Wintrust Financial Corp (WTFC) 2020 Q4 法說會逐字稿

Welcome to Wintrust Financial Corporation's Fourth Quarter and Year-to-date 2020 Earnings Conference Call.

Following a review of the results by Edward Wehmer, Founder and Chief Executive Officer; and David Dykstra, Vice Chairman 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 our earnings press release and in the company's most recent Form 10-K and any subsequent filings on file with the SEC.

Also, our remarks may reference certain non-GAAP financial measures.

Our earnings press release and slide presentation include a reconciliation of each non-GAAP financial measure to the nearest comparable GAAP financial measure.

As a reminder, this conference call is being recorded.

I will now turn the conference call over to Mr. Edward Wehmer.

Hi, everybody.

Welcome to our fourth quarter earnings call, and thanks for dialing in.

With me as always are Dave Dykstra; Dave Stoehr, our CFO; Kate Boege, our General Counsel; Tim Crane, our President; and Rich Murphy, our Vice Chairman in charge of credit.

We have the same format as usual, where I got to give some general comments regarding our results, turn over to Dave Dykstra for a more detailed analysis, other income and other expenses and taxes, back to me for some summary comments and talks about the future.

Of course, then time for questions.

And given all that 2020 brought to the table, I think Wintrust really had a remarkable year.

Pretax pre-provision earnings increased 13%, which exceeded our 10-year CAGR, which stood at 10%, not too shabby.

I know that we may not have beat the analyst estimates this quarter for PTPP income.

We're much closer than you think, considering the onetimers of $13 million and the $7 million of foregone income when we made the decision to keep 10% of mortgage production on our books.

More on this later.

CECL requires huge provisions.

$214 million versus $54 million in 2019, an increase $160 million.

Meanwhile, net charge-offs in 2020 were $40.3 million, $9.2 million less in the previous year.

NPLs and NPAs as a percent of loans and assets, respectively, reached 4 basis points lower than last year.

And (inaudible), in and of itself was an excellent credit year.

They closed the year at 40 basis points and 32 basis points, respectively.

One would think there was even a crisis going on.

You're going to have to write a nice note to Moody's, FASB and CPA and thank them from putting CECL in when they did.

Asset deposits loan growth all exceeded 10-year averages.

Assets grew 23.2% versus a 12% CAGR over 10 years.

Loans grew $0.197 versus a 12% CAGR and deposits 23% during the year versus a 13% CAGR.

We now have over $45 billion in assets.

Again, mortgage area hit the cover off the ball.

By design, we hope it would do that because when rates go low, we use the mortgages to cover so we can catch up on the margin side.

And what's the most amazing is we accomplished this really by working remotely for the most part, taking 5,300 people and flip into remote and being able to accomplish what we did, our asset growth, what we did with PPP and the like is just incredible to me.

Incredible, it just really is incredible.

The entire Wintrust team showed great strategic ability and its can-do attitude, that is unsurpassed.

I couldn't be prouder of them.

And I told our Board this and truly was -- 2021, and this really continues to be our finest hour.

On to some earning statistics.

And $101.2 million for the year, down 6% from the fourth quarter were up 18% -- sorry, from the third quarter, were up 18% from the same time last year.

Earnings per share, $1.63, down 2% from the first quarter -- from the third quarter and 13% from the fourth quarter last year.

Year-to-date, we made $293 million and $4.68 per share, down 22%, mostly because of the huge CECL provision we had to take and now we're in pretty good shape.

Pretax pre-provision of $135 million or $604 million year-to-date, was down -- was up over 9% over the same period last year and 13% over the prior year.

I -- Net interest margin of 2.54% was down 3 basis points.

However, the net interest income was up $3 million as we had great loan growth, in spite of the fact that it didn't look like it, but we'll get into that in a second because of the first levels of PPP loans trying to get repaid or forgiven.

Say, we had loans breakeven, but really core loans were up nicely during the period.

I'll talk about that in a second.

ROE at 10.3% for the quarter, 12.95% for the year.

ROE was 7.5% for the year.

Return on tangible equity for the full year, 9.54%.

And overhead ratio was 112 basis points as compared to 87 basis points last quarter, 153 basis points year before and 105 basis points year-to-date.

We would have probably been a lot lower have we not had the one-timers, et cetera, but I think we feel pretty good about where we are in that regard.

I'll talk about in a second.

Tangible book value, again, grew nicely during the year.

And again, as we go through all the time.

And so one of our primary motivators is -- our drivers is earnings growth, tangible book value growth and asset growth.

The margin was again affected by excess liquidity on our balance sheet.

We've got to do a number of things to improve the NII and NIM.

Some of these are listed below.

Note that our goal is to maintain an interest rate sensitivity position throughout these efforts.

Our goal is to maintain a GAAP of 12% to 15%.

In other words, we have to stay disciplined here and not go along and lock in this -- the margin at these goofy rates.

