Edward Wehmer - President & CEO David Dykstra - Senior EVP & COO David Stoehr - EVP and CFO Kathleen Boege - EVP, General Counsel and Corporate Secretary

Jon Arfstrom - RBC Capital Markets Terry McEvoy - Stephens Chris McGratty - KBW David Long - Raymond James Emlen Harmon - Jefferies Brad Milsaps - Sandler O'Neill

Welcome to Wintrust Financial Corporation's 2015 Fourth Quarter Earnings Conference Call. 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 fourth quarter and year-to-date earnings press release and in the company's most recent Form 10-K and any subsequent filings on file with the SEC. As a reminder, this conference call is being recorded. I will now turn the conference call over to Mr. Edward Wehmer.

Thank you. Good afternoon and welcome to the Wintrust fourth quarter and year-end 2015 earnings call. With me as always are Dave Dykstra, Dave Stoehr, our Chief Financial Officer and Kate Boege, our General Counsel. We will, as mentioned, conduct this call in the same format as we have in the past. I will give some general comments about the quarter and the year. Dave Dykstra will have his hands full giving you the details of other income and other expenses this quarter and for the year. Then back to me for thoughts regarding 2016 and beyond and then we'll have time for questions. Well, we promised you and we delivered. The fourth quarter replicated the third in terms of noisiness with $6.5 billion of one time expenses in the income statement in the fourth quarter. All told, we took $14 million in pretax one time charges in 2015. These one timers relate mostly to the four cost-out acquisitions we completed in the year and were comprised mostly of severance, data processing, conversions and branch closings. A smaller portion of these charges relates to other position eliminations and other cost-out maneuvers that we employed and executed in the fourth quarter. Even though with these charges, our overall net income for the year and our operating earnings were as we defined them were record for us with operating earnings up 10% to almost 10% to $165.2 million. This is a great base to start 2016 off of. For the quarter, our GAAP earnings were – pardon me, $35.5 million or $0.69 a share. Operating earnings were $39.4 million or $0.71 per share. Compared to the third quarter, our margin dropped about 4 basis points. Really this related to 1 basis point apiece from CRE accretion, commercial - first insurance commercial lending and the mix of all the above. That being said, net interest income was up almost $2 million. Credit charges were up a bit, not a trend. However, our provision was up $700,000 to support the loan growth that we'll talk about later. OREO charges were up $3 million. We had a positive OREO number from a gain on sale in the third quarter and a little extra cost in the fourth quarter related to OREO costs and write-downs of certain OREO assets. Speaking of credit, our reserves are up $3 million to support the growth that we have in loans. Total NPAs and non-performing assets were down $10 million to $128 million, or 0.56% of assets from 0.63% of assets. TDRs in the quarter were also down $6.5 million to $42 million. We continue to make steady progress in pushing out and identifying, pushing out bad assets. Charge-offs are running consistently around 15, 16 basis points, which is a good number for us going forward. Other income and expense, Dave is going to talk about these in detail, but some general comments. On the mortgage side, volumes were seasonably lower but consistent with prior years. Pipeline looks very good for the first quarter on a seasonable basis. Wealth management, we did well in spite of the markets. Continued progress in this will continue to be an emphasis for us. Evidence of the success in our newly found leasing business can be found in the operating lease income line which was up $1.3 million versus the third quarter to close to $2 million. We're seeing great progress in our new leasing initiative. On the other expense side, there's a lot to talk about here and I'm going to let Dave cover all of that. On the balance sheet, we had very good growth this year and particularly in this quarter. Growth occurred both through acquisitions and through organic growth. Assets for the year were up almost $3 billion or almost 15%. Loans for the year were up $2.6 billion or 18% and deposits were up $2.4 billion or almost 15%. For the quarter, assets were up $873 million, loans up $782 million and deposits up $411 million. I'll note that on an average basis loans were up only about $300 million and something. There's $400 million of average loan growth that's going to roll into the first quarter which should help give us a good start to the year. Needless to say, we had a good year in terms of growth of the franchise. Our growth was diversified and core. Although not evident this year, due to the one-time charges, said growth is helping improve us growing into our infrastructure. This should be very evident in 2016. We still have opportunity here, though, but through core growth and additions of other - of acquisitions, either cost out acquisitions or acquisitions that help us gain new territory. We expect to continue to use the kinetic operating leverage that still is inherent in the company and we should make great progress in that and that should be evident in 2016. I'll give it to Dave to talk about other income and other expense.

