This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk00: 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 consistent 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 statement. 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 presentations 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.
spk04: Hi, everybody. Welcome to our fourth quarter earnings call, and thanks for dialing in. With me, as always, are Dave Dykstra, our CFO, Kate Bogie, our general counsel, Tim Crane, our president, and Rich Murphy, our vice chairman in charge of credit. In the same format as usual, I'm going to give some general comments regarding our results. Turn it over to Dave Dykstra for more detailed analysis of other income and other expenses and taxes. Back to me for some summary comments and thoughts about the future. Of course, then time for questions. Given all that 2020 brought to the table, I think WinTrust really had a remarkable year. Pre-tax, 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 PP income, but we're much closer than you think, considering the one-timers of $13 million and the $7 million of foregone income when we made the decision to keep 10% of mortgage production on our books. We're on this later. CISO required huge provisions. $214 million versus $54 million in 2019 increased $160 million. Meanwhile, net charge-offs in 2020 were $40.3 million, $9.2 million less in the previous year. NPLs and NPAs as percent of loans and assets respectively reach four basis points lower than last year. You know, last year, 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 wasn't even a crisis going on. Going to have to write a nice note to Moody's, FASB, and AICPA and thank them for putting CECL in when they did. Asset deposits and loan growth exceeded 10-year averages. Assets grew 23.2% versus a 12% Tager over 10 years. Loans grew 19.7% versus a 12% CAGR and deposits 23% during the year. There's 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 accomplish this really by working remotely for the most part. Taking 5,300 people and flipping the remotes 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 the can-do attitude that is unsurpassed. 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 earnings statistics. In 101.2 million dollars for the year, down 6% from the fourth quarter, but up 18%, sorry, from the third quarter, but up 18% from the same time last year. Earnings per share of $1.63, down 2% from the first quarter, or from the third quarter, and 13% from the fourth quarter last year. Year to date, we made 293 million bucks and a $4.68 per share. down 22%, mostly because of the huge CECL provision we had to take. Other than that, we're in pretty good shape. Pre-tax pre-provision of $135 million or $604 million year-to-date was up over 9% over the same period last year and 13% over the prior year. The interest margin of 254 was down three basis points However, the net interest income was up $3 million. 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. I'd say we had loans break even, but really core loans were up nicely during the period. We'll talk about that in a second. ROE at 10.3% for the quarter, 12.2%. 95% for the year. ROE is 7.5% for the year. Return on tangible equity for the full year, 9.54%. The overhead ratio is 112 basis points as compared to 87 basis points last quarter, 153 basis points the year before, 105 basis points the year to date. We would have probably been a lot lower had 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 it in a second. Tangible book value, again, grew nicely during the year. Again, that's what we go through all the time. That's one of our primary motivators is – or drivers is earnings growth, tangible book value growth, and asset growth. The margin was, again, affected by excess liquidity on our balance sheet. We began to do a number of things to improve the NII and NIMM. Some of these are listed below. Note that our goal is to maintain an interest rate sensitive position throughout these efforts. Our goal is to maintain a gap of 12 to 15%. In other words, we have to stay disciplined here and not go along and lock in 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, keep 10% of mortgage production on our books. It really beats buying mortgage back to this market. It did our factor earnings in a quarter as we held $180 million on our books in Q4. There's an 8- to 12-month break-even point on holding versus selling in that we have to take all the expenses related to the production up front and we'll get it back in the margin, which is probably a good thing. We also pulled back $272 million of mortgages from Ginnie Mae, who are always on our books, but upon which we're receiving the earnings. Earnings were going to the security holders and not us. We retained the guarantee but earned the income. Earning asset growth is actually, when you think of it, earning asset loan growth is actually up over $850 million during the quarter. Most of the growth took place towards the end of the quarter, so we're going to have a really good head start going forward into this year. We commenced investing on some liquidity assets of a longer duration. Currently, the aggregate duration of our liquidity portfolio is 1.3 years, as opposed to a five- to six-year duration we usually operate with. So we have some room to do some equity investing without messing up the desired gap goals. We also want to note we've been taking applications for PPP Part III for over 10 days. Currently we have applications in the process of over $5,500 to $1.175 billion. Thirty percent have already been submitted to the SBA for approval. Fees related to 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 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 our clients out there who need this to get through the last draw of prongs of this current problem or crisis. Pardon me, not related to margin, but on the earning asset trend, we did complete one round of our branch retail, round one of our branch retail rationalization approach. So three