Wintrust Financial Corp (WTFC) 2020 Q1 法說會逐字稿

Welcome to Wintrust Financial Corporation's First Quarter 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 actual results to differ materially from the information discussed during the 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 would now like to turn the conference call over to Mr. Edward Wehmer.

Thank you.

Welcome, everybody, to our first quarter earnings call.

I hope you are all isolated and well.

With me, obviously, are Dave Dykstra; Tim Crane, our new Wintrust President; Rich Murphy, Vice Chair and Senior Lending Officer; Kate Boege, our General Counsel; and Dave Stoehr, our Chief Financial Officer.

Kate Boege is very worried because we're all in different places, and her shock collar doesn't come that far on me.

So Kate, I will behave, I promise.

As you can see, we do have some additional Wintrust execs on the call.

I think it's important to get to know them better.

And I think there'll be a lot of questions arising just because of the times and what's going on, so I thought it better to have more reinforcements around.

The format will be, for the most part, as usual.

However, I'm going to try not to parrot what's already in the release to leave more time for the questions, and as I said, I'm sure you'll have a number of them.

I'm going to give some general comments regarding our results.

Dave Dykstra will turn -- will provide a more detailed analysis of other income, other expenses and taxes, back to me for a summary and comments and talks about the future, then we'll have time for questions.

Before I get into the details, I'd like to do a heartfelt shout out to what I believe is the absolute best crew in the banking business.

Case in point, a couple of cases in point, our crew has moved seamlessly to remote locations, while still being able to grow the bank and take care of our clients.

It's worked extremely well.

Our technology crew has done a wonderful job.

Also in 7 days, we stood up for a front-end portal for PPP from scratch.

We opened the portal, one of the only ones open on the evening of April 3, first day available, and it actually worked flawlessly.

The 2 weeks thereafter, with all working from remote locations, they processed 8,900 applications for $3.3 billion.

That put us in the top 15 of banks in the country in terms of total volume.

Median size of these loans was $85,000.

Our estimated fees to interest before round 2, approximated approximately $85 million.

Our decks are cleared for round 2. We already have close to 2,000 applications, another $8 million, $9 million in fees in there.

The applications, again, are in the lower area -- in the lower-end areas, so we know we're taking care of all of our customers across the board.

I couldn't be prouder of the team that's been able to do this.

At one point in time, we had a need for more quality control people.

We had 300 people volunteer.

People worked tirelessly all night.

The one guy they call the Wolf after -- if you ever saw Pulp Fiction.

He would get involved and he could scrub other banks' messes so quickly it was unbelievable.

Now on to our first quarter earnings.

As you can see, we made close to $63 million, down 27% from the fourth quarter, but for obvious reasons.

Our earnings per share were $1.04.

If you take our pretax preprovision, pre-MSR valuation income, it's over $150 million, which is almost a record for us.

It's pretty darn good in terms of core earnings, and that's before really any recognition of the -- probably close to $100 million that we'll have in PPP income, which will act as a reserve for us.

A cushion for us, we believe, for any eventuality that may come along.

Net interest margin held up pretty well, as we were able to drop our deposit cost rapidly.

We still have room to go there as indicated on Page 18, the press release.

The 5 basis point margin decrease was due to really a 4 basis point drop in the free funds ratio, as you would expect, as the overall rate environment goes down and the 1 basis point difference between the 12 basis point drop in earning asset yield, 11 basis point drop in liabilities.

Net interest income was essentially flat.

Really, one less day was offset by $925 million in average earning asset growth.

We expect the core NIM, that being net interest margin without PPP effect, to drop to the levels previously disclosed in the past for future quarters.

However, the amortization of PPP, the terms of which are in question but no longer than 2 years and expected to be much shorter, will have a material positive effect on both the margin and the net interest income, even in the worst-case scenarios.

On to the provision of credit quality, adopted CECL so really, I think, is I picked the wrong quarter to quit sniffing glue, FASB certainly picked the wrong quarter to put CECL in effect.

We adopted CECL, the day 1 adjustment of $47 million, a first quarter provision of $53 million, which exceeded the fourth quarter provision by $45.2 million.

Our earning reserve was up $95 million from year-end to now to $253 million.

I'll leave it from here, as I'm sure you have a number of questions.

And on the CECL calculations, I'll leave that to our CECL experts who are here to answer your questions, but net charge-offs are 8 basis points or $5.3 million in Q1.

Credit quality remained relatively in good shape of the same period-over-period, on an apples-to-apples basis.

NPLs increased due to 3 factors.

First, the pool accounting for acquired loans went away with the adoption of CECL, adding about $35.5 million to the total.

Second, approximately $21 million of new nonaccruals were added to the normal course of business, the largest of these being an SBA loan, where we should get good recoveries, but we still have to put it in nonaccrual.

These assets have been marked appropriately and will be resolved relatively quickly.

Finally, commercial premium finance loans over 90 days delinquent are still accruing around $5 million due to state-imposed restrictions on canceling policies during the current crisis.

As you know, our commercial premium finance portfolio is regulated individually by all 50 states.

In the case of a crisis like we have now, many of them preclude you from canceling policies.

However, in the past, we only see minor tick ups because they will go back and honor the actual cancellation date, and most states are required to go back and honor that.

But -- so really, the insurance companies take the hit on that.

But we do expect a minor tick up in charge-offs, but not as much as you would imagine.

That's at least been the case in the past.

We had hurricanes, fires, 9/11, et cetera.

We have yet to see a material effects of the current crisis on our credit quality, the PPP loans, coupled with interest and principal deferrals, have been granted to our borrowers and other customers.

Regulators are really cooperating on this, and we believe that they should be able to weather the storm, at least by time for our borrowers, coupled with our highly diversified portfolio, and history of loan losses in troubled times vis-à-vis the peer group, we're cautiously optimistic.

However, at this point, it's a toss-up as to if and when the stress will appear in the portfolio.

With our expected core earnings augmented by PPP earnings, adequate reserves and capital, we feel adequately situated to take on whatever comes our way.

I look forward to your questions in this area.

Dave's going to cover our other income and other expense in detail, but I'd like to -- suffice it to say that it's been a great mortgage quarter, notwithstanding the $10.4 million mortgage servicing valuation expense.

I might be jinxing this, but I think they can't go down much more.

We have to be close to a bottom on mortgage servicing rights.

And our net overhead ratio was 1.33%, down 20 basis points from fourth quarter '19, more than made up for the drop in the net interest margin.

On the balance sheet front, we grew total assets to $2.2 billion.

Average earning assets were up $925 million.

Our loans were up $1 billion.

Rich Murphy will take you through the core of that, but half of that was probably related to the line draws, which happened very quickly, we've seen abate, at least the initial fear of everybody's going to draw their lines has kind of abated a little with the work of the government and other opportunities.