Our loan pipelines remain consistently strong in all facets of the business.

We made a decision during the year or during the quarter to keep 10% of mortgage production on our books.

It really beats buying back -- buying mortgage back in this market.

This did affect earnings in the quarter as we held actually $180 million on our books in Q4.

There's an 8- to 12-month from about breakeven point on holding versus selling, and that we have to take all the expenses related to the production upfront.

And well, we get it back in the margin, which is probably a good thing -- let's see.

We also pulled 200 back -- $272 million of mortgages from Ginnie Mae that were always on our books, but our publisher receiving the earnings.

Earnings were going to the security holders and not us.

We retained the guarantee, but earned the income.

So earning asset growth was actually when you think of it -- earning asset loan growth was actually up over $850 million during the quarter.

The -- most of the growth took place towards the end of the quarter, so we have a really good head start going forward into this year.

We commenced investing on some our liquidity assets of a longer duration.

Currently, aggregate, duration of our liquidity portfolio is 1.3 years as opposed to a 5- to 6-year duration we usually operate with.

So it has some room to do some accretive investing without messing up the desired GAAP goals.

We also know we've been taking applications for PPP part 3 for over 10 days.

Currently have applications in the process of over 5,500 of $1.175 billion.

30% have already been submitted to the SBA for approval.

Please read, these loans approximate $44 million, they advertise over the life of the loans.

So at least through December of this year.

Average ticket size of these loans is $214,000.

The mean size is $72,000.

We really beat everybody in the market by almost 10 days.

And we -- our decks are pretty clear right now.

We've got this down and we hope to add more to this portfolio, not just because we need it, but to help the -- to help our clients out there who need us to get through the last draw -- prongs of this current problem or crisis -- not really the margin, but on the earning asset front, we did complete one round to our -- of branch retail -- around one of our branch retail rationalization approach.

So 3 Southwestern Wisconsin branches, that are not in our prime footprint and we record a small gain, approximately $4 million in quarter 2, 2021.

We also announced plans to close initial 10 branches and took a $1.4 million charge this quarter related to the closings.

These branches are all acquired over the years and over the term we needed due to proxy -- not to be needed due to proximity to other Wintrust locations.

So derve us probably $5 million plus or minus a year.

It should also be known that we're down over 100 positions in retail due to attrition.

We've now replaced the staff that left.

We believe there would be a like amount of additional excess capacity on our existing footprint due to continued use of online services really brought about by the pandemic.

These additional savings will offset the cost of branches currently on the drawing board for 2021 and '22.

I'm just a little bit worried that we're much bigger now.

And when we do, when life does get back to normal, we really don't want to -- we want to keep our service level enhanced to want to bite to the bone right now, so we'll see where we go with it.

We always continue to look for other additional efficiencies in the market.

Also in quarter 4, we were able to restart our stock purchase program, acquiring almost 925,000 shares in the quarter.

We were able to do this at an average price that made the acquisition accretive to both earnings and tangible book value.

We'll continue to monitor for additional opportunities.

The other income side, not to take Dave's thunder, but the mortgage area hit the cover off the ball all year.

Fourth quarter, as mentioned, indicated at the start of our program, we're booking 10% of production on our books.

Hurts current earnings, but will be profitable over the long run.

Wealth management also had a good year, especially a good fourth quarter that we can build on going forward.

Total assets under administration surpassed $30 billion, $30.1 billion to be exact of growth.

Growth Of $1.19 billion in the quarter.

Rebounding markets help, but the majority of the growth was from account -- new accounts, bodes well for the future.

On the balance sheet front, assets grew $1.3 billion, $350 million.

The average earning assets were up $937 million.

Loans, as we said earlier, without PPP, were up $606 million in all facets of the business.

To add back the Ginnie Maes, we bought back or we really did -- had on the books were made earnings, closer to the $850 million of earning asset growth we had.

The majority of which took place, as I mentioned in the last part of the quarter, really about almost $678 million plus the buyback of the Ginnies.

So this really holds $678 million of average versus about quarter end and the fourth quarter.

So again, that's a number.

Plus the Ginnies that we started earning on this quarter bodes pretty well.

Deposits were up $1.2 billion.

That's after the repayment of $600 million of high plus institutional money we returned during the quarter.

So again, we continue to grow through the cycle.

Loan deposit ratio was 86.5%, down from 89% as the first round or first 2 rounds of PPP continue to pay off.

That's a good thing.

Loan to deposits.

Loans and deposits, as I mentioned, loan growth is good across the board and we feel good, but our pipelines are strong.

We feel very good about where we are right now.

And as mentioned, deposit growth is extraordinary for both the quarter and the year.

And we hope to continue that growth as that really is the franchise value of the company.

On the credit side, we discussed credit at the beginning of the presentation.

Needless to say the numbers, which were good to begin with have gotten even better.