southwestern Wisconsin branches, but they're not in our prime footprint, and we recorded a small gain, approximately $4 million in quarter two, 2021. We also announced plans to close an initial 10 branches in and took a $1.4 million charge this quarter related to the closings. These branches were all acquired over the years and were determined to be needed due to proximity, not to be needed, due to proximity to other Wintrust locations. So it's probably $5 million plus or minus a year. It should also be noted that we're down over 100 positions in retail due to attrition. We've now replaced the staff that left. We believe there to be a like amount of additional excess capacity on 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 keep our service level enhanced. We don't 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 four, we were able to restart our stock purchase program, acquiring almost 925,000 shares in the quarter. It was due to this and the average price that made the acquisition agree to both earnings and tangible book value. We'll continue to monitor for additional opportunities. The other income side, not to take a stunder, but the mortgage area hit the cover off the ball all year. Fourth quarter's mention indicated the start of our program We're booking 10% of production on our books. Hurts current earnings, but we're 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 to be exact, of growth. Growth of $1.19 billion in the quarter. Rebounding markets helped, but the majority of the growth was from new accounts, both well for the future. On the balance sheet front, Assets grew up $1.3 billion, $3.50. The average earning assets were up $937 million. Loans, as we said earlier, without PP, were up $606 million in all facets of the business. To add back, the Ginnie Mays we bought back, we really had on the books, but made earnings closer to $850 million of earning asset growth we had. the majority of which took place, as I mentioned, the last part of the quarter, really by almost $678 million plus the buyback of the Ginnies. So this really holds $678 million of average versus quarter end in the fourth quarter. So, again, that's a number plus the Ginnies that we started earning on this quarter. It bodes pretty well. Deposits are up $1.2 billion. That's after the repayment of $600 million of high-cost institutional money we returned during the quarter. So, again, we continue to grow through the cycle. Loan deposit ratio is 86.5%, down from 89% as the first two rounds of PPP continue to pay off. That's a good thing. Loans and deposits. As I mentioned, loan growth is good across the board. And we feel good. Our pipelines are strong. We feel very good about where we are right now. And we mentioned deposit growth is extraordinary for both the quarter and the year. And we hope to continue that growth because 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 even gotten even better. Compared to the low provision we took of $1.18 million, it's not really a reserve release, in my opinion, based on economic factors. It's rather an indication of overall portfolio improvement. It's the hard work of our credit team. $275 million of loans were upgraded, and $40 million of non-accruals paid off. This was accomplished through portfolio sales, use of Fed's Main Street lending product, successful execution of... lending exit strategies. We continue to call the portfolio for cracks to understand that your first loss is your best loss. We can 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?
spk09: All right. Thanks, Ed. As usual, I'll briefly touch on the significant non-interest income and non-interest expense sections that had changes from the prior quarter. Starting with the non-interest 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 our 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 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 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 half a billion dollars 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 the mortgage-related derivatives related to loans in the pipeline at quarter end that are estimated to close and to be sold. As such, when the pipeline of the loans declines, the revenue declines accordingly. Similarly, if the pipelines of loans per sale increases, then we would see associated increases in that 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 through 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. Approximately 192 that we kept on the books and 200 that was in the pipeline that 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 originated $2.5 billion of loans that closed either for sale or that we kept on our balance sheet. Other non-interest 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 death benefit that we recorded during the quarter. I should note that the $0.9 million of increase related to the 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 non-interest expense categories, non-interest 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 and 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 $.7 million that was impacted by the BOLI returns that I previously discussed. Turning 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 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, whereas 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 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 is 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 certain new systems. We continue to invest in software and technology to enhance our customer delivery system 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 it had referred to, increased real estate tax assessments from the prior quarter, and a 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 in 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 percent. It was up slightly from the third quarter, but on a year-to-date basis, the net overhead ratio was 1.05 percent and down 52 basis points from the 1.57 percent recorded in 2019. And with that, I will throw the discussion back over to Ed.