The rest is across the board, and we're happy to break that out for you a little bit later.

We started the quarter with $870 million of loans where the period end exceeded the average, so we're going to start with a head start in the second quarter.

That does include the PPP loans, which is, as you know, are, now with round 2 coming on, would be close to -- we've funded about $3.3 billion, and we'll have about $3.7 billion up to $4 billion depending on how quick the window closes on round 2. Deposits grew $1.3 billion in the quarter.

We feel very good about our liquidity position right now.

We will be able to take advantage of -- we had good liquidity to begin with.

We had bulked up in anticipation of what was going on, with our MaxSafe loans where we offer 15x FDIC coverage because of our 15 charters and other wealth management opportunities, including CDEC, which we expect to slow down a little bit, but still have $1 billion of CDEC [which] deferred exchange money at the end of the quarter.

So we feel very good about where we are.

Our loan-to-deposit ratio is 90% and it will obviously go up with PPP loans, but between our liquidity and our ability to take advantage of the Fed's lines related to PPP, we feel very good about our liquidity and where we stand right now.

So all in all, we feel comfortable with our balance sheet.

Our loan pipelines, believe it or not, remain very strong.

A bit of a halo effect coming on because of other banks dropping the ball on PPP.

We were able to pick up a number of prospects and customers, of new -- and just the word of mouth is spreading that Wintrust came through and our relationship-style banking really works.

So our pipelines are good.

We have to remember that good loans are made in bad times.

So we feel very good about where we are right now.

On the balance sheet side, we think we're well prepared.

I'm going to turn it over to Dave, who's going to provide some detail on other income, other expenses and taxes.

Dave?

All right.

Thanks, Ed.

As normal, I'll just briefly touch on the noninterest income and noninterest expense sections.

In the noninterest income section, our wealth management revenue increased $942,000 to a record $25.9 million in the first quarter compared to $25.0 million in the fourth quarter of last year.

And it's up 8% from the $24 million recorded in the year ago quarter.

Overall, we believe the first quarter was another solid quarter for our wealth management unit.

Asset valuations declining towards the end of the quarter may create some headwinds in the second quarter, but that trading volume is also fairly solid right now.

So we'll see how that comes out in the second quarter, but the first quarter was a solid quarter for us.

Mortgage banking revenue increased by 1% or $466,000 to $48.3 million in the first quarter from the $47.9 million recorded in the prior quarter and was up a strong 166% from the $18.2 million recorded in the first quarter of last year.

The company originated approximately $1.2 billion of mortgage loans for sale in the first quarter of 2020.

This compares to a similar $1.2 billion of originations in the prior quarter and $678 million in the first quarter of last year.

The increase in the revenue from the prior quarter results primarily from $17.4 million of derivative income associated with the mandatory commitments to fund mortgage originations compared to a $1 million derivative loss on similar activity in the prior quarter.

That was offset by a negative MSR adjustment net of the hedging contract during the first quarter of approximately $10.4 million, and that compares to a $1.8 million positive MSR adjustment in the fourth quarter of 2019.

And we also had $5.1 million less of capitalized mortgage servicing revenue compared to the prior quarter.

I think we had 1 less sale of our loans during the quarter.

So there might be a little bit of a timing difference there.

The derivative income that I talked about really is associated with the surge of the refinancing activity, where we had mandatory commitments to fund approximately a $1.4 billion of mortgage loans at March 30 -- March 31, 2020.

And that's roughly $1 billion more in mandatory commitments to fund than we have averaged over the past 4 quarters.

So this hasn't really been a big adjustment in the prior quarters because of the amount of loans that we had mandatory commitments to fund were always fairly stable, around a few hundred million dollars, and it just jumped up by about $1 billion.

So a positive momentum in the mortgage business, and obviously, that pipeline bodes well for closings in the future quarters.

The mix of the loan volume originated for sale was -- that was related to the refinance activity was approximately 63% in the first quarter compared to 60% in the prior quarter.

So the refinance volume increased slightly during the quarter, and the pipeline is still predominantly filled with refinance applications.

We currently expect second quarter originations to be stronger than the first quarter, and that's a result of the continuation of the refinance activity and the strong pipeline.

Table 15 of our earnings release provides a detailed compilation on the components of the origination volumes and the production revenue and MSR capitalizations, pay downs and valuation activity.

The company recorded losses on investment securities of approximately $4.4 million during the first quarter primarily related to unrealized losses associated with equity funds that the holding company has investments in, which were initially used as seed money for proprietary mutual funds.

And as you all know, equities had big drops at the end of the first quarter so those valuations declined.

Other noninterest income totaled $18.2 million in the first quarter, up approximately $4.2 million from the $14 million recorded in the prior quarter.

Primary reasons for the higher revenue in this category include $3.9 million of higher swap fee revenue and $2.1 million of net gains related to sales of certain loans and leases, and this was offset by a $2.7 million of lower BOLI income as BOLI investments that supported deferred compensation plans were negatively impacted by equity market returns.

But I should note that the decrease in the BOLI income in the first quarter resulted in a similar decrease in compensation expense during the quarter.

So the net effect of that is washed out in total.

Turning to the noninterest expense categories.

Noninterest expense totaled $234.6 million in the first quarter, down approximately $15 million or 6% from the prior quarter.

A number of factors contributed to the decrease: salaries and employee benefits expense were down $9.2 million from the prior quarter; lower levels of advertising and marketing expenses of $1.7 million compared to the prior quarter; and we had $1.4 million less of OREO expenses; and we had $3.1 million of charges in the fourth quarter of last year that didn't recur related to the legal settlement charges, contingent purchase price payments and costs and terminating 2 small pension plans.

And then those aforementioned changes I just discussed were offset by $2.8 million of higher FDIC insurance assessments due to the rebates from the FDIC substantially subsiding in the current quarter compared to the prior quarter.

I'll talk in more detail about the major categories now.

The salaries and employee benefit expense category, as I said, declined by $9.2 million from the prior quarter.

The majority of the decline in this expense category related to reduced incentive compensation accruals, which were approximately $8.7 million lower than the prior quarter, with that change being driven largely by long-term incentive compensation programs, which are forecasted to be negatively affected by the impacts of the current economic conditions brought on by the pandemic situation.

Additionally, salaries expense were down by $1.6 million from the fourth quarter.

The primary cause of the decline was the $2.2 million reduction in deferred compensation costs that were related to the BOLI investments that I previously discussed.

And then offsetting those decreases were employee benefit expenses, were up approximately $1.1 million during the quarter due to higher amounts of payroll taxes, which tend to be elevated in the first quarter of the year.

Data processing expense increased by $804,000 from the first quarter compared to the fourth quarter of 2019.

This was due primarily to approximately $1.4 million of the conversion charges related to the Countryside acquisition versus only $558,000 of conversion charges related to the STC Capital Bank system conversion that happened in the prior quarter.