Thanks, Ed. As normal, I'll talk about non-interest income briefly and then turn over to non-interest expense. In the non-interest income section, our wealth management revenue totaled $18.6 million for the fourth quarter of 2015, which was up from $18.2 million recorded in the prior quarter and was essentially flat with the revenue recorded in the year-ago quarter. The trust and asset management component of this revenue category increased slightly to $11.8 million in the current quarter, compared to $11.7 million in the prior quarter. Brokerage revenue was also up to approximately $6.8 million in the fourth quarter compared to $6.6 million in the third quarter. Overall, this quarter marked another solid one for us in the wealth management revenue arena. Mortgage banking revenue decreased by $4.6 million to $23.3 million in the fourth quarter from $27.9 million recorded in the prior quarter and was just slightly lower than the $24.7 million recorded in the fourth quarter of last year. The company originated and sold approximately $809 million of mortgage loans in the fourth quarter, compared to $974 million of mortgage loans originated in the prior quarter and $838 million originated in the year ago quarter. Also, if you look at the mix of business, the mix of loan volume related to the purchased home activity stood at about 60% in the fourth quarter compared to the low 70% range in the prior quarter. Fees from covered fall options increased to $3.6 million in the fourth quarter, compared to $2.8 million in the previous quarter and $3 million recorded in the fourth quarter of last year. As we have previously discussed with you, the company is consistently utilized these fees from covered call options to supplement the total returns on our treasury and agency securities we hold in our portfolio in an effort to provide a hedge to margin pressures caused during a period of low interest rates. This quarter we've separately broken out the revenue and costs associated with our operating leases. As our leasing business continues to expand, the revenue and costs will continue to grow. So we thought it was important to segregate those costs so you can have visibility into our operating lease portfolio. The portfolio of operating leases grew from $29.1 million of outstanding balances at September 30, to $63.2 million of outstanding balances at the end of the year. Following the trend of the balance sheet growth, revenue in the fourth quarter of 2015 for operating leases totaled $2 million compared to $613,000 in the prior quarter. To be clear, these amounts relate to the operating leases only as capital leases are carried in the loan section of the balance sheet. Turning to non-interest expenses. Our non-interest expenses totaled $166.8 million in the fourth quarter increasing approximately $6.9 million compared to the prior quarter. The biggest drivers of the increase related to increase in OREO costs of approximately $3 million and increase in depreciation on those operating leases I just talked about approximating $756,000, and a net increase in salaries and employee benefits due to severance and pension obligations assumed from our prior acquisitions. Included in those non-interest expense amounts are approximately $5.9 million of acquisition related costs, non-acquisition related severance costs and pension obligations charges that we incurred related to two pension plans that we acquired in two of our previous acquisitions. We disclosed all these charges by category in a chart on page two of the press release so you can refer to that. The operating expenses were also impacted by the average asset growth of the company of approximately $545 million during the quarter. And costs associated with operating six branches related to the Suburban Bank transaction that were open for the majority of the quarter but were closed at the end of the quarter. I'll now focus briefly on the individual categories. Net of acquisitions, severance and pension costs incurred in the third and fourth quarters and which are again detailed on page 2 of the press release, salaries and employee benefits expense increased approximately $949,000 compared to the third quarter of 2015. Net of the aforementioned charges [Technical Difficulty] were actually down approximately $1.8 million as planned staffing reductions took hold. We expect to see further reductions in the base salary amounts of approximately $1 million to $1.5 million in the first quarter related to salary savings from additional staffing reductions. However, we also will see some offsets of those savings as the first quarter of each year reflects the impact of our annual salary increases, which are generally about 3% of base salaries. Commissions and incentive compensation costs were up approximately $1.2 million due to increased accruals for our long-term incentive compensation program and the annual incentive bonuses offset somewhat by lower commissions due to the reduced mortgage banking revenue. The commission expense didn't fall as much as one would expect given the decline in the mortgage banking revenues. And the primary reason for that is due to aggressive hiring of new producers who are given a draw against commissions during the early months of their employment until they get their pipelines up and running. The employee benefits portion of this category was also up due to a slight increase in our 401(k) match expense due to increased employee participation, increased employee insurance costs and payroll taxes that were associated with discretionary bonuses that were paid in the fourth quarter and the pension valuation adjustment related to the plans I previously referred to of approximately $1.4 million. Net of acquisition related charges equipment, occupancy expense categories increased in the aggregate approximately $1 million in the fourth quarter from the prior quarter. A portion of this increase related to the operating costs associated with having a full quarter of costs related to the three acquisitions completed in January - in July, I'm sorry, and increased maintenance related to snow removal costs. And as I discussed then regard to the operating leases in the non-interest income section, the company similarly had expenses related to operating leases. In the fourth quarter 2015, the expense corresponding to the previously noted non-interest income totaled $1.2 million compared to $473,000 in the third quarter. We would expect this category of expense to continue to grow at a rate similar to the revenue side of the portfolio as our operating lease portfolio expands. Net of the acquisition related charges, data processing expense increased approximately $345,000, primarily due to the full quarter of processing expenses for the banks acquired in the third quarter, as well as costs associated with the general growth and accounts of the organization. Our marketing expenses declined by approximately $929,000, due primarily to a seasonally lower level of corporate sponsorships. Our corporate sponsorships tend to be higher in the second and third quarters of each fiscal year. Professional fees increased slightly to $4.4 million in the fourth quarter, as compared to $4.1 million in the third quarter. Professional fees can fluctuate on a quarterly basis based on the level of acquisitions, litigation and problem loan workout activity. With that being said, total professional fees were slightly less than the average experienced over the past five quarters. Ed mentioned other real estate owned expenses. These increased by $3 million in the fourth quarter compared to the previous quarter. Total OREO expenses totaled $2.6 million in the current quarter, compared to an OREO gain of $367,000 in the third quarter. The increase was primarily due to increased valuation allowances of $1.1 million, increased operating costs of $716,000 and recognizing lower gains on the sale of OREO in the current quarter of $1.1 million. We're aggressively trying to move these pieces of property off the books and as we do that, to the extent that we need to take additional valuation charges to move them, we're doing so. Overall, the quarter was impacted by the acquisition of non-operating compensation charges of $6.5 million, higher OREO expenses as we attempt to aggressively move the properties off our books. But we have a goal of reducing our net overhead ratio to approximately 1.5% in 2016. And given the steps that we've taken in the last half of 2015 to consolidate operations, including facilities and staffing and our ability to leverage our existing infrastructure to support the growth of the company, we anticipate that we'll be able to achieve that goal in 2016. So with that, I will conclude my comments and throw it back over to Ed.

