higher going forward that's what we like it to be. Your spreads and the mortgage warehouse lending and the mortgages held for sale are down substantially, in normal market sales would be up a little bit higher. So that's one aspect of it, the other aspect is it's just -- man it takes a lot of work with this -- with TRID and with all of the Dodd-Frank stuff you have to do and we want to do it right, it's taken a lot of work and the technology hasn’t kept up. But I think long-term our goal would be to add on relative basis 4% to 5% to that margin.

Got it. That's helpful. Thanks. And then just a quick follow-on on Jon's question. I think you guys had mentioned that the commercial loan pipeline is at an all-time high. Just be kind of curious how that compares to where it was last quarter? Just trying to get a sense for how far ahead you are there.

Based on, on a growth basis, its $300 million ahead. On a net basis, it's probably $110 million ahead.

Thank you.

I mean that doesn’t include our niche business by the way, that doesn’t include leasing, it doesn’t include premium finance. Those are not included in those projections, this is commercial and commercial real-estate business.

Our next question comes from the line of Brad Milsaps of Sandler O'Neill. Your line is now open.

Ed, just wanted to follow up on your NIM guidance. Just kind of looking year-over-year, I guess you've lost maybe 14 basis points in NIM. Obviously you guys have been able to grow through that nicely. Sort of the GE acquisition aside, what makes you feel confident you can kind of hold the NIM here? We had one fed increase in that time period. It doesn't look like we're going to get many more. Do you think you can hold really the line on loan pricing here going forward? Just kind of curious kind of more of your thinking behind being able to hold the NIM viewed in the context of being down 13 or 14 basis points year-over-year.

Sure. Lot of that down is liquidity management you're looking at the five and 10 year bonds, I never thought they’d be here in those markets. I mean you’ve got a bull market going out and rates are flowing, go figure. So a lot of it is in liquidity management and the accretion that’s run off we’ve been fighting increasing headwinds and have not gone out and done a big deal and try to think another shot of dope to get us through the period of time until rates go back up. So that’s really the reason. If you look the last quarter the only decrease in our loans on the margin related to loans was 1 basis point due to accretion. Loans pricing held up pretty nicely last quarter, and there was no difference between the second and third quarter. So, I’d like to say we bottomed out, but I think a lot of that is -- where we get pricing pressure on loans is when loans are running out the back door that we have priced higher, if you follow my drift on that one, it's the run off of refinance of loans out the back door the portfolio. New stuff is coming out and I think we maintain our profitability models, we should be able to -- which were we live that’s our bible. So we should be able to hold loan relatively constant and hopefully grow some. Our leasing portfolio should give us some better yields as that continues to grow the franchise portfolio in general should give us better yields, is the mix issue of getting more and more premium finance getting, when those would kind of fall off at the beginning the year and coming back on, those are our best dealing assets and those are growing. So, we should be able to hold our own and it's just we got [indiscernible] up by 3 basis points and 5 in liquidity management and, blame Brexit, lot of money flying onto this country right now.

Sure, sure. And then just a follow-up on the GE deal and I'm sorry if I missed it. Can you talk about funding plans? You're kind of above your sort of historic comfort zone in the loan deposit ratio. Can you talk about that a little bit more and sort of what you plan to do in the interim until you sort of catch the funding up with the new loans that are coming in?

Yes, so we’re climbing the ladder again, we do deposits, we do loans, we do deposits like the old days again. We have been marketing recently, we’ve been pulling in close to $40 million of new money a week on our terms and to build out our franchises, we’ve selectively marketed and one of the benefits for the multiple -- charted multiple brand approach we have is we can go to different markets and gain market share without cannibalizing existing deposits and thereby making you marginal cost of funds way to high. We been bringing in $40 million, we like to, we can open that up in some other place to hopefully get up to $50 million to $55 million, we may this quarter have to relay a little bit more on institutional funding than we have in the past, to fill that gap, some short term brokered funds in the like, we have the benefit of having a very good net interest rate sensitivity position. So we’re able to bring in some short funding in the interim the bridges that is certainly part of the plan, but long term is that we don’t like -- we like -- this is the opportunity for us to grow the franchise, by brining solid relationships in the three or four different accounts per household. This is really were we want to be right now, we wish the rates were a little bit higher, I think everybody does, because it makes it easier to do it, but the marketing and how we position it has been working pretty good and we can bring in an on limited basis, that amount of money, we can now expand that to grow, but if we can be asset driven, we can now expand the franchise and the real core franchise, which is the deposit base. So people don’t, in the rate environment don’t consider deposited base to be worth much, but we do, we think its worth a lot, when rates go up it will be worth even more. So this is where we want to be here. So the long and the short of it is, we’re going to continue to fund ourselves organically continue to grow and push that aspect of it, in the meantime we might have to bridge ourselves with some brokered or institutional funding this quarter.