The additional operating cost to data processing related to the franchise also contributed to the increase.

For your information, we also expect to incur slightly more than $3 million of additional conversion-related charges in the second quarter related to the just-completed conversion of the Countryside Bank transaction.

And by the way, our teams did a terrific job of completing that this past weekend, given they were working in a remote work environment and social distancing requirements, et cetera.

So our first virtual conversion went off well.

FDIC insurance expense, as I mentioned, was up $2.8 million in the first quarter as a result of the assessment credits substantially going away.

We had roughly $200,000 of assessment credits yet in the first quarter of 2020, but we are essentially done with those.

I think we have a little less than $100,000 that could still be credited.

Professional fees decreased to $6.7 million in the first quarter compared to $7.6 million in the prior quarter.

Professional fees, as you know, can fluctuate on a quarterly basis based on the level of legal services for acquisitions, litigation, problem loan workouts as well as any consulting services.

This category of expenses came down from the prior quarter due to a decline in legal fees associated with litigation, collections and acquisitions.

The category also experienced a slightly lower level of consulting engagement costs.

And if you look at the professional fees over the past 5 quarters, it's averaged $6.8 million.

So the $6.7 million we incurred this quarter is relatively in line with our typical amount.

Advertising and marketing expenses in the first quarter decreased by $1.7 million when compared to the prior quarter.

The decline was primarily related to lower mass media advertising costs, which tend to be lower in the first quarter of the year.

We also had some media spending that was associated with various sporting events that did not occur due to the cancellation events -- cancellation of those events later in the quarter.

OREO expenses were actually negative by approximately $876,000 in the first quarter as the company recorded a gain of $1.3 million on the sale of a piece of OREO property and that gain was in an amount that exceeded the aggregate cost of OREO expenses and negative valuation charges on other pieces of OREO.

And the miscellaneous expense category totaled $21.3 million in the first quarter compared to $26.7 million in the fourth quarter of 2019, a decrease of approximately $5.3 million.

The decrease was impacted by approximately $2.7 million of charges in the prior quarter for legal settlement charges, additional expense accrued with contingent purchase price payments that did not occur in the current quarter.

And the current quarter also had a lower level of travel and entertainment expenses, as you can imagine, and a variety of other smaller fluctuations.

So other than those categories I just discussed, all other categories of noninterest expense were down on an aggregate basis by $19,000 from the fourth quarter of 2019, and so they were essentially flat.

The net overhead ratio, as Ed mentioned, stood at 1.33%, which is down 20 basis points from the 1.53% recorded in the prior quarter.

And the ratio benefited from strong balance sheet growth, strong mortgage banking results and lower noninterest expenses, and we would expect that net overhead ratio to stay well below the 1.4% in the near term due to the continuing strong mortgage market, the strong balance sheet growth, including the lending related to the PPP and the focus on expense control.

So with that, I will turn it back over to Ed.

Thank you, Dave.

You reminded me of the guy at the end of a mortgage commercial who talks really fast.

Anyhow, back to me for some summary thoughts and thinking about the future.

These are really crazy times.

I kind of feel like Bill Murray in Groundhog's Day (sic) [Groundhog Day].

In fact, my alarm clock, which is Alexa, will play -- at least she didn't turn on -- plays Sonny and Cher's I Got You, Babe every morning when I get up on purpose.

The quarter in all was really -- it was really a pretty good quarter, given the current environment.

As I said, the Fed -- we picked a hell of a quarter to adopt CECL.

I think that our -- we've adapted well to the current environment, as well as can be.

I think our crew is working extremely well.

Our ability to service our clients' needs as they write the PPP loans, credit modifications, new credit, will hopefully abate credit issues going forward, at least, the financial effects of those will.

We're not naive enough to think that there will not be some credit ramifications in this situation.

Past history, however, would say these should affect us less than our peers due to our portfolio diversification and our conservative underwriting culture.

[So] these losses will be a function of how fast we get back to work, earnings from PPP loans will provide a wonderful cushion against these unknowns.

Time will tell, but we feel pretty darn good about where we're at.

We said before the crisis that we need to grow through this low rate environment, which is exactly what we're doing.

Some of it we didn't anticipate, but our core growth, we anticipate to be very good.

We think our expenses will be in check.

Just think about travel and entertainment and no baseball season and save a lot of money there.

But again, I can't say enough about the Wintrust crew and our ability to ride this out and do it with our shareholder -- all our pillars in mind: our shareholders, our customers, our employees and the communities that we serve, and that you can be assured of our best efforts in getting through this crisis and continuing to build Wintrust in the solid way you know we've always done it.

With that, I'll have some -- turn it over to questions.

(Operator Instructions) Our first question comes from Jon Arfstrom with RBC Capital Markets.

I wanted to talk about credit, but I guess, first, Dave, you just talked about the revenue line pretax, preprovision.

And on mortgage, I just want to make sure I understand what you're saying.

You had the $17 million commitment, I guess, gain because of the big pipeline.

And I think you're saying that may or may not recur in Q2, but likely may not have the MSR headwind as well in Q2.

So it's possible to sustain this kind of revenue momentum in mortgage.

Is that fair?

Yes.

Well, I think the pipeline is still pretty strong.

So I think we're still going to -- it looks like we still are building the pipeline.

Purchase activity is going to fall off a little bit.

But we're going to probably close more loans in the second quarter.

So we'll have production gain there, but that will be offset by probably that derivative going down a little bit.

So I think we're sort of looking at ex MSRs.

It's sort of been a relatively stable revenue quarter, first quarter to second quarter.

Well the derivative will wash itself out, and then we'll have the regular gains from this quarter, especially with the hangovers from the quarter from booked -- from lock to a close.

Yes.

We expect -- usually, you don't have that much visibility going out, but the lock terms have lengthened out because there's so much volume.

So we think we'll still have a fairly decent pipeline on those loans that have mandatory commitments at the end of the quarter.

We'll have to see.

But -- so I expect that will be down a little bit, but then the actual gain on sale of a higher level of production that we sold will be up a little bit.

So probably offsetting to a great degree.

Yes.

Okay.

And then bigger picture, credit.

Ed, one of your comments, I don't know if this is for you or Rich, but if and when stress shows up in the portfolio, with the comment that you made, and I -- can you give us the Ed Wehmer view of kind of the near-term, medium-term portfolio of stress that you expect to see?

Well, I'll give you the 20,000 foot level, and Murph can kind of jump in, I'm sure, on some of the areas that you want to cover.

It's kind of like time is stopping for 2 or 3 months.

I mean, we're giving 2 or 3 -- we're given 3 month deferrals of principal and interest to a lot of clients.

Regulators are okay with that, tacking it on to the end.

It's not -- they don't become TDRs really until after 2 of those, really, 6 months.