spk04: Thank you, Dave. 2020 was a pretty interesting and challenging year, to say the least. In some respects, though, it was a very rewarding year. That being said, it would be nice to return to some degree of normalcy. You know, we always in the company, our mascot is Sisyphus. And remember with Sisyphus, I think I said this before in earlier calls, had to push the rock up the hill every day, and every night it would fall down, and they had to push it up the next day. On 1231 every year, I told everybody, listen, for the rock falling down, we've got to push it back up. We're well on our way of pushing up this year. I think we're very well positioned. We start 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, maintains our always conservative credit standards. Earlier we discussed all the levers we're pulling to increase earnings in the margins. One pipeline should make strong in PPP round three, give us an unexpected lift for the year. We continue to call the portfolio for problem credits to improve on our already stellar credit statistics. We will also continue to find other cost-saving ideas. However, we're always going to invest in the business. Not to do so would be absolutely fatal. Capital levels remain at more than adequate levels. Expansion front. A number of new branches planned for the next 24 months in the 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 now have currency to use in deals. Remember how much we've abhorred dilution. So it's nice to get a little bit of currency back. You can be assured of our consistent, conservative approach on potential deals. I'll say I wanted to end by saying, you know, 2021 marks our 30th year in business. On December 27, 2021, we will hit the 30-year anniversary of opening our first bank. We've come a long way from the card tables and beer, 11,000 square feet and 11 employees, but we've never lost 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 in 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.
spk00: As a reminder, to ask a question, you will need to press star 1 on your telephone. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. Our first question comes in the line of John Arfstrong from RBC Capital. Your line is now open.
spk01: Thanks. Good morning, guys. Hi, Arf. How are you doing? Hey, good. Doing well. Doing well. 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?
spk04: Well, we're going to stay within that 10% to 15% gap position that we always desire, but I don't want to go out and buy a bunch of mortgage bags at 140 when I can keep jumbo loans on the books at three to three and a quarter. I know it's got a payback of, call it a year, but why not? We have to 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. If you give your 4% production margin, $400,000 would be more than that. A lot more, $16 million, maybe $13, $14 million we would add additional revenue this quarter. Certainly would have kept everybody happy on the PTPP front, but But it just makes sense that rather than 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.
spk09: Okay, got it. John, as Ed mentioned, we're targeting maybe 10% of our production. You know, 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.
spk01: Right, right. Okay. And then, Dave, just sticking on mortgage, I know this kind of comes up every quarter, but you know, 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, you know, if volumes do really, you know, continue to come down in 21. And is that something we should be concerned about for the bottom line? Thanks.
spk09: Yeah. So, you know, we'll have to see where applications come in. But, you know, we – you know, the pipelines are down half a billion. So if you look at that and say between investments and closings we did $2.5 billion, you know, it will probably be $2 billion plus or minus as far as 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. You know, I think all in, including investments and for sale, you know, $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, you know, 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, you know, Well, and we manage for that. We're focused on that. You know, fortunately, 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, you know, record volumes of production. And so we added this quarter to it. because we did have record production by the quarter and record closing. So we do think we can, of course, as well, we do think the volume will be strong in the first quarter, not quite as strong as $2.5 billion all-in closings we did this quarter, but still, historically, a very strong quarter.
spk01: Okay. All right. Thanks a lot, guys.
spk00: Thank you. Our next question comes from the line of Terry McCoy from Stevens. Your line is now open.
spk04: Hi, Terry. Terry?
spk06: Yep, can you hear me?
spk04: Now we can hear you.
spk06: Okay, sorry about that, the old mute button. 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 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.