Thanks, Dave. As mentioned in the press release, 2015 was a year of investment for Wintrust. Even with those investments, we did record net income and I've got a good base to start from with our operating earnings of $165 million for the year. We expect to reap the dividends from those investments we did in 2015 in 2016. But 2015 is in the books and we're looking forward to 2016 and actually reaping those benefits. Notwithstanding the above, the benefits we expect to achieve, our loan pipelines remain very strong. Our balance sheet is well positioned and our acquisition pipeline is active. Credit quality is very good. In short, we continue to be well-positioned to deliver shareholder value. In 2016, we expect continued good growth from both organic and acquisitions. We will continue to concentrate on cost out acquisitions like the one we just announced in Pewaukee, Wisconsin, but we'll also look at acquisitions that could add additional territory to the franchise. Now, as relates to 2016, I'll tell you what our expectations are. We expect the net interest margin to be 3.3% plus or minus 10 basis points. In the 2015, we lost about $16 million in accretion. In 2016 we expect to lose about $10 million of accretion. So we expect the margin to hold steady, notwithstanding any further increases in rates. We expect credit costs to remain relatively the same as they were in 2015. We expect mortgage and wealth management to have good years. As it relates to expenses, we expect our net overhead ratio to close in on 1.5% for the entire year and continue to move better than that as time goes on. 2016 marks the 25th anniversary year for Wintrust. Hard to believe it was 25 years ago that we opened in a storefront with 11 employees and we now have 4,000 employees. We're excited about where we stand right now. We know that there are no guarantees in life and in business and there are many external circumstances which can occur and probably will occur that could alter our expectations one way or the other. However, you can be assured of our best efforts to achieve the goals that we've laid out without straying from our tried and true business philosophies and operating tenants. So thanks for your support and we'll open it up for questions.