The PPP loans that we have almost $3.8 billion of those out there to our clients and their clients alike, but the majority to our clients buys them 2 months of, a little over 2 months of breathing room.

The stimulus comes in and provides people a couple of months.

So if you figure it, I don't think you're going to see the stress until that if we can get out of this in 2 months, the stress will be mitigated.

If we don't get out of it in 2 months, you're going to have delayed stress that will come into the portfolio.

We're fortunate we don't have a lot of credit cards or consumer debt on the books, where things could do -- where things could get a little dicey.

But if you think about it, if a guy, if you have a mortgage and you give a 3-month deferral, that guy is okay.

And especially if they've got a PPP loan and is getting paid, it's put on the end, no problem.

If you think about a commercial multifamily guy, I need rent abatement, okay.

I need principal abatement.

So the whole world is stopping for 2 or 3 months, and I think that any stress that comes through is going to be a hangover at the end.

In the event that we can't get out, if it's going to take 6 months to get out of where we're at, then I think you're going to have issues unless the government comes in and provides more money into the system, which I think they'll do since they really have caused it, in a lot of respects, by the shutdown.

I think that they're committed to keeping this going.

And I think I don't worry about rates increase, but we worry about higher rates down the road and where QE is going to take the whole economy.

Murph, you want to get into some of the specifics on the hairier parts of the -- what are considered the more vulnerable parts of the portfolio by the community?

Yes.

I would echo Ed's comments to begin with.

I think that if we can bounce out of this pretty quickly, we have programs in place here that have helped our customers, and I think they'll respond accordingly.

But obviously, the longer it takes to get out of this and for customer behavior and the consumer behavior to really go back to normal, I think that's the big question that everybody's asking.

One of the examples I use is for -- we have a longtime movie theater operator in Chicago that we have a reasonably sized, not a big loan to.

But for him, you just ask the question, how long will it be before people want to go back into a movie theater?

And that's a good example of where the uncertainty is pretty big.

But as it relates to our high-impact industries, we brought -- we gave you a lot of detail there.

And obviously, the one that jumps out at you is the franchise portfolio.

Generally speaking, we think the franchise portfolio is in pretty good shape for a couple of reasons.

One is that we have mostly quick service restaurants that are 85% of that portfolio.

Most of those are still open.

Most of those are to really strong operators with good franchisors.

So we feel pretty good.

We also have seen a lot of those customers take advantage of some of the deferments and PPP opportunities.

So generally speaking, those are holding in pretty well.

But clearly, that is a large segment in the portfolio at just about $1 billion.

And it's obviously a very impacted industry as well.

As it relates to hospitality, and oil and gas and some of the other areas that are areas for concern, those are relatively small for us.

We have not typically played in those spaces all that much.

The oil and gas is really a function of some of the leasing work we've done over the last couple of years.

But I would just really go back to Ed's comments that right now, the diversity in the portfolio gives us a lot of comfort.

We generally pick very strong operators that we want to finance.

But the ripple effects and the length of those ripples, we just don't know right now.

So -- and time will tell.

And then just one small one.

The premium finance on nonperformance just kind of keep creeping up.

Is that administrative?

Or is there anything new there to be concerned about, Ed?

Yes.

That's what I was saying earlier.

What you have when you have these crises, and again, you're governed by each state through regulation.

So in Florida, whenever there's a hurricane, they -- you cannot cancel policies.

So what you've got is policies that are -- people haven't made their payments that would normally be canceled, you're not allowed to cancel.

Most of them allow you to go back and cancel them as of that date, the date that it would have been canceled retroactively.

You can't take your -- you can't lose, you've got business' insurance.

So you're going to see those creep up, as I said earlier.

You're going to see a minor tick up in losses really from maybe 20 basis points to 23 basis points or something.

You can go back and look whenever we've had those types of issues.

Now this is a -- not every state's done it.

I think maybe 20 states have done it so far, in terms of not allowing cancellations during this period of time.

But they always will let you go back and so, you get your principal back.

Maybe not all your interest or late fees, but you get a lot of that back anyhow.

So you're going to see those pop, keep popping up of a little bit until the crisis is over.

But again, it's not usually a loss situation for us.

Our next question comes from David Long with Raymond James.

Ed, as a fellow fan of Airplane!, I do have to commend you on your choice of remarks, the Lloyd Bridges' quote from the sniffing glue.

So do I get a prize for calling it out?

I kind of like The Wolf one better though.

So if you have seen Pulp Fiction, The Wolf is awesome, Harvey Keitel.

Indeed.

So anyway, I wanted to follow up on that -- on the premium finance business.

I know we -- you just talked a little bit about the -- seeing a bit of an uptick there, but the reserve levels in general are always very low for that business.

Life, I think you have a basis point, maybe 20 basis points of reserves on the commercial side.

Maybe just remind us why you can carry such a low reserve in that business.

And maybe give us an example of the situation, absent COVID-19, that you may or could lose money in that business.

Well, the life insurance business, knock on wood, we've never lost a dime.

So on the commercial business, I'll let Dave and Murph take you through that.

Yes.

So Dave, on the commercial business, generally, we're financing the commercial insurance policies for workers' comp, building coverage, liability coverage, whatever it is, and they're generally annual policies.

So we finance those policies by generally taking a percent down.

So 15%, 20% down is sort of a standard down payment.

And you finance those over generally 9 to 10 months.

I think our average is just slightly over 9 months.

So if -- your collateral is the unearned premium held by the insurance carriers, which are generally high-rated insurance carriers that we do business with.

So if that premium, which is your collateral, amortizes 1 365th or 1 366th in a leap year, per day, it amortizes away and earns out, that collateral is deteriorating on a daily basis.

But since you took 10%, 15%, 20% down on that policy, that's your initial cushion.

And since we pay that -- have that loan pay off monthly over 9 to 10 months, it -- our loan pays off faster than the collateral deteriorates.

So that's generally why you don't have losses in that industry.

Sometimes you could have losses if you take a lesser down payment, and you don't have as much collateral cushion.

And then if they don't make their payment, the states require you to generally give them a notice of time that -- to tell them that they've been delayed or defaulted on their loan.

And then you can cancel the policy.

So that may be 20 or 30 days depending on the state.

And so then your collateral continues to deteriorate during that notice period.

So if you cut your collateral position too short, then because you took less down payment, it may eat into your collateral enough when they default on their payment that you'd have some small losses.

And then there are losses sometimes from auditable policies, workers' comp, fleet auto, some of those policies are auditable.

And to the extent that the estimated premium on the front end was off a little bit from what the actual premium was when they audit the payrolls or the fleet size, then you could have some losses.

Those are the general reasons for it.

So -- and...

Since you'd have a potential fraud or insurance company going bankrupt.