spk04: Well, it'll depend really on loan growth and deposit. 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 You know, we figured we could put a billion to a billion and a half dollars 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 when I hedged our bet a little? I mean, I think they'll go up before they go down. So I think you've got to deal with those numbers we gave you. It might be a little bit more staccato than you'd like, but, you know, we'll take advantage of what the market gives us and, you know, I think that, you know, next quarter you should start seeing some benefit of it, depending on where LIBOR goes. 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 tool, the levers we're pulling, just a timing issue, and we gave you the ranges of where it's going to come. But 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 put about $600 million to work, and that's a fair number in the first quarter, and it'll go to work in the first quarter. The $1.5 billion we think we have to play with in the investment portfolio, and we'll see where it goes from there. Dave, you got any other comment on that?
spk09: Yeah, well, the thing I would say, Terry, is that, you know, I think the margins basically bobbed out, though. You know, it went down a few basis points this quarter, but, you know, we had significant liquidity come in again, so that you're earning 12 or 13 basis points on. So, barring additional significant liquidity coming in, you know, which I think you 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 investments that Ed talked about. And, you know, PPP loans will, the new PPP loans will come in to help offset the runoff of the old PPP loans. And I think we're in pretty good shape. But I think, you know, the margin has really bottomed out here, and barring some big swing in the curve environment, that would be negative to us, you know, if the curve flattened even more or went inverted, but we don't expect that. We think the margin's bottomed out, and we have lots of leverage. I think that's one of the great stories that we have here, because we have a lot of equipment that we 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.
spk06: Thank you. 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. Um, assuming they go back to more normal levels, which a year ago in the fourth quarter was, was 12 and a half million dollars.
spk04: Yeah. Um, well, it just all depends on what people are allowed back in stadiums. We, we, uh, we cut deals. If nobody's in the stadium, we shouldn't have to pay as much as we paid in the past. We don't have tickets and ticket issues and the like, but, um, With the onset of 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 are 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 will be less. What can I say? You know, I mean, just follow the – Baseball. Baseball is our biggest cost. And if they don't have fans in the stands, they don't have to pay as much. And basketball, same thing. We still 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.
spk06: Does that make sense? Understood. Yep. Appreciate that. Thanks, guys. Thanks, Terry.
spk00: Thank you. Our next question comes from the line of Chris McGrady from KBW. Your line is now open.
spk07: Hey, good morning. David, I just want to go back on the question on the mortgages you're putting on the balance sheet. I've seen some of your broader peers do similar strategies, buying, you know, they bought loans out of the warehouse. I'm wondering if you could speak to the credit characteristics of these loans that are being put on.
spk04: Paul, do you want to do that? Why don't we let Mark do that?
spk10: Yeah, Chris, it's, as you probably have seen from, you know, other banks right now in credit quality, you know, through our bank and also through our warehouses, customers has really never been better. I mean, if you look at average Empirica scores, I mean, things, you know, the box 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.
spk07: And are these conforming? You said they're jumbo. Are they, you know, prime? Are there, like, all the characteristics of them? No, these are all prime, prime jumbos. Okay. 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 with the pandemic easing a bit. Thanks.
spk04: Well, 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. Right now the stock price is up. It's a little tougher, but, you know, you never know with what's going on in the world if it goes down again. We're prepared to buy it back. We hate dilution. We abhor dilution. We want it to be accretive. So as long as it makes good sense, we'll buy some. We still have some capacity to buy now. of the existing authority. Dave, how much do we have?
spk09: Yes, so our initial authority was $125 million, and we bought back $92 million to date. In the first quarter of 2020, 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 Ed said, we tried to be opportunistic and buy it. 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 ear.
spk07: And then maybe one more if I could. Obviously, there's a big merger in the Midwest with Huntington and TCF. Obviously, TCF's Chicago is a little bit different, but interested in any potential opportunities from dislocation, either from that or from Fifth Thirds, a couple years back. Thanks.
spk04: Oh, dislocate. We love it when that happens. Dislocation is our middle name. With the Huntington deal, TCF was not really that strong in Chicago with most of their locations being in grocery stores. Not really our cup of tea. Recall TCF years ago was the fee king of the world. We don't play that game. 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, you know, 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 that indirectly – well, 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 old chorus, 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 – the business you pick up, it's aligned to this. You can pick up too, which is kind of interesting. So disruption is good. There's recently announced a, um, a billion to, um, um, local bank where, when a market we compete being bought by, uh, by a downstate Illinois bank, there'll be an opportunity for us. So we love the disruption. We love to, uh, um, to take advantage of it right now. We're excited about our prospects in, in the PPP world. Um, We really, 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 less in demand from our customers now. So I do outreach to prospects and to, we've always done for low to moderate. The low to moderate side of the equation, we're running local workshops, 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 PvP 1 and 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 someplace. You know, we're not making it up. It's not expansion just yet. So we continue to take business from our competitors.