[Operator Instructions] Our first question comes from the line of Jon Arfstrom with RBC Capital Markets. Your line is now open.

Hey, thanks. Good afternoon.

Hi, Jon.

Hello. A question on the overhead ratio number.

On what?

The overhead ratio number.

Yes.

The 1.5% goal. Is that - in your numbers you have a 1.82 for the fourth quarter. Is that an apples and apples comparison? I guess I'm curious how you feel, what is the formula like? How do you get to the 1.5? Is this going to be non-interest income driven? Is it going to be expenses coming down? Help us get to that number.

Yes. The only way to put it is yes, it's going to be all of the above. The fourth quarter was - and the third quarter were very noisy, Jon. And we would expect those number through asset growth and again leveraging the infrastructure that we have, getting - experiencing all the cost saves in the fourth quarter, we probably had $800,000 to $1 million worth of salary expenses on jobs we eliminated that will be going away. So it's cost reductions relatively speaking. Its asset growth and its additional earnings. We agonize every call about - and I understand you guys are building your models. Things move. This is a diverse business that we have here by design and when something's working, something else might not be working. So what we feel best is just to let you know overall where we think we're going to be, not getting into the individual components. So there's a lot of moving parts, as you know, with the number of businesses that we have and I think it's a good thing that we're as diverse as we are. But - so it's kind of hard to pinpoint any specific place other than the fact that we expect to realize the cost savings we talked about and we've made the investment in during 2015. We expect continued growth in the balance sheet and we expect additional earnings of non-interest income coming off of all of our businesses, and we expect expenses to stay relatively constant going forward. So…

And Jon, the 1.82 is the stated GAAP net overhead ratio. On page 2, we show if you take out the acquisition and these severance and pension costs it would be a 1.70. So we would expect the trend from 1.70 down over the course of the year with an average of 1.50 for the entire year.

All right. So you're saying you'll get below - potentially below that by the end of the year?

Yes.

Yes, notwithstanding acquisitions or any other things that come along. But on a static basis, relying just on organic growth of what we know right now, that's the case.

Okay. And then Dave, just clarification on the comp number? You talked about salaries and benefits coming down $1.5 million. You're assuming the baseline number there is probably that $97 million number? Is that the right base?

I was talking about if you look at just the salaries line in there, it was - the stated number was $50.982 million, but that included $1.113 million of acquisition related charges. So that was $49.869 million if you take out the one-time severance charges. And so I would expect it to go down $1 million to $1.5 million from that. But then there is going to be some offset there, Jon, because we do have salary increases that we usually do in the first quarter of about 3% of that number. And so, that will increase it and offset a portion of that. But we do expect for the positions that we severed that we will get about $1 million to $1.5 million of additional benefit off of that line.

Okay. That helps. And then…

The $90 million number you're referring to includes commissions and incentive comp and the like. And so that number can fluctuate depending on where the mortgage banking business goes. So I tried to focus on just the salaries line for that purpose.

That helps. Ed, just the December growth or the late quarter growth, what do you attribute that to? Why was that so strong later in the quarter?