In the case of a bankruptcy, we monitor the A.M. Best reports and have credit limits for each insurance company.

With 9-month full payout, it usually takes more than 9 months for an insurance company to go down, so we can stop doing business with them, and that mitigates it.

You can't have agent fraud, but we've developed a number of systems.

In the past, we've had some large ones, relatively large for our time, maybe $6 million, $7 million, $8 million.

We have not had one in a long time.

I think we're doing a much better job electronically of screening for those.

But knock on wood, we haven't had one of those.

So that's where you could lose money.

Now what I was saying is, Dave was talking about cancellations.

Now if they don't allow cancellations, you feel your collateral is going to run off.

But the cancellations that are allowing you to backdate, once we get through it, they always allow you to backdate to what it would have been.

The insurance company is the one who really kind of loses on that situation, but not so much because claims usually aren't that high.

So especially in something like this in terms of a hurricane and the like, maybe a little bit different, where they have higher claims.

But that's how it usually happens, and we've averaged around 20 -- anywhere between 15, 25 basis points normally on that, and that's how we come up with that number.

And again, Life, knock on wood, $7 billion, we haven't lost a dime.

So I think we're okay.

Excellent.

I really appreciate the color there.

That's helpful.

And then when it -- as it relates to the franchise finance side of things, you indicated that about 85% are quick service.

Are there any other of the remaining exposures that you consider much riskier?

Or anything that you can point there at the remaining part of that portfolio?

Yes.

I mean, the dine-in restaurants is really where I think you're going to be most impacted.

For us, that's about $150 million, all well-known names, but it's just -- obviously, they're the most profoundly impacted by this.

Many of them have taken the PPP loans from us or from other banks because many of these are syndicated deals.

And they've also gone for deferrals.

So again, it's a situation where, for a couple of months, they look fine.

And hopefully, they get out of this, and people start going out and eating again.

They'll be fine.

Everything gets pushed off and very logical way to look at it.

However, if it keeps into -- you don't get back to business until September, October, they're going to have some issues.

Got it.

And then just the last one and you kind of hinted on this, but if no one attends Wrigley Field this summer or The South, those are marketing expenses that I'm assuming you guys would not be spending?

That is correct.

Cubs, White Sox, you name it.

We would not be spending that money.

But I'd rather spend it, go to ball games myself, but...

Yes.

Likewise.

We actually have Cubs, White Sox, Brewers and some minor league teams around Chicago would not be -- we would not be paying.

That can be a significant amount of money.

Our next question comes from Terry McEvoy with Stephens.

I can't believe it took this long to ask a net interest margin question, so I'm going to ask one.

Just taking a step back, as you think about the second quarter, you have the full impact of the March rate cuts, but then you've got multiple more quarters of just lowering deposit rates.

So under that big picture view, Dave, does the net interest margin bottom out here in the second quarter, and then likely or potentially move higher in the second half of the year as deposit prices come down?

Well, if you're talking about the core net interest margin, yes, it would go down.

But remember, we're going to have almost $100 million of PPP fees when we bring it in, over 2 years at the longest.

But the shortest, it will be people when they go for relief of the funds because these are all -- every one of these can be -- it's for 2 months.

They come in 2.5 months, they can apply to the SBA and have them forgiven.

They're forgiven, we take the money upfront.

So in a worst-case scenario for 2 years, if we -- if the whole thing ran out for 2 years, the margin would be, okay, right around where it is.

If it comes in to people at the end of this quarter and beginning of the third quarter, get those -- get their funds, their loans forgiven, we have $100 million coming in during that period of time.

So that's going to positively affect the margin.

So the margin -- the core margin's going to end up, like I said, we're in the 270 to 280 range, somewhere around that based on where we are right now.

But the PPP loans are going to protect this, really, for 2 years or 1 year or some derivative between 2 months and 2 years, you tell me.

But they will help the margin and obviously help net interest income to grow nicely.

So between that and our growth, I would expect 280 and start bouncing back from there on the core side, but the PPP loans are going to be very helpful.

From the income side, they'll cushion any long-term credit issues we have but also from the margin standpoint.

Do you follow what I'm saying there?

I kind of drifted a little bit.

Yes.

I understand your thought process on PPP and how that plays into the margin.

Just thinking about the revenue related to PPP and what that can mean to building capital, I know you have the $85 million in the -- that you mentioned in the release.

And I just want to make sure that $9 million is just kind of what's in the pipeline.

My guess is you assume that grows and increases on PPP around 2. And then what are the expenses that we should think about related to PPP, just so we can calculate a bottom line impact that obviously will help your capital ratios?

I think the marginal expenses are absolutely 0, I think.

We set up the system on our own.

And these are people.

We had people from all over at-home who jumped in and helped them.

We didn't add much -- any outside vendor.

I don't think there's any issues related to it.

Can you think of any, Dave, or Dave Stoehr?

No, I think it's generally just the people issue with our staff that we already have on board that need clear out the back end.

You -- obviously, you have some minor data processing charges because you have more accounts out on the FIS system.

But it shouldn't be that much of additional expenses.

If any, really it'd be negligible.

And then just on the round 2 of PPP, you said $9 million.

That's going to be higher as we go forward.

Yes, well, Terry, right now what we have in the pipeline, we have $350 million, $360 million that will be waiting for retran tonight.

Once you get your retran, they're committed.

Related to that, it's about $9 million of fees.

That's rough numbers, because that's something now as you go through the process, which we will have done today on the current -- we should have done today on the stuff that came in.

We opened the portal last night.

There were some duplicates and the like.

So roughly around $9 million more and $350 million more, so plus/minus 10% maybe.

We'll know better at the end of the day.

But -- and then we may open the portal again once we get through that.

We kind of think that this next round is because many of the banks were not -- who dropped the ball on this.

They have a number of customers that are waiting.

What Chase said, $26 billion come in, they only funded $14 billion or $12 billion, which means they have $14 billion they're going to hit the new allotment with.

We had 98% of ours all the way through the process in round 1 to be fully funded today.

The other guys didn't.

So they're going to -- this is going to last maybe 48 hours at the most.

So we have to be very -- in this next allotment, we have to be very careful we don't overextend it and leave the customers hanging.

But we think we can get these through and plus/minus 10%.

Whether we get any more on top of it will be a function of where we sit at the end of the day in terms of our production and where we are in our manufacturing process, if you will.

Our next question comes from Michael Young with SunTrust Robinson Humphrey.

I wanted to start just with the CECL reserve.

It's a little lower than peers, and I understand there's some mix benefits from the premium finance book.

But can you just maybe talk about kind of the economic assumptions that are currently underlying the adjustment you made this quarter?

And any kind of outlook going forward from here and into 2Q on the need to continue to build this reserve?

Well, we put in the slide deck what our macroeconomic scenario factors are, the ones that are the key drivers for our models.