spk07: Thanks a lot for the call. Appreciate it.
spk00: Thank you. As a reminder, to ask a question, you will need to press star 1 on your telephone. To withdraw your question, press the pound key. Our next question comes from the line of Nathan Race from Piper Sandler. Your line is now open.
spk03: Yeah. Hi, guys. Hey, Nathan. Just going back to that last point, Ed, on Triple P, 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 two?
spk04: Well, we're already at, what did I say, $1.175 billion. I think that, you know, there's still some room there if it goes to one and a half or two. It gets kind of funky. We don't really want to open it up in general because of the fraud aspects. I think knowing your customer is important. We have somebody on the prospect list so that we do know for one, in one shape or form, or another that, um, that, that we're now in the outreach, we're calling people and ask them about it. Well, the prospects and, um, just in customers, we think are eligible who haven't taken advantage of it, uh, prospects, and it's certainly the load of mods. Um, we're working very hard on those. So, um, I would think we could be anywhere between one and a half to $2 billion. If we're one, one now, they won four, one, five on the low side, $2 billion on the high side. be a good number. It just depends how long it goes and if they restock it with money or not. SBA is being kind of funky on deals over $2 million. Because if you never drew on the first one, for the second one, you go up to $10 million on this if you want. But they're being kind of strange on the larger deals where they're pulling them in advance if it's a second round. Merck's not talking about that a little.
spk10: Yeah, you hit it right on the head. We're just getting some interesting feedback from the SBA as it relates to some of these larger borrowers. You know, I think there's going to be a heightened audit attention placed on these. And with the transition going on in Washington right now, it's a little bit up in the air. But generally speaking, I mean, I think, you know, as it relates to, you know, 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, you know, it's obviously, you know, good from, you know, you know, outstandings and some of the fee recognition, but, you know, kind of most importantly, it's just, you know, seeing these customers who've really been, you know, pounded over the course of the last 10 months, getting some help here is just, you know, it's really great to see just from, you know, just watching them and then watching our own portfolio. So.
spk03: Got it. That's helpful. And kind of changing gears along those lines, please back out, Triple P. It looks like loans are up 10% year over year in 2020. With, you know, onboarding more production on the residential side in 2021, what are your kind of growth expectations in 2021, you know, keeping in mind the hires and so forth that... Rich or...
spk04: Rich or Tim, can I take that?
spk10: Well, yeah, I would just say just in general, you know, 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, we have so many different loan engines that we utilize. If you take a look at this year, we saw every one of them really have a pretty solid year. The premium finance group had just a spectacular year. CRE had a good first half of the year. CNI had a great second half of the year. So it's really one 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, you know, we should be pretty much right back at that, you know, mid to high single-digit growth range. So, you know, obviously a lot depends on how the economy, you know, continues to rebound, but overall feeling pretty good. Okay, guys.
spk04: Tim, do you have anything you want to say about that?
spk05: 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.
spk02: Yeah. Okay, great.
spk04: It also seems that as these shots start to – I'm getting my shot on Monday, by the way. I'm an old guy. I can get my shot. But as that starts happening, there's so much pent-up demand, I think it's going to explode. If you ever try to buy a refrigerator or any sort of hard acid right now, it takes forever to get it because inventories are so low. You're going to see an inventory build coming up that will require – we don't even consider what's going on there – that will require probably more line usage. Our line usage states today at 49 and 50 percent, but I think you may see a little bit more coming with the – But I think we're going to roar out of this thing come June and July when you get the herd immunity if everything works right. So who knows? I think that was saying 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.