Thank you and our next question comes from Chris McGratty of KBW. Your line is now open.

Ed, a question on competition. One of your larger competitors got taken out in the quarter. Obviously it's early.

Who is that Chris, did somebody get bust?

The question is what's the potential fallout or how do you see the potential fallout from dislocation? Typically with situations like this are pretty infrequent but there's typically a land grab for lenders. Wondering the capacity and the interest.

Well for lenders, anytime there is a change in the market, there is going to be some disruption. I don’t think this one is going to have as much as other have in the past. I think that, the Canadian has bought a franchise and they would like to build and grow it, they have shown their commitment by giving the senior people contracts to stay on. It is my understanding that’s what happened. So I really think that organization will continue to be a solid competitor, but it doesn’t provide for some disruption if there are, you won’t know for couple of years if there are cultural issue, were they don’t line by, I have no idea, they are or they aren’t. I’m sure that they figured that out before they signed and put ink on the paper. But in some respects you could make that particular competitor a little bit stronger with more capital with a bigger hold level. They could become more aggressive. So we're looking at all aspects of this but in anytime there was an acquisition such as this, it does bring disruption and dislocation and that does bring some opportunities both in people and in assets and clients. So we don't think it’s going to be any less competitive. These guys are just going to go by the sidelines, we think in effect it might make them a little bit more competitive and we're ready for the challenges.

Great. Thanks. If I could, a follow-up. With the growth outlook, can you remind us -- you put some but not all the capital to work through organic and deals. Can you remind us the comfort in terms of capital targets and what you estimate might be left in terms of deployment ability?

Chris, this is Dave. I think the thing we look at most of it is our total risk based capital ratio as being the limiting factor for us and that was getting down around the 12% range or the higher 11% before we raised this last 3 million shares of common in June. So I think if you start to get into in sort of the 11.5% range that would probably be the low end for us before we started thinking about raising more capital. So probably 11.5% to 12% would be a range, that’s not hard and fast if the prospects look like they were going to slow for reason which is not the case, maybe it would let the earnings generation build that back up. But to the extent that we have the momentum that we have this quarter and then it looks like we're going to have for next quarter. And for the foreseeable future then we would probably look at doing some form of capital if we started getting that 11.5% to 12% total risk based capital range.

So potentially a capital -- you may cross that bridge at some point next year if the growth continues but not necessarily common, is that the right way to interpret it?

It would depend on growth and whether you do more acquisitions and whether the pipelines pull through. But yes, so you can sort of project that out and once you start to go below 12 and start approaching sort of mid-11s, then we probably would be looking in that range to do something. But it really depends on like this last capital raise we did, everybody questioned, why did we do if we hadn't announced the deal, but clearly you can see now that we had deals in the pipeline that we knew were coming and we had significant loan growth coming and we felt it was appropriate to raise the capital at that time before you sort of got to a blackout period at the end of the quarter and during earnings season. So we could do it a little bit earlier than normal just depends on what we see in the pipeline and this time we saw the pipelines growing and the acquisitions being there. If those go away for some reason then you might let the earnings supportive.

[Operator Instructions] Our next question comes from the line of Terry McEvoy of Stephens. Your line is now open.

I just want to follow up on Chris' question. How much of the $153 million was allocated for the portfolio purchase? And the reason I ask is I think some investors were a little frustrated because you raise capital, estimates go down and then you announce the deal and they didn't really go back to where they started and so it was viewed as a dilutive capital raise. I'm trying to figure out now that we've seen this quarter's growth in the pipeline, trying to then quantify what that additional capital will mean to future earnings. Maybe help better respond to that dilution question that a couple of us got?