The per year loan provision we took at $1.18 million.

It's not really reserve release, in my opinion.

Based on economic factors, rather a indication of overall portfolio improvement.

The hard work of our credit team, $275 million of loans were upgraded and $40 million of nonaccruals paid off.

This is accomplished through portfolio sales, use of Fed's main street lending products, successful execution of lending exit strategies.

We continue to cull the portfolio for cracks, the understanding that your first loss is your best loss.

We always look good on recovery.

I'll now turn the call over to Dave, who's going to provide some additional detail on other income, expenses and taxes.

Dave?

All right.

Thanks, Ed.

As usual, I'll briefly touch on the significant noninterest income and noninterest expense sections that had changes from the prior quarter.

Starting with the noninterest income section, our wealth management revenue increased $1.8 million to $26.8 million in the fourth quarter compared to $25 million in the third quarter of 2020, and up 7% from $25 million recorded in the year ago quarter.

This revenue source has been positively impacted by higher equity valuations, which impact the pricing of a portion of our managed asset accounts.

Mortgage banking revenue, as Ed referred to, was seasonally strong due to the continuing low interest rate environment, but declined 20% or $21.7 million to $86.8 million in the fourth quarter from the record level of $108.5 million posted in the prior quarter, and was up a strong 81% from the $47.9 million recorded in the fourth quarter of last year.

The company originated approximately $2.4 billion of mortgage loans for sale in the fourth quarter, a record, up from approximately $2.2 billion in the prior quarter and up from -- substantially from the $1.2 billion of loans that we originated for sale in the fourth quarter of last year.

The decline in the category's revenue from the prior quarter resulted from, first, a decrease in the value of the mortgage servicing rights related to the fair value model assumptions of $5.2 million in the fourth quarter as compared to a decrease of $3.0 million in the prior quarter and a drop of approximately $500 million in the pipeline of mortgages being originated for sale, including a reduction of approximately $200 million that the company has earmarked to be originated and held for investment during the first quarter of 2021.

The company is required to record the value of a mortgage-related derivatives related to loans in the pipeline at quarter end that are estimated to be -- to close and to be sold.

As such from the pipeline of the loans declines, the revenue declines accordingly.

Similarly, if the pipelines of loans for sale increases, then we would see associated increases in net revenue.

So the reduction of the pipelines by $500 million sacrifices revenue in the current quarter and, as Ed mentioned, that revenue should be recognized for net interest income going forward.

Likewise, we retained $192 million of mortgage loans on our balance sheet in the fourth quarter and we also sacrificed the revenue on those loans in the current quarter.

But again, should recognize the revenue through the margin going forward.

So approximately $192 million that we kept on the books and $200 million that was in the pipeline as we sacrificed the revenue on the current quarter for the benefit of future quarters.

While the mortgage revenue declined, it remains a very strong quarter for our mortgage banking business.

We currently expect originations in the first quarter to be very strong, again, due to the continuation of the refinance activity and a strong committed pipeline.

Table 16 of our earnings release provides a detailed compilation of all the components of the origination volumes, the mortgage servicing right capitalization, servicing costs, et cetera.

But again, a record quarter.

In total, we recorded or originated $2.5 billion of loans that closed, either for sale or that we kept on our balance sheet.

Other noninterest income totaled $19.7 million in the fourth quarter, up approximately $6.4 million from the $13.3 million recorded in the prior quarter.

The primary reasons for the higher revenue in this category included $901,000 of higher swap fee revenue and $2.6 million of higher income investments in partnerships, which are primarily related to SBIC investments to support CRA purposes.

Additionally, BOLI income was up approximately $1.6 million from the third quarter, primarily as a result of $0.9 million of higher earnings on BOLI investments that support deferred compensation benefit plans, which were positively impacted by the equity market returns and also a $0.9 million debt benefit that we recorded during the quarter.

I should note that the $0.9 million of increase related to deferred compensation plan would show a similar increase in expenses.

So the amounts, in essence, offset each other between the other income and the compensation expense by $0.9 million.

Turning to the noninterest expense categories.

Noninterest expenses totaled $281.9 million for the fourth quarter, up approximately $17.6 million or 7% from the $264.2 million recorded in the prior quarter.

There are a handful of categories that account for the increase that I will focus on.

First, the salary employee benefits expense category increased approximately $7.1 million in the fourth quarter from the prior quarter.

The salary expense component of that category is up approximately $3.7 million.

The primary cause of the increase related to increased staffing to support the overall increase in mortgage originations and technology-related staffing to support our ongoing development of enhanced digital products and capabilities.

The reported amounts also saw the increase in the deferred compensation expense of a net $0.7 million that was impacted by the BOLI returns that I previously discussed.

Turning to commissions and incentive comp.

That category is up $3.9 million in the fourth quarter relative to the third quarter, with that change being driven largely by the additional commissions related to the higher amount of closed mortgages and slightly higher wealth management brokerage trading activity as well as a little bit of higher incentive compensation expense recorded in the fourth quarter.