spk03: Okay, great. And if I could just ask one more on expenses, just trying to put together all those items that, were discussed earlier, you know, if the MBA is forecasting volumes to be down 20, 22% this year and, you know, 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, you know, expenses versus 2020 to be up, you know, low single digit or flattish? Any thoughts just overall along those lines?
spk09: Well, you know, a lot of it really depends on where that mortgage number comes out at. But, you know, if you follow the MBA forecast, then, you know, all else sort of being equal, you know, it's probably mid-single-digit expense growth is sort of where I would expect it to come out. Because, you know, we do do some salary increases, and we are growing, and we are investing in the digital world. improvements, et cetera. So mid-single digits is about right.
spk03: Okay, great. That's very helpful.
spk04: You know, one thing to keep in mind is we did double up on the, you know, 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 now the 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 plus that little move we made. It's a timing issue with a lot of it, but we shall see.
spk03: Yep, sounds good. Thanks, guys.
spk00: Thank you. Our next question comes from a line of Michael Young from Truist Securities. Your line is now open.
spk04: Hey, thanks for taking the question. That's the first truest securities I've heard from anybody.
spk08: Well, glad to make the introduction. What's up, Michael? Everything good? Yeah. Yeah. Doing well. Um, just wanted to ask, you know, maybe a kind of a higher level question, you know, you've, you've in the past kind of referred people to the net overhead ratio to kind of balance growth and investment with, with earnings and profitability. Is that still kind of how you're thinking and managing the business? You know, obviously coming out of kind of this, this fog of war, if you will, you know, where do you think we can get to on that ratio? If that's still the right ratio to look at?
spk04: Oh yeah, I think it is. Um, We're fortunate to have the more, why we have the mortgage business. All we invest in is for times exactly like this. When rates go down, it can pick it up for us. Um, that certainly helps that overhead ratio. If you look at almost equal, what the, what the run off of the, um, of the, um, margin was, but there'll be a period of time in there. We're going to get kind of an influx here. There'll be influx where the, um, It's got to go up, and the margin won't be moving. We hope to have the margin moving as fast. We shall see. But, you know, we always said less than 1.5 was good. We've lowered that down to 1, but with our size down to about 135, 125 to 135 would be a good number for us. In the budget, it's what? Tim, do you remember?
spk09: Well, yeah, we typically don't give out the budget numbers, but... I think in sort of a more normal mortgage market, I think in the 130s 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 – our target is 150 before we've grown so much. We think that's probably in the 130s now. Yeah. Yeah.
spk04: We would hope that if we go up 30 basis points, the margin goes up 30 basis points, too. That's kind of how we work it, you know, so you can follow the math there. Pretty easy.
spk08: Okay. And maybe just as a follow-up, you know, you've kind of mentioned efforts to cut some branches. You still have kind of the you know, multiple bank subsidiaries, would there, would there be any opportunities to consolidate, you know, maybe one or two 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 you know, in this environment, have things changed at all there?
spk04: You know, everything's open, but right now, right now we're very happy with where we are. I mean, you know, that overhead ratio, if, if, 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 50 times 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 have to happen in the next two or three or four years, we probably would start collapsing charters here. I like the number 15. It's nice to have people who know the markets, running their shops and feeling good about it. So, yeah, we could do it, but I think it would be a function of expansion out of our current market area. We'd want to keep a charter in a different area. It would be a function of growth to get down to it, but nothing on the horizon now. I mean, we're growing awfully fast. We're doing pretty well. Credit's good. Why would you try to screw it up?
spk08: That makes sense. All right, thanks.
spk00: Thank you. 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.
spk04: 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. You know, they never bothered me that much. But this is going to be an interesting time, an interesting year. I think you can see that We kind of have our hands around what we want to do. Let's see if we can get there. But if you look at our history, that 10% PTPP growth and with our growth in law, our 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 had terrific growth in earnings and net book value and assets and deposits. I'd put our results up to anybody. Keep the faith. We're working on everybody's best behalf, and everybody will talk to you soon. If you have any additional questions, feel free to call me or Dave or Murph or Tim or Dave Starr or Kate Bogey. Have a great day, everybody, and thank you very much.
spk00: Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.
Disclaimer