Really good momentum, Jon. Our pipeline came to fruition late in the quarter and the interesting thing was that the back end of the pipeline continued to fill up. If it was $1.1 billion before we weighted it last quarter, its $1.1 billion going forward right now. So it just was - it was our guys doing their job and bringing home the bacon and we would expect - that was a pretty big quarter. We look at 250 to 300 a quarter as being a good number. We will see where that goes going forward. But it was just a good quarter. I can't really attribute it to anything other than guys bringing home the bacon and get the deals closed and moving forward.

Okay. And you're saying that momentum's continued into Q1?

You know, we are. We are seeing it continue. And we got a leg up because we'll start with $400 million more in average balances than we had last quarter. So that will be very helpful to us.

Okay. All right. Thank you.

Our next question comes from the line of Terry McEvoy with Stephens. Your line is now open.

Hi, thanks. Good afternoon.

Hi, Terry.

Hi, Terry.

Hi. A question on the other commission line, which tends to ramp up throughout the year, will you see that seasonal drop in 1Q '16? And then I guess putting this all together, Dave, maybe just a little help with the total expense line that you would see for 1Q '15, both on a reported basis? And do you expect any more of these one-time or merge related costs or did most of those flush through in the fourth quarter?

Yes, most of those flush through in the fourth quarter. I think we may have just a little bit, but maybe 200,000 or 300,000 would be all we would expect for trailing acquisition related charges. So it should be a pretty clean quarter in the first quarter from that perspective. If you sort of look at it, it's hard to put an exact number on there because we've got some areas that fluctuate. Mortgage banking revenue goes down a little bit, mentions will go down. So it's hard to put an exact number on there. But - so the few new notable things that I think we can talk about is, I talked about the decrease in the salary expenses and from the reduction of staff and the increase in the salaries for raises that go into effect in the first quarter. First quarter also seasonally is high because of payroll taxes. Generally those are about $3 million more in the first quarter than they were in the fourth quarter. Those drop off dramatically and I think that applies to every bank you have. So that number will adjust. We certainly don't expect the OREO expense to be $2.5 million to $3 million next quarter. So we'd expect a reduction in that area. And we do expect some reductions in some of the miscellaneous expenses, but those would be the big drivers there. I really can't put my finger on the mortgage commissions until I know what the mortgage revenue's going to be. So giving you an overall number is kind of tough. But those would be the big swings. Everything else should stay relatively stable.

Okay. That's was helpful. Thanks. And then just shifting gears. Could you talk about competitive pricing in the premium finance area? You mentioned it last quarter for Q3. You mentioned it I think in the press release for Q4. Did it deteriorate in the fourth quarter, how are you thinking about the early part of '16 in terms of that part of your business?

Yes, that was – I mean, it was down just a tad in the fourth quarter, but as we talked last time, it's a pretty big boat. We've got thousands of agents that we do business with and with the rate rises last quarter that's up, we've been actively out making sure that we can get those rates adjusted. As you're probably aware those loans are a nine month full payout loans, monthly payments and so they're fixed. So about a ninth of that portfolio re-prices every month. So we would expect to see starting in the first quarter increases in those yields on the commercial premium finance portfolio.

In December, the yields were up a little bit. What we're concentrating now is obviously getting the yields up on an agent-by-agent basis. But also looking at what we pay those agents. Because the agent reserves as we call them, that come out, is a direct reduction. As rates have fallen and it's gotten more competitive, that becomes a bigger and bigger portion of what the rate you're getting. So you net it out, that's an issue. So we have - we worked on renegotiating some of our bigger deals and are working agent-by-agent, part of that portfolio review we talked about in the last quarter. So we're coming at it from two perspectives. One is to obviously raise the coupon rate. The other is to lower the cost of doing business with these guys by being a little bit more creative and doing some other things with them. So we would hope that we troughed out and that we will see positive results from that going forward. That's our goal at least.

Thank you.

Thank you.

Our next question comes from the line of Chris McGratty with KBW. Your line is now open.

Hi. Good afternoon. Ed, I've got a question on capital. We've never talked about it and you guys have never bought stock. But given where your stock's at, call it 125 of tangible book, is there a scenario under any situation where you might consider adjusting capital strategies to consider a buyback?