You have to remember that the commission's expense on mortgages are paid when the mortgage loans close, and we had record closings in the current quarter that exceeded the prior quarter, where it's revenue is also recorded on the pipelines.

So a little bit of a disconnect there, but higher commissions due to higher closings.

Offsetting the aforementioned increases in employee benefits are -- was a decrease in employee benefits of approximately $520,000 from the prior quarter due to a slight decrease in employee insurance claims and a slightly lower level of payroll taxes.

Equipment expense totaled $20.6 million in the fourth quarter, an increase of $3.3 million as compared to the prior quarter total of $17.3 million.

The increase was due to increased software licensing expenses, including some increases related to online mortgage usage, PPP loan servicing enhancements, network upgrades to support our growth and digital enhancements and various other software upgrades as well as the write-off of certain software systems that had been retired early as a result of our implementation of new -- certain new systems.

We continue to invest in software and technology to enhance our customer delivery systems and products as well as invest in our systems to support our continued growth.

Occupancy expense totaled $19.7 million in the fourth quarter, increasing $3.9 million.

The increase was due to the $1.4 million impairment charge associated with the planned closures of the 10 branches that Ed referred to, increased real estate tax assessments from the prior quarter and higher level of utility charges.

Advertising and marketing expenses increased by $2 million in the fourth quarter compared to the prior quarter.

This was primarily related to increased digital advertising campaigns and community impact and sports sponsorship spending as various community-based and sports venues have begun to increase their events again.

In summary, if you look at this and add up the components, there was roughly $11 million of the increase relates to mortgage activity, including $6.6 million of an additional earn-out on the mortgage acquisitions we had and roughly $4.5 million of increased salary and benefit costs for the record level of mortgage closings during the quarter.

So we would expect that to decrease in the future quarters as the pipelines are down and we believe we won't have any significant additional contingent consideration going forward, and we have the $1.4 million of branch closures.

So between those items, that's roughly $12-plus million of expenses that were related to the mortgage and our branch closures that we would expect to decline in the future quarters.

So other than those expense categories, no other expense categories had any significant change from the amounts recorded in the third quarter.

Ed mentioned that our net overhead ratio was 1.12%, it was up slightly from the third quarter.

But on a year-to-date basis, the net overhead ratio was 1.05% and down 52 basis points from the 1.57% recorded in 2019.

And with that, I will throw the discussion back over to Ed.

Thank you, Dave.

2020 was a pretty interesting and challenging year to say the least.

In some respects, it's very rewarding here.

That being said, it would be nice to return to some degree of normalcy.

We always in our -- in the company, we -- our mass got a Sisyphus.

And remember what Sisyphus -- I think I said this before in earlier calls, had to push to rock up the hill every day, and every night it would fall down and they had to push it up the next day.

On 12/31 every year, I tell everybody, listen for the rock falling down, we got to push it back up.

We're well on our way to pushing up this year.

I think we're very well positioned.

We started 2021 in a very good place.

We have to take what the market gives us and we need to grow through this low interest rate period, invest in a way that maintains an above normal interest rate sensitivity position and teams are always conservative credit standards.

Earlier, we discussed all the levers we're pulling to increase earnings in the margin.

Loan pipelines remain strong and PPP round 3 give us an unexpected lift for the year.

We continue to cull the portfolio for problem credits to improve on our already stellar credit statistics.

We also continue to find -- we will also continue to find other cost-saving ideas.

However, we're always going to invest in the business, not to do so to be absolutely fatal.

Capital levels remain at more than adequate levels.

The expansion front, number of new branches plan for the next 24 months into areas we do not currently serve.

On the acquisition front, we continue to search out deals in all areas of our business.

The recent rebound in our stock price, we would now have a currency to use in deals.

Remember how much we abhor dilution, so it's nice to get a little bit of currency back.

You can be assured of our consistent conservative approach potential deals.

I'll say -- I wanted to end by saying, 2021 marks our 30th year in business.

On December 27, 2021, we will hit the 3-year -- the 30-year anniversary opening our first bank.

Came a long way from the car tables and beer, 1,100 square feet and 11 employees.

We've never -- but we've never lost the sight of our basic operating principles.

This has served us well.

It's kind of funny.

I think there's a reasonable chance that we could hit $50 billion at 30 years.

I can assure you that 30 years ago, this was never in our wildest dreams, but it's kind of cool, if you think about it.

As always, you can be assured of our best efforts.

We appreciate your support.

Now we can go over to questions if there are any out there.

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

A question on the decision to put some mortgages on the balance sheet.

Can you just -- not critical of it, but talk a little bit about that decision strategically.

Why you did it?

What you're putting on the balance sheet?

And how far you want to take that?