So it's -- some of the credit spreads, the commercial real estate price index fees, the GDP growth, et cetera.

So those are the ones that impact our portfolios the most that have the best correlation and then will work best as you look back through cycles.

So those are the factors that most impact it.

But I got to tell you, I was reading some of the sell-side analyst reports last night and I thought was reading like Goldilocks and the 3 Bears.

Some people thought that I had too much.

Some people thought we had too little, and some people thought we were just right.

So I'm not sure that as I look out there, you may have a different view, but it seems like to me, we're more towards the top of the bell curve, and there's some outliers on either side.

But as you said, our mix with premium finance loans, I think, helps that out quite a bit.

And I think our diversity helps that out quite a bit.

So we think we're comfortable with where the CECL reserves are at.

It's substantially more than what our run rate was if you look at the total reserve build.

And right now, we're comfortable with where it's at.

And we've gone through all the business lines.

We've done all that heavy lifting.

There's more stimulus that's coming.

That hopefully should help, et cetera.

So I don't know if you can look into your crystal ball any better than or anybody on this call or us and know how long this pandemic's going to last and what the lasting effects are.

So I'm not even going to take a shot at Q2 reserves.

They could be higher, they could be lower.

But we'll have to see how quickly the economy reopens and how quickly things start getting back to normal.

Our view is probably, it's not a V shape.

It's not a complete U shape.

It's probably someplace in between there.

I've heard like every letter of the alphabet.

It's probably like a G shape, some goofy shape out there, but -- that nobody's talked about.

But we're monitoring the portfolio well.

We're managing it well.

We had a credit team that I'd put up there with anybody, and we'll see where it goes.

But I'm not sure we're going to try to make a prediction on 2Q.

I mean, it could be better, it could be worse.

As Ed said, it's just what a time for CECL to come in.

It is not transparent, I think, looking company to company.

But if you look at some of the metrics that I've been looking at, it seems like we're sort of in the middle of the pack, and we certainly didn't try to do that.

It just seems to be where we're landing, and I understand people can take a more -- a dark view of where this is going, and some people can take a more favorable view.

But we took what we thought was the best reasonable view that we could using our modeling and our subject matter experts on the credit side, and we think we're okay for now.

And maybe just following up, I appreciate the breakout on COVID-impacted industries specifically.

But also just wanted to get some high-level thoughts on commercial real estate and construction, particularly retail and just kind of any mitigating factors that you guys are looking at or any portfolio analysis that you've done thus far?

Go ahead, Rich.

Yes.

I mean, CRE is a bit of a wildcard.

I mean, we've spent some time kind of thinking through what it might mean.

We're pretty well diversified in the CRE book, multifamily being the largest segment.

In multifamily, generally speaking, it's Chicago Metro.

It's -- it performed very well, very good, longtime operators.

I think that that -- I'm feeling pretty comfortable about that.

Industrial is a decent-sized portfolio for us.

I feel pretty good about that.

I mean, obviously, the overall business impact will determine ultimately how that performs.

The areas that give me the most concern is retail and office.

I think office because I think that this work-from-home model that we've all adopted is something that we really won't know what it's going to look like a year from now, 2 years from now, 5 years from now, but it's going to be different and how that impacts our portfolio, it remains to be seen.

That being said, again, we tend to be very granular in those deals, and we tend to really pick very strong operators.

So again, I'm feeling okay there.

Retail is the segment that probably concerns me the most in general.

We, as we've said in the past, our approach towards retail has been to really try to reduce that portfolio over the last 5 years, which we've been pretty successful at.

But where we do have exposure, it's none of the big box -- I shouldn't say none, but I mean, very little of the big box, regional-type retail exposure, where our -- the great majority of our retail exposure exists is in the towns and communities that we have banks.

And so these are the downtown suburban-type operators, and I think that they are still going to be viable operations going forward.

But I don't know when.

But generally speaking, I feel that that's going to rebound better than most.

But it is one of those with that, i.e., people are shopping on Amazon, and the numbers are obvious but dramatically higher levels.

And I don't think that you're going to see a reversion back to what we had seen in the past.

I think those people shopping habits are going to change in a pretty meaningful way going forward.

Yes, Murph and I talk about that a lot.

I say, "You're going to keep my wife out of shopping, you're crazy." And you're going to keep me here or at the office?

I'm going to the office.

She'll kick me out.

So there's a lot of schools of thought we have to wait and see.

But I think as Murph says, we're diversified enough, know our borrowers enough.

I think we will know 2 -- everybody's bought 2, 3 months with PPP loans, with deferrals and the like, even in offices and what have you.

We'll know in 2 to 3 months how this is going to shake out, where it's going to go and how it's going to work.

So I think that we're kind of in limbo.

We've got to get out of this, and then we'll see if all this happens.

But we'll be very cognizant of it.

Already in any underwriting we're doing where some of the new stuff is coming, we're very cognizant.

But we'll be very careful for sure because good loans are made in bad times, but you have to have a better crystal ball of the type of assets that you will take as collateral.

Our next question comes from Chris McGratty with KBW.

Question, kind of a high-level question.

In the past, you've talked about the rope-a-dope and not the need to go there.

What would it take for you to pivot?

Is it this 2 to 3 months and we don't get the outcome we're looking for?

I'm just interested in your thoughts, and what might pivot the bank's strategy more significantly?

Well, the rope-a-dope before was really brought on by 2 things.

One is we couldn't get paid for the risk we were taking and so we didn't meet our profitability models at pretty much any deal out there.

And secondly, we were seeing way too many critical exceptions to loan policy, and we just said we're not going to do that.

We have not -- spreads are actually moving up on the lending side, which is a good thing.

So we are meeting our profitability models there.

And we are very closely monitoring exceptions.

That's something that could slow us down a little bit if it's -- in terms of making new loans and the like, as if guys are coming with too many exceptions.

But I think we're seeing people pull back enough that this may have -- it's sounds goofy, this may have been a timely crisis because we had started seeing people scrounging for yield as rates went down to 0 again and taking more risk.

But now this has brought everybody back, and now they're thinking, I think, more rationally about pricing and collateral and what have you.

We'll see when we get out of this if they revert back to the goofy stuff, but who knows.

Murph?

Yes, I would absolutely agree with that.

I think while it wasn't rope-a-dope in the back half of '19 and the first part of '20, we were having trouble really growing C&I opportunities because there were just a lot of people in that same space fighting at structures and pricing that just made no sense for us.

And the CMBS market was very active in the CRE space.

So -- and I would agree with what Ed said.

I mean, the market had gotten goofy and way too aggressive.

And this crisis certainly has snapped back those trends pretty dramatically.

What's pretty interesting for us is the kind of the halo effect that we got from our -- from the PPP work, where our competitors were unable to service their clients, and they'd call us.