Well, it's something that we obviously every month we meet on capital. That's something that we talk about. But where we are right now and with our growth opportunities doesn't seem like the right thing. I mean - out of the Graham Dodd and Common book, would you consider that and maybe hold off on growth a little bit? But you got to take what the market's giving you. The market's giving us the opportunity to grow. We would hate to lose the momentum. We made all those investments in 2015 and they're paying off in terms of good growth momentum. You'd hate to stop that and buy your stock back. But we do have opportunities in our capital stack to replace that and we'll just see where it all goes. But certainly it's something we look at all the time. But right now strategically, it doesn't seem to make a lot of sense given the opportunities we see in the market.

Okay.

Hopefully we won't be down at 125 at tangible book, that people will start concentrating on 2016 and where we're going and what we've done here and realize we're screaming by, just kidding. I probably just broke a law there. Sorry, Kate. Never mind, retract that.

That's good color. Just a follow-up if I could? Ed, in the past you talk about kind of how your M&A strategy supports the multi-bank structure and when M&A prices move you away from you, you may pull that earnings lever down the road. Wonder if rates stay lower for longer, is that something that might be considered a bit sooner to help bridge that ROA gap to peers that exist? Thanks.

First of all, collapsing the charter is not an earnings lever. I think in the past we said, we look at this all the time. We would actually lose money if we did that right now. Between $1.5 billion we have in our wealth management business, it's a negligible cost in terms of deposits, how we'd have to replace that. Everything that doesn't touch a customer is already consolidated or will be during the course of the year. We're doing some other consolidations on our operating side as we speak. But there's really not much that you could grab out of this enterprise if you collapse the charters. I know it goes against conventional thinking. But if we can get where our net overhead ratio is now is right in the middle of the pack for banks our size, we can get it down below 1.5, I think that we'll eventually we'll prove that to you that it really is not an earnings lever for us at this point in time. It actually would hurt us. So again, we run them like divisions where everything that doesn't touch a customer is consolidated. We did that on a regional basis. Now we're doing some on a corporate basis and bringing it up top and that'll have some minimal savings. But if rates stay low for a long time, we will be where we are right now. I think I worry most about if rates stay low a long time, the continued competitive, what's a good word, idiocy that we see on some terms and rates that are going on out there. The people who have forgotten what it was like in 2008. That's what's scares me the most is this hunger for earning assets and the inability to find them pushing its way down through rate and term. That's what scares me the most about lower rates and not getting paid for your risk. At that point in time then we would look at slowing growth. I'd look at a buyback then, if that momentum went away or we decided to make it go away because we weren't getting paid for our risk, then we might consider a buyback. So it's kind of fluid from that perspective. Bu that's what scares me most about continued lower rates in the market.

Thank you. Appreciate it.

Our next question comes from the line of David Long with Raymond James. Your line is now open.

Good afternoon, guys.

Hello, David.

Dave, you talked about the mortgage banking commissions and with building your producers the commissions that weren't really commensurate with the decline in volume. Will that continue here in the first quarter or should we see that commission line be more commensurate with the level of originations?

Yes, I think it should come back more as a line. We did a lot of hiring and for some of these people it's a draw on their commission for future production. Some, they're leaving a big book of business behind. It's just a commission that we guarantee them upfront just to sort of make the transition over to us palatable for them for leaving their pipeline behind at their prior employer. What we were fairly aggressive this past quarter in bringing them in. So I think it should moderate a little bit in the first quarter. It's possible that we could find a few more producers and keep going after them. But I would think that would moderate a little bit more. As volumes have dropped off here, it's easier to in essence pick people off from competitors because their portfolios are a little bit smaller, their pipelines are a little bit smaller, I should say. And so we were fairly active late in the third quarter and early in the fourth quarter.

Another point is in the lower volume months, some of your - and you have to weed through your producers all the time, because now, the law is to exchange you have to pay producers minimum wage and that minimum wage comes across as a draw. So if you constantly waiting to put your non-producers out, but during slow times like the winter, some people dry up and you have to pay a minimum wage, then you can recover that down the road in higher volume months, if you follow what I'm saying. It's just a draw but we expense that upfront. So just another gift from our government, paying commission people minimum wage.