Well, we're going to stay within that 10% to 15% GAAP position that we always desire, but I don't want to go and buy a bunch of mortgage backs, so 1.40% where I can get -- keep jumbo loans on the books at 3% to 3.25%.

I know it's got a payback of, call it, a year.

But why not?

We have put this liquidity to work.

These are very good deals.

The returns are pretty good on them.

We probably gave up between the $200,000 that we booked this quarter -- $200,000 next quarter, gave up probably $8 million in revenue to get your 4% production margin or -- $400,000 would be more than be -- a lot more, $16 million, maybe $13 million, $14 million, you want to add additional revenue this quarter, certainly would have kept everybody happy on the PPP front.

But it just makes sense that rather go out and do it that way, we can book them and put them in the margin and make some money as opposed to buying mortgage backs at half the price.

And Jon, as Ed mentioned, we're targeting maybe 10% of our production.

So it hurts a little bit, but we're not doing like half of our production.

But it still provides a long-term benefit and an earning lever to use going forward, although it sacrifices current quarter revenue.

Right.

Right.

Okay.

And then, Dave, just sticking on mortgage.

I know this kind of comes up every quarter.

But talk a little bit about maybe your near-term expectations for volumes.

And maybe this matters more than ever, but just remind us of your ability to accordion some of the mortgage expenses, if volumes do really continue to come down in '21?

And is that something we should be concerned about for the bottom line?

Yes.

So I -- we'll have to see where applications come in, but we -- the pipelines are down at $0.5 billion.

So if you look at that and say, between investments and closings, we did $2.5 billion, it will probably be $2 billion plus or minus as far as reduction in the first quarter.

And then quite frankly, we'll have to see what the spring buying season is like.

Second quarter could be more than that.

But I think, all in, including investments and presale, $2 billion plus or minus is reasonable.

So we still think it's going to be a strong quarter.

A lot of the increase in the salaries expense related to temporary contract workers, so that goes to your accordion.

Those can go up and down rather quickly.

And so I think we can accordion the expenses well and we manage for that.

We're focused on that.

Unfortunately, the pipeline and the production has been strong recently.

So we haven't had to do this.

It's more of an issue of do you have enough people to process record volumes of production.

And so we added this quarter to it because we did have record production (inaudible) quarter and record accordion.

So we do think we can accordion well.

We do think the volume will be strong in the first quarter, not quite as strong as $1.5 billion all in closings we did this quarter, but still historically a very strong quarter.

Our next question comes from the line of Terry McEvoy from Stephens.

Terry?

Yes.

Can you hear me?

Now I can hear you.

Okay.

Sorry about that.

My apologies.

Maybe start with the net interest margin.

Could you just talk about the outlook for the margin with and without kind of PPP fees?

And then a couple of times, you've mentioned that 15 to 30 basis point margin expansion as you kind of redeploy that excess liquidity and just over the next 12 months, the opportunity to achieve that NIM expansion through that event?

Of course, it will depend really on loan growth.

And deposit -- well deposit costs will have room to come down, that's going to happen.

Loan growth is going to happen.

But what it really depends on is we figure we could put $1 billion to $1.5 billion worth of work in the investment portfolio.

We're going to lag that in though because rates seem like they're going up, and why put it all on now.

Why not hedge or bet a little, I mean things do go up before they go down.

So I think you got to deal with those numbers we gave you.

It's going to -- it may be a little bit more staccato than you'd like, but we'll take advantage of what the market gives us.

And I think that next quarter, you should start seeing some benefit of it, depending on where LIBOR goes.

And we think we'll be in pretty good shape.

But I can't give you more than that just because I gave you all the tools, the levers we're pulling.

It's just a timing issue and we gave you the ranges of where it's going to come.

But I don't want to be -- I don't want to be totally specific because it's all a function of where market rates are, where we think they're going and we don't want to lock in this margin, but we do want to leave room for expansion.

So like today, I think we've put about $600 million to work, and that's a fair number in the first quarter and it'll roll to work in the first quarter.

Of the $1.5 billion, we think we have to play within the investment portfolio, and we'll see where it goes from there.

Dave, you got any other comment on that?

Yes.

Well, the thing I would say, Terry, is that I think the margins basically bottomed out, though.

It went down a few basis points this quarter, but we had significant liquidity come in again.

So that you're earning 12 or 13 basis points on.

So the barring additional significant liquidity coming in, which I think might have a little pressure if that happens.

But we think the margins really bottomed out and the margin goes up from here as we do the intents that Ed talked about.

And PPP loans will -- the new PPP loans will come in to help offset the runoff of the old PPP loans.

And we're -- I think we're in pretty good shape.

And I think the margin has really bottomed out here and barring some big swing in the curve environment, now that would be negative to us if the curve flattened even more and went inverted, but we don't expect that.

We think the margins bottomed out, and we have lots of leverage.