And maybe we knew the owner, whatever, we had a personal account or what have you, or had some relationship with them, we're able to get them on and service them.

A large bank in town hardly did any of -- the oldest, largest bank that were our competitor didn't do any, I believe.

And that's opened up an opportunity for us to pick up really solid opportunities going forward and reasonable pricing.

So it could be a little bit of a godsend.

So rope-a-dope right now, who knows?

Well, we see opportunities for growth right now at our pricing, our parameters for good, solid, long-term companies that aren't in the higher impact risk areas that -- a lot of them are doing a lot of hotel loans right about now.

There were a lot of more restaurant loans.

But a lot of them are really solid other businesses that we're going to have shots at we never would have had before.

So kind of mix right now, but we're obviously very vigilant in terms of what's going on because as Dave pointed out earlier about CECL, who the hell knows where we're going to end up?

That's good color.

Just one more question on the PPP.

Obviously, the -- we're all trying to make our assumptions on where the economy's going.

But it seems like the banks are going to generate a tremendous, I think you said almost $100 million of fees.

I guess the question becomes -- I know you're bound by the models, but wouldn't it seem conceptually the right thing to do just to put this back into the reserve and make people feel a little bit better about adequacy for the industry?

Well, we got -- you got to go with the black box and see where it goes.

But I'm just saying that we -- who knows when that money -- that money could take about over 2 years, over 1 year, over 6 months.

I don't know when it's coming in.

I look at them independently.

The reserve will be what it is, and the PPP fees will be what they are.

And never the twain shall meet.

I don't think we have the luxury of playing that game anymore.

We've got to really look at the data and be consistent.

And we have committees that meet on everything from -- everything.

And so you really don't have a lot of Earth left in it anymore.

It's all going to be out of the box.

And we'll see where it goes.

But I would imagine that if things turn bad, if you can -- and your affiliate turns bad, you could do some qualitative things that would go over the top and match it up nicely.

Who knows?

You got to look at them independently is my point.

Yes, I get it.

Yes.

I got it.

GAAP is GAAP, Chris.

So...

GAAP is GAAP.

Yes, I was looking for the qualitative comment that Ed referred to.

So that's helpful.

Dave, while I have you, the tax rate going forward, how should we think about it relative to Q1?

Yes.

I still think you'd think about it sort of a 26.5% to 27%.

The first quarter, because the stock price was down so much, that benefit we usually get in the first quarter from stock-based compensation was actually negative a little bit.

The BOLI adjustment was actually negative a little bit.

So I think I still look at sort of a normalized tax rate to be 26.5% to 27%.

That's an effective?

Yes.

Yes.

Chris.

I have a question for you.

Can I ask you one?

Absolutely.

Why does our stock gets so beat up all the time?

I don't understand why we trade so much lower than everybody else at such a discount to peer.

Yes.

I think the market is -- a lot of the volatility in the stocks lately has been, I think, somewhat less fundamental and somewhat technical, but I agree.

That's why we're constructive.

Thank you.

Our next question comes from Brock Vandervliet with UBS.

Can you hear me?

Yes.

I was wondering, given your comments about the outlook and a number of banks I've talked about how their outlook squared with Moody's as Moody's is working on with so much of the industry and whether they'd use a base case or the adverse outlook.

Could you touch on that and what you consulted outside for kind of a reality check on the outlook?

Yes.

I mean, so we look at a lot of different things.

I mean, you look at the base case, you look at the severe, you look at the long end of the pandemic one.

We run the models on all of it.

We talk to our business people.

So we look at blue-chip, the blue-chip economists' models, and we look at the consensus Moody's models and -- but we have to pick.

At the end of the quarter, you have to pick a scenario and run with it.

But then you're informed by those other models that you run and the consensus, blue chips and the consensus and the blue-chip models that we compare and contrast against, and then we get the qualitative input from our business leaders.

So you don't -- you have to pick one to base your model off, but then there are qualitative factors that you had to layer on because at some point, you had to pick a scenario and run with it.

Because you can't -- Moody's was changing scenarios weekly almost for this thing.

So then you took some -- you ran some other models to find out where the guardrails were on the ups and the downsides, and then you square that with the business leaders that have their fingers into the pulse of those scenarios.

And you run out the process.

So I'd say we were informed by a number of different Moody's models and other models out there.

Okay.

And in terms of forbearance, I saw the reference in the press release, I believe, in terms of it tailing off here in April.

Have you released a percentage on commercial and CRE deferrals that you did grant?

Go ahead, Dave.

No, I don't know if we have those.

I think we noted in the press -- in the release that we had about $300 million of outstanding balances for commercial and commercial real estate loans that we had some sort of modifications to.

And that's what we have right now, so.

Yes.

Those are ones that are actually booked.

There's ones that are going through the process that we're still evaluating, and we have not booked yet that will show up over the course of the next couple of months, but we don't have the detail on that.

Okay.

And...

And on our retail residential real estate mortgages, we sum most of that.

So we do, do a servicing portfolio, and then we have some in our portfolio.

We are tracking -- so far, we're tracking better than the MBA averages that they're putting out there on that.

I have.

Are we, Dave?

No.

Well, the numbers are sort of -- our numbers are a little more current than the MBA numbers.

So I haven't seen the most recent MBA ones, but we are better than the MBA average on that.

Our next question comes from Nathan Race with Piper Sandler.

I want to ask a question on just updated thoughts on capital planning and priorities.

Obviously, with total risk-based capital coming down 30 basis points or so sequentially, and I obviously understand some uncertainty to kind of project what credit costs are going to look like, but just curious to kind of get some updated thoughts on capital deployment priorities, and how you guys kind of see capital levels trajecting to the extent you can kind of predict it, just given all the uncertainty that exists today?

Well, I mean, we look at our capital levels all the time, and we go through stress analysis on them.

The PPP loans are going to be capital-free from a risk-based perspective.

So that's not going to impact us.

It's going to be short term in nature anyway.

We still are generating positive earnings this quarter and expect to do so going forward.

And we suspended the share repurchase, but that was prudent to do.

I still believe the dividend is appropriate, but we'll let the Board of Directors decide that as they move forward.

But we continue to think capital is adequate.

We would look -- I mean, if we continue to grow or there -- we have these opportunities that talks about, and we have growth opportunities out there, and the equity markets opened up, we could look at some preferred or some sub-debt.

But it's not critical that we do that right now, but we're always watching those markets because we do expect to continue to grow.

So.

Yes, we won't be spending a lot of cash on acquisitions where our stock price is.

You can't have -- it doesn't make much sense.

So I think that Dave laid it out nicely, our growth did look good at zero-based risk ratings.

And we keep a close eye on the whole thing.

And we do -- we run more stress tests, I think, than most people do.

And we feel very comfortable where we are right now.