Got it. Okay. Thanks for the color there. And then second question, regarding the overhead ratio and getting to that 1.5% target, what assumptions have you made on interest rates to get there? Are you simply saying we got the one rate hike in December that's it or do you have additional hikes built in there?

On the net overhead ratio, it doesn't take the margin into account. It's simply your non-interest expenses minus your non-interest income divided by average assets. So - or as the efficiency ratio takes the margin into account, the net overhead ratio doesn't. And so we look at that more as an operational efficiency measure than the actual efficiency ratio because the efficiency ratio actually is highly impacted by the margin. So from a net overhead perspective it doesn't matter what interest rates do.

That being said, that amount what I said when I gave the margin, kind of flat at 330 plus or minus, depending on mix and volume, that assumes no additional rises in rates. If rates were to go up, we would expect additional benefits to occur throughout the course of the year. And again, that 3.30 also assumes that another $10 million of accretion is going to be going away this year compared to 2015. So it actually is a little bit - accretion's a great thing. You love it when you have it but when it goes away, it becomes a negative and you're always explaining it. If I had to do over again, I'd still grab the accretion when I could. But it's kind of like taking dope, you've got to wean yourself off it at some point in time. I think we've done that. It served us well during that period of time and helped us grow pretty inexpensively and profitably. Now it's going off, we have to make up the difference.

Got it. Okay. And then lastly, I'm going to throw something out there on credit. Obviously credit metrics still look very good, but intra-quarter, anywhere or any segments where you've maybe become incrementally more concerned?

We're always concerned about every segment, but nothing in particular, vis-à-vis a segment. I mean, it's just you'll have a onesy, twosy every now and then that pops up. We try to stay ahead of these things. We've been - first sign of a crack, we wean out the problem credit before it even becomes one. Like as I mentioned in previous calls, this market is so voracious for earning assets that a deal that we might push out usually has five bids for more money at a lower rate by the time we push it out. So we try to get them out early and identify those cracks early, so we don't have to deal with that. But all in all, it's just kind of onesy, twosies across the board with no specific area that's under duress.

Excellent. Thanks, guys. Appreciate it.

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

Good afternoon. Just a follow-up on that last question. You mentioned you had a couple of small kind of credit issues here and there. We did he see the early stage delinquencies, like the 30 to 59s pick up quite a bit this quarter, I think it was about $80 million. Was there a - maybe you talk about the lumpiness of those credits? Was it kind of one credit that was $50 million and driving that or were there specific categories in there that were driving that specifically?

No, welcome to the fourth quarter. I mean, that's usually a fourth quarter phenomenon where those 30 days pop up a bit. We don't see any migrating issues there. If you look at our loan grading system, we've not seen any changes in that. We're pretty active on our loan grading and classifications. So we don't see that as any sort of indicator or trend other than the end of the year.

Got it. And then maybe just an update on growth in Wisconsin and just how big the loan book is up there now and what the outlook is going forward?

Well, as you know, we announced the acquisition of that Pewaukee bank. It's really right across the street from one of our other banks. There will be a cost out opportunity for us up there. That will bring us up to about $1.6 billion, $1.650 billion in Wisconsin. The portfolio there is doing very well. Their credit is in very good shape and we intend to continue to build and grow in that Wisconsin area. So they're on track to do very well next year. Our Ag lending is taking off, believe it or not. Ag lending now, I think it's a perfect time to get into Ag lending when there's a little distress out there in that market. It's a perfect time because you can pick out the best of the best and go forward. So we think that there will be additional opportunities in Wisconsin. Our hats off to the Anchor Bank guys for pulling off their deal. That was quite a turnaround that they pulled. It was not something that we were very interested in just because of the kind of - many of their branches went outside our stated market area. But we see other smaller opportunities. We still like those zero to $1 billion bolt-ons. They seem to be more cost savings involved with those. There seem to be more synergies. There seem to be more cultural alignment with those deals. So I think that you can see us - and there's plenty of opportunity there. There's a large population of banks about that size in our target market area. So we think we can continue to grow both organically and through acquisition up there. This year, with our projected - if we stay on track with our projected loan growth, we're going to have to, we believe, because we actually think that prices may be moving away from us on banks just a bit, at least more than they were before, we're going to have to rely on more organic growth. If you go back prior to - in all of our markets, if you go back prior to 2008, that was our bread and butter was organic growth. So we are planning on really picking up the pace there. Then organic growth can come in without that additional expenses that come along with acquisitions. Even though we do cost outs, there are some expenses that come along with those. We think that we can bring those on at virtually no additional cost. And we're very good at doing it and our history has shown we're very good at doing that. So again, that will be one of the elements that will help us bring down our net overhead ratio to 1.50 and below. But Wisconsin is still a very vital market for us and one we're very active in.