I think that's one of the great stories that we have here is we have a lot of liquidity that can be put to use and there's an earnings lever there.

And we believe we bottomed out.

And now it's just trying to time how and when to put liquidity to work.

And then just as a follow-up question, the advertising and marketing costs lower this year because of just the pandemic, and I believe earlier, you mentioned stadium, sporting events starting to open up again.

Could you just talk about kind of your thoughts for 2021 on that line?

I don't want to be surprised, assuming they go back to more normal levels, which a year ago in the fourth quarter was $12.5 million?

Yes.

Well, it just all depends on when people are allowed back in stadiums.

We cut deals when no one's in the stadium, we shouldn't have to pay as much we paid in the past, tickets and -- ticket issues and the like.

But with the onset of the -- being able to go get the shots, I think by June or July, you're going to have people in there.

So I don't know if it's going to be as high as it was in our highest years.

We're still obligated to pay it if it is, but I just don't think you're going to have fans in the stands for half the year, in which case, it'll be less.

What can I say?

I mean just follow the baseball.

Baseball is our biggest cost.

And if there aren't fans in the stands, we don't have to pay as much.

And the basketball, same thing.

We still -- we have Northwestern, Marquette and DePaul and with no fans in the stands, we don't have to pay as much.

So because they're playing, it will be more than last year, but less than our high points.

Does that make sense?

Our next question comes from the line of Chris McGratty from KBW.

David, I just want to go back to the question on the mortgages you put on the balance sheet.

I've seen some of your broader peers do similar strategies, buying -- they bought loans out of the warehouse.

I'm wondering if the -- if you could speak to the credit characteristics of these loans that are being put on?

Murph, you want to do that.

Why don't we let Murph do that.

Yes.

Chris, it's -- as you probably have seen from other banks right now in credit quality through our bank and also through our warehouse customers is really never been better.

I mean, if you look at average empirical scores, I mean, things -- the buys obviously got tighter over the last number of years.

But what we're seeing right now is just outstanding credit quality.

So I feel very good about holding these on our balance sheet.

And these are -- are these conforming?

Are these some -- you said the jumbo, are they prime or there sort of alter characteristics of it?

No, these are all prime.

Prime jumbos.

Okay.

Cool.

And then just another question tying growth into capital.

I guess I was positively surprised you bought back stock in the quarter.

Maybe you could speak to expectations going forward.

I've always kind of viewed yourselves as more optimized capital versus massive excess, but interested in your thoughts, put the pandemic easing a bit?

Well, we really like -- we don't like dilution at all.

We love the accretive aspects of what we've done to date.

I mean being able to buy below tangible book value.

And in terms of helping earnings, it all worked.

I know the stock price up, it's a little tougher, but you never know with what's going on in the world.

If it go down again, we're prepared to buy it back.

We hate dilution, we abhor dilution, we want to be accretive.

So as long as it makes good sense, we'll buy some.

We still have some capacity to buy now.

The existing authority, Dave, how much do we have?

Yes.

So our initial authority was $125 million, and we bought back $92 million to date.

In the first quarter of 2019, we did $37 million and then in the fourth quarter of 2020, we did $54.9 million.

So a total of $92 million out of that program.

So we have $32.9 million left that we could do.

But as that's a general -- we try to be opportunistic and by -- generally, our average price on this in the fourth quarter was $56 a share.

So we'll monitor the price.

We'll look at what other opportunities are out there for capital deployment as far as the growth and the like and play it by year.

And then maybe one more, if I could.

Obviously, there's a big merger in the midwest with Huntington and TCF.

Obviously, TCF Chicago is a little bit different.

But interested in any potential opportunities from dislocation, either from that or from Fifth Third, MB deal a couple of years back?

Oh, dislocate -- we love it when that happens.

Dislocation is our middle name.

With the Huntington deal, TCF was not that really that strong in Chicago with most of their locations being in grocery stores, not really our cup of tea.

Recall, TCF was -- years ago, was the fee king of the world and we don't play that game.

So really, those customers are welcome at our place, but I don't think they'll care, it's just going to be a product sort of thing.

And we'll see where that goes.

The other side, the disruption caused by Fifth Third buying MB is still ongoing.

And we've hired a number of their bankers and we're getting good business from them.

We actually started a new currency division that's coming from them.

It's a business indirectly and has been very directly in our previous group Dave and Murph and I were all involved with.

We were the largest in the Chicago Fed district in terms of handling these guys when MB bought the Corus, it was not -- they took it, Fifth Third didn't want it.

So that business is up for grabs.

We hired good people from them, very profitable business.

So it's not just the business you pick up, it's the lines of business you can pick up, too, which is kind of interesting.

So disruption is good.

There's recently announced $1.2 billion local bank when a market we compete being bought by a downstate Illinois bank.

That will be an opportunity for us.

So we love the disruption.

We love to take advantage of it.

Right now, we're excited about our prospects in the PPP world.