But it depends on our growth prospects other than the non -- the zero-based risk rating stuff.

So we feel very good about where we are, and we'll -- that's where we are.

Understood.

That's helpful.

And speaking of stress tests, I think when you guys last submitted DFAST in 2017, you guys indicated that you could have 2.8% cumulative losses in a severe adverse scenario.

So I guess I'm just curious, as you guys have kind of stress tested the book more recently, I mean, any kind of thoughts or guidance in terms of kind of what you guys could see in that kind of adverse scenario under the current circumstances that exist today?

No, we haven't disclosed that, Nathan.

So I mean, people can look at that stress test, but that was -- I'm not sure you can compare that -- any environment to this.

I mean, it may be a good environment as your best one to look at, but we haven't disclosed the stress test a couple of years either.

And to give you something on this call like that, we'd have to give that more thought because we haven't done a DFAST stress test per se that we've made public so far.

So we do them internally, but I don't have the numbers other than to tell you right now that we believe with a tremendous amount of stress as we see it that we're fine.

Yes.

I think from a general statement though that we do stress the portfolio, and we feel that right now, we're in pretty good shape.

Understood.

And if I could just ask one more on PPP.

I appreciate all the disclosures in the deck notes that you guys have funded relief through the PPP for, call it, 15% of those select high-impact industries.

So I'm just curious based on the pipeline of PPP loans you have, where do you expect that number moving forward in terms of providing that added cushion for those selectively high-impact industries?

Well, most of them were done in the first round.

For our clients, most of them were done in round 1. But going forward, we're actually -- we've actually been reaching out into the neighborhoods to low to moderate neighborhoods to people who say they can't get to the loans and really reaching out to our customers and say, "Hey, come on, we'll get you in." Because we really have the system nailed and feel we're in pretty good shape.

So we basically had the portal open from now 4.5 hours maybe in total.

In total, we've taken in over 10,000 applications.

So we tried to -- we close it for a little while to do some direct work to make sure that we covered people who maybe not have been as fortunate to be there.

But to have their data and understand what it is, we've really reached out to do that.

Because -- but really, when you think of it, most of the guys who were in our troubled and severely impacted industries were the first guys in.

They're not dumb.

They're very smart people.

I will say that you might ask what motivates our people to do this.

And I think we've had a number of great notes from people.

And if you think about it, we're going to keep 10,000 businesses from probably bankruptcy in a lot of cases.

You think that they each have maybe average 30, 40 employees, that's 400,000 people.

They all have 4 -- on average, would have 4 dependents.

That's 1.6 million people that were affecting, and we let sleep easier at night because for 2 months, they're going to have their salaries, their benefits.

And that's what kept our people working until midnight, 1, 2, 3 in the morning is doing the good we're doing.

And how often do you have a chance to touch that many people in your life, much less than 2 weeks.

So we feel very good about what we're doing here.

We think we're doing our contribution.

And as it relates to the impacted industries, they went right out of the box.

Now we have to make sure those who really don't get it are getting it.

So that's what our focus has been in the last rounds.

I would add that from the release date through 4/20, which does not include this Phase 2. We're up about another 15% to highly affected industries.

(Operator Instructions) Our next question comes from David Chiaverini with Wedbush.

I wanted to ask you about expenses.

So in the past, you've mentioned about keeping the net overhead ratio below 1.5%.

I think I heard you mention that it should be well below 1.4%.

So I was wondering, is that the new bogey now, less than 1.4%?

Did I hear you right?

Yes, you heard me...

For the bogey, you get it, but 1.5% has always been the side of a well-run bank.

And I think that with our growth and what's going on with our asset growth and our expense control, based just what's going on here in terms of our inability to open branches and do things like we normally do right now for the rest of the business, plus the mortgage markets and how well we're doing there, I think that, yes, you should be well below 1 40.

I think you could be -- could even make it below 1 30 if things go right.

But the bogey will always be 1 50.

1 50 or better.

We're not changing it yet, but I think you can expect it for the next few quarters to be below 1 40 and it's been in the 1 30, 1 40 range.

And hopefully lower than 1 30 if we're good.

Yes, I think that's what I said in my comments, where with the growth of the balance sheet related to PPP and the strong mortgage markets and the lack of some of the expenses that are going to flow through just due to the situation we're in, travel, entertainment, some of the sponsorships of some of the summer events, et cetera, we should be below 1 40 for the time being.

But I agree with Ed that the general target in a normal environment is still sort of below the 1 50.

But yes, I did say below 1 40 because I think in the near-term quarters, that's still going to be the case.

Great.

And has your de novo outlook changed at all?

Previously, you were planning about a dozen branches over the next 12 to 18 months.

Has the backdrop kind of shifted your thinking on that?

Not really.

Slowed it down a little.

Again, we're taking basically a couple of months off while we're all in this hibernating, if you will.

But these are areas we're committed to.

We have space.

We're growing, and we're -- there are opportunities for us to continue to build and grow.

And we've always invested in our business.

We are a growth company.

The acquisitions aren't going as planned or they're not -- if the market is not giving us good price to acquisitions, we will turn to de novo growth.

These are basically all in stone, but the timing will be probably more spread out than you would -- than before.

Okay.

And then the last one for me on loan growth.

And you touched on it a little bit earlier but to be clear, you're still expecting mid- to high single-digit growth?

And in the context of line utilization rates and the drawdowns did kind of surge at the end of the first quarter, could that be a headwind to loan growth if things start to normalize and these companies start to pay down those drawdowns?

Rich?

Yes.

I think overall economic activity is certainly going to be muted in the remainder of the year.

So that's going to have an effect.

I do think a couple things that are going to be interesting to watch will be -- I do think that this halo effect is real, that I think that we -- and we'll have some real opportunities with customers that in the past, we just haven't had a lot of success with that we would really like to bank.

So I think that will be a good opportunity.

I think the first insurance groups also will continue to do reasonably well.

And so...

Ticket size is going to move up there nicely, I would think.

Yes.

So I think that there's going to be some good opportunity there, but clearly, the economic growth going forward is going to be a bit of a headwind.

I think there's our line draw is only, what, $400 million, $500 million we figured out, Murph?

Is that right?

Yes.

So...

But we also have warehouse lines.

And as the mortgage industry, we're seeing really good usage on those right now.

In the second half of the year, that probably will be under some pressure.

So we'll keep an eye on that, too.

But we'll see.

So your question about high single digit, it could be affected by those fluctuations.

Agree with that?

Yes.

I'm not showing any further questions at this time.

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

Thanks, everybody.

Stay healthy.

And if you have any other questions, please feel free to call me or Dave or Tim Crane got off easy.

He didn't have to answer anything today, but you might want to call him and pepper him.

But thanks, everybody.

Stay healthy, and till next time.

Bye-bye.

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

Thank you for participating.

You may now disconnect.