Great. Thanks, Ed. Thanks for taking the questions.

[Operator Instructions] Our next question comes from the line of Brad Milsaps with Sandler O'Neill. Your line is now open.

Hey, good afternoon.

Hi, Brad.

Hi, Brad.

Hey, Ed. Just maybe the flip side of the capital question. I know I think you're down in the low 7% on TCE and if you add back preferred, it's kind of mid to high 7%. Is there a level -- you may have addressed this with some of your last comments with some of the M&A talk. But you guys are always opportunistic with capital, but how are you thinking about that kind of vis-à-vis growth as you move into 2016?

With our earnings I think you can support a couple billion dollars of additional growth and we still have some opportunities I think on Tier 2 type of capital or even some additional preferred to support it if we need to. We do sort of look at it on an as converted basis with the preferred assuming that it converts. But I think if for some reason growth was stronger than we thought and those ratios dipped down another 40 or 50 basis points, probably look to see what else we need to do so raise capital and which one of those capital silos we'd look to at the time. But right now, it looks like the earnings can support the growth fairly well through 2016.

Hopefully the valuations will pop back a bit, but it seems like bank valuations may be low through the year, who knows, I do not understand the market psychology there. But we have always enjoyed using convertible preferreds when valuations are low because as we always say, dilution is forever. So we'd rather rent the money for a little while. So that would be an opportunity for us to do that also. And then use that converted number to keep the TCE ratio up. So right now, it appears that we should be okay but we're prepared one way or another. And we still, as Dave mentioned, we still have many elements of our capital stack. They certainly are not optimized, so we'll see where that goes. Right now, it looks like we're okay.

Okay. And then just one small follow up, Ed. You've had some nice out of the gate movement here on the leasing side. I think revenue was around $2 million this quarter. Where do you see that going? How much do you think you can build that number from here it looks like it could be, at least out of the gate here, a pretty decent contributor for you?

Well, there's three elements to that side and we have two of them. We have one of them that we had been in for a period of time. That was kind of the indirect business and that continues to grow nicely. Then we did our - a group here in Rosemont that handles smaller ticket items, but also provides leasing support for all of our banks in the commercial lending side of the equation. And then we've got the guys down in Texas who have been really on board for really only six months, since they joined and they're really off to a good start. We couldn't be more pleased with them and what they're doing. Their cultures line up well. They get it. Credit wise, culture is right in line with us and we expect big things from them. We think in the next couple years, overall leasing exposure can push through $1 billion on all three of those legs. So we think that's very doable.

And Brad, just to be clear, the $2 million of revenue related to the operating leases, but we also have capital leases that are carried in the loan section and we've got about $226 million of those loans outstanding. So - and those obviously come through the margin. So in total, the $226 million of capital leases and the $63 million of operating leases, we're pushing $300 million of entire lease portfolio.

We've got to add the direct, the direct in there. Okay?

Thank you.

Thank you.

I'm showing no further questions on the phone lines at this time. I'd like to turn the call back to Mr. Edward Wehmer for closing remarks.

Well, thanks, everybody. As I said, 2015 is in the books as they say and onto 2016 and we feel very good about where we're going and that those investments we made in 2015 are going to pay off nicely. So thank you for your support. Always feel free to call Dave or I if you have other questions.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program and you may now disconnect. Everyone have a great day.