We really have -- the way our system works, opening up really before anybody else in the market with flawless execution, really goes from soup to nuts very quickly.

Actually, we're seeing a lessened demand from our customers now, trying to outreach the prospects and to -- well, we've always done from low to moderate -- the low-to-moderate side of the equation.

We're running local workshops to where people come in and actually do their applications with a proctor kind of there to answer questions and help them get through it.

But we think that the halo effect from the previous PPP 1 or 2, hopefully, will carry over into this one.

And our decks are pretty well cleared because of the efficiency and the hard work of our people.

Getting them cleared.

It's been awesome.

So we -- there's a lot of disruption, a lot of opportunity in the market.

As I said, our pipelines are extremely full.

It's coming from some place.

We're not making up, it's not expansion just by it.

But -- so we continue to take business from our competitors.

(Operator Instructions) Our next question comes from the line of Nathan Race from Piper Sandler.

Just going back to the last point on PPP.

I guess with the third round opening up here recently, what are your expectations in terms of volumes coming out of that over the next quarter or 2?

Well, we're already at, what I say, $1.175 billion.

I think that there's still some room there if it goes to $1.5 billion or $2 billion.

It gets kind of funky where we don't really open it up in general because of the broad aspects.

I think knowing your customer is important.

We have so many on the prospect list so that we do know for -- with 1 shape or form or another that -- we're now in the outreach.

We are calling people and ask them about it on the prospects, and existing customers, we think, are all who haven't taken advantage of it, prospects and certainly the low to mod.

We're working very hard on those.

So I would think we could be anywhere between $1.5 billion and $2 billion.

If we're $1.1 billion now, I think $1.4 billion, $1.5 billion on the low side, $2 billion on the high side should be a good number.

It just depends how long it goes and it's a restock given money or not.

SBA is being kind of funky on deals over $2 million or because if you -- if you never grew on the first one, for the second one, you go up to $10 million in this, if you want.

But there being kind of strange on the larger deals where they're pulling them in advance if it's a second round.

Murph, do you want to talk about that a little?

Yes.

You hit it right on the head.

The -- we're just getting some interesting feedback from the SBA as it relates to some of these larger borrowers.

I think there's going to be a heightened audit attention placed on these.

And with the transition going out of Washington right now, it's a little bit up in the air.

But generally speaking, I mean, I think as it relates to volumes, I mean, Ed's right.

I mean, we've seen a tremendous amount of growth early on in this latest round by those highly affected customers.

And it's obviously good from outstandings and some of the fee recognition.

But kind of most importantly, it's just we're seeing these customers who've really been pounded over the course of the last 10 months, getting some help here.

It's just -- it's really great to see just from just watching them and then watching our own portfolio.

Got it.

That's helpful.

And kind of changing gears along those lines.

You back out PPP, it looks like loans were up 10% year-over-year in 2020.

With onboarding more production on the residential side in 2021.

What are your kind of growth expectations in 2021 in keeping the mind the hires and so forth that...

Rich or Tim, can any of you take that?

What, yes, I would just say, just in general, we have -- our guidance has kind of been that mid-to-high single-digit growth over a number of years here.

And going into this year, I think we were thinking that it was going to be maybe one of the more challenging years to get that.

Fortunately, it's just -- we have so many different loan engines that we utilize and if you take a look at this year, we saw every one of them really have a pretty solid year.

So the premium finance group had just a spectacular year.

CRE had a good first half of the year.

C&I had a great second half of the year.

So it's really 1 of the benefits of having this more granular approach to portfolio growth.

So I look at this year coming up.

And based on the pipelines and based on the feedback that we're getting from the business leaders, we should be pretty much right back at that mid-to-high single-digit growth range.

So obviously, a lot depends on how the economy continues to rebound.

But overall, feeling pretty good.

Tim, do you have anything you want to say about that?

No.

I think Rich covered it, but we do believe the PPP process will continue to yield good prospects for us, and that will help us get to those numbers.

So nothing that, otherwise.

Yes.

But there are also things that they're -- as these shots start to -- I'm getting my shot on Monday by the way.

I'm an old guy, I'll get my shot.

So as that starts happening, there's so much pent-up demand.

I think it's going to explode.

You ever try to buy a refrigerator or any sort of hard asset right now, it takes forever to get it because inventories are so low.

You're going to see an inventory build coming up, they'll require -- we wouldn't even consider what's going on there, that will require probably more line usage.

Our line usage sits -- stay at 49% and 50%.

But I think you may see a little bit more coming with the -- but I think we're going to roar out of this in coming June and July when you get the herd immunity, if everything works right.

So who knows?

I think that, notwithstanding that we were going to be in high single digits this year based on all the information we have right now, but it's just going to enhance it, I think.

Okay.

Great.

And if I could just ask one more on expenses.

Just trying to curtail all those items that were discussed earlier.