If you listen and if you follow-up on what I said to Chris, the 12% -- 11.5%, 12% is sort of the range, you take the 581 million of loans that we bring on and 11.5%, 12% of that would be allocated to the capital. And then the Community Bank in Elgin that will be $150 million to $200 million of additional growth and 11.5% and 12% goes to that. But we also had more than our target loan growth this quarter. So I think you just kind of think about if you look at those buckets of growth and apply 11.5%, 12% with that how much capital will allocate to it.

There's been a lot of talk on CRE over the last week. How do you feel about continued growth in that portfolio? And then as you talk to potential sellers, is CRE coming up more in your conversations with, again, potential sellers?

Absolutely. CRE is on the front burner of every regulator that and IT are on the front burner of every regulator in the country. Fortunately, our ratios are pretty good when it comes to that, we don’t -- we are not approaching the 300 levels of they refer to, but it certainly is becoming an issue for a lot of other different banks. We are seeing lots of opportunities in the CRE space right now as a result, so it’s somewhat of a -- finally we got some of the lenders market here. But we have to very careful about who you pick and the sponsors you deal with. We are growing that portfolio on a selective basis, profitable deals with extremely good sponsors and very, very good loan to value, loan to cost metrics people we’ve done business with for a long time. Not a lot of land development going on anywhere right now, some vertical development going on. But CRE is a hot button right now, it is an issue from our perspectives, we maintain our discipline which history would say we had been able to do. Relatively speaking, it can be a very profitable business for us right now because of our dry powder.

Thanks. And then just one quick follow-up. The change in MSR from 10.1 to 13.4, that difference flows in through the mortgage banking line and I just want to understand in Q3 should we maybe not expect that type of change in the MSR?

We will have to see where it goes -- just couple things happen there, I mean we are growing that portfolio a little bit and it depends upon the mix of business and we are doing a little bit more of that mix with loan types that have a little bit higher service fee level with them. The other thing that we saw is that the 10-year has a drop at the end of the year, our mortgage rates didn’t drop at the same level. And so the mortgage rates truly there is a little bit of a disconnect in June from the 10-year and the mortgage rates that we had. So we saw some -- actually some expansion in this spread there. But if rates stay really low and prepayments pick up in the third quarter and I think it's maybe reasonable to believe that you would see that -- not have that growth in the third quarter.

Thank you.

Good news Terry is that the second half of the year is always my favorite, not just because of the holidays and Cubs are going to be in the World Series, but each quarter has an extra day in it. So that’s of today is about $2 million little over $2 million more in net interest income that comes to the -- to each quarter. So in each days with over $2 million of net interest income to us, that number will continue to grow obviously as the bank grows. So we like that too. That's nice. Calendar's on our side in that regard.

Sounds great.

Thank you. And our next question comes from the line of Kevin Reevey of D.A. Davidson. Your line is now open.

So first, just wanted to make sure I heard you correctly as far as the cost savings from the Generations deal and the Suburban deal. Those have all been realized, is that correct?

No the cost savings on the three deals we did last year which includes Suburban those have all really been realized. Foundations we close on March 31st of this year, we just converted it to our system in July, so last weekend, so will start to see some of those savings on the Foundations deal here in the third quarter. Those are not fully realized yet. Although if you listen to my remarks there were some conversion charges and a little bit of severance charges related to them, but a full savings out of that really doesn’t incur until the conversion are done and the systems are one and locations are combined. So that will start happening into the third quarter here.

Okay. And then given the strong dollar, what are your commercial customers saying? Are they feeling any of the negative impact? Are you starting to see any of that show up kind of in some of your credit stress testing at all?

It's certainly is -- for those doing business overseas it's certainly is not helpful to them in a lot of respects, but many of our customers have built -- most have built pretty much fortress balance sheets to withstand that sort of thing. So our commercial customers are all doing pretty darn good, I don’t hear many of them complaining about the strong dollar right now. Many of them are -- they somewhat like the dislocation overseas and it's helping them and their markets, gaining their stability and their ability to deliver. So it has not been something that's that our customers have been complaining about in mass.

Okay, great. Thanks a lot.

Thank you. And I'm showing no further questions at this time.

Okay, it looks like we are done. Thank you all very much for participating. Look forward to talking to you in October with good results. So everybody have a good summer. Thanks.

Ladies and gentlemen, thank you for your participation in today's conference. That does conclude today's program. You may all disconnect. Have a good day everyone.