The MBA is forecasting volumes to be down 20%, 22% of this year.

And with advertising spend, perhaps not likely to get back to full run rate levels.

And then you got the branch consolidations and closures.

And the contingent consideration perhaps going away entirely.

I mean, is it fair to expect expenses versus 2020 to be up low single-digit or flattish?

Any thoughts just overall along those lines?

Well, so a lot of it really depends on where that mortgage number comes out at.

But if you follow the MBA forecast (inaudible) then all else sort of being equal, it's probably mid-single-digit expense growth is sort of where I would expect it to come out because we do, do some salary increases, and we are growing, and we are investing in the digital improvements, et cetera.

So mid-single digits is about right.

I -- one thing to keep in mind is we did double up on the -- with the mortgage sales by keeping 10% of the books this quarter and taking 10% out of the next quarter, we had all the expenses and other revenue of that.

So a little bit wild there, too.

But I don't think expenses are as bad as everybody thinks they are.

Take the one-timers post a little move we made.

It's a timing issue with a lot of it, but we shall see.

Our next question comes from the line of Michael Young from Truist Securities.

Just wanted to ask maybe a kind of a higher level question.

You in the past kind of referred people to the net overhead ratio to kind of balance growth and investment with earnings and profitability.

Is that still kind of how you're thinking in managing the business?

Obviously coming out of kind of this fog of war, if you will, where do you think we can get to on that ratio, if that's still the right ratio to look at?

Yes, I think it is.

We're fortunate to have the more -- why we have the mortgage business.

Well, we invest in this for times exactly like this when rates go down, it can pick it up for us.

It certainly helps that overhead ratio.

If you look at almost equal what the run-off of the margin was.

But there'll be a period of time in there where we're going to get kind of an influx here, there'll be an influx, where the -- it's got to go up and the margin will be moved.

We hope to have the margin moving as fast, we shall see.

But we always said less than 1.5% was good.

We've lowered that down to 1%, but with our size, down about 1.35%, 1.41% -- 1.25% to 1.35% would be a good number for us in the budget, it's what?

Tim, do you remember?

Well, yes, we typically don't give out the budget numbers, but I think, in sort of a more normal mortgage market, I think, in the 1.30s is probably where we would think we could be, given the current environment.

We're better than that right now because mortgage is so strong.

But if mortgages fall off, then I think you probably -- we -- our target is 1.50% before we've grown so much.

We think that's probably in the 1.30s now.

Yes.

We would hope that if we were up 30 basis points, the margin goes up 30 basis points, too.

That's kind of the how we work it, you can follow the math there.

Okay.

And maybe just as a follow-up, you've kind of mentioned efforts to cut some branches.

You still have kind of the multiple bank subsidiaries.

Would there be any opportunities to consolidate maybe 1 or 2 of those?

I know you've used it as part of the wealth strategy in the past, and you haven't thought that made sense, but in this environment, have things changed at all there?

Everything is open.

But right now, we're very happy with where we are.

I mean that overhead ratio, if -- put it this way.

It's not just a cost issue because the costs are minimal.

As you think about everything behind the scenes is already consolidated and runs that way.

It's strictly a morale and marketing issue for us plus the ability to get low-cost deposits because of our ability to offer 50x FDIC coverage.

Would we consider merging some together?

Yes.

That would come, I think, with geographic expansion.

If we're going to move out of the Chicago area, which will probably we have to happen in the next 2 or 3 or 4 years, we probably would start collapsing charters here.

And I like the number 15.

It's nice to have people who know the markets, running their shops and feeling good about it.

So yes, we could do it, but I think it would be a function of expansion out of our current market area, where we'd want to keep a charter in the different area.

And we would -- it's just -- it'll be a function of growth really to get down to it, but nothing on the horizon now.

I mean we're growing awfully fast.

We're doing pretty well.

Credit is good.

Why would you try to screw it up.

At this time, I'm showing no further questions.

I would like to turn the call back over to Mr. Edward Wehmer for closing remarks.

Well, thank you.

We appreciate you all listening in today.

Get your shots, if you can.

I'll let you know how it goes for me.

They never bothered me that much.

But this is going to be an interesting time and interesting year.

I think you can see that we kind of have our hands around what we want to do, and let's see if we can get there.

But if you look at our history, at 10% PTPP growth and with our growth in low or historical 10-year growth in loans, you take it back 30 years and see the numbers are even better.

But over the last 10 years, we've got terrific growth in earnings and net book value and assets and deposits.

I put our results up thanks to everybody, anybody.

So keep the faith.

We will -- we're working on everybody's best behalf.

And everybody, we'll talk to you soon.

If you have any additional questions, feel free to call me or Dave or Murph or Tim or Dave Stoehr or Kate Boege.

Have a great day, everybody, and thank you very much.

Ladies and gentlemen, this concludes today's conference call.

Thanks for participating.

You may now disconnect.