Wintrust Financial Corp

NASDAQ:WTFC

Earnings Call Transcript 2020-Q4

[Operator]

Welcome to Wintrust Financial Corporation's Fourth Quarter and Year-to-Date 2020 Earnings Conference Call. Following a review of the results by Edward Wehmer, Founder and Chief Executive Officer; and David Dykstra, Vice Chairman and Chief Operating Officer, there will be a formal question-and-answer session.

During the course of today's call, Wintrust management may make statements that constitute projections, expectations, beliefs or similar forward-looking statements. Actual results could differ materially from the results anticipated or projected in any such forward-looking statements. The company's forward-looking assumptions that could cause the actual results to differ materially from the information discussed during this call are detailed in our earnings press release and in the Company's most recent Form 10-K and any subsequent filings on file with the SEC.

Also, our remarks may reference certain non-GAAP financial measures. Our earnings press release and slide 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'll now turn the conference call over to Mr. Edward Wehmer.

[Edward Wehmer, Founder & CEO]

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

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

As the same format as usual, I'm going to give some general comments regarding our results. Turn over to Dave Dykstra for more detailed analysis for the 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 of that 2020 has 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 analysts' estimates this quarter for PTPP income, but we're much closer than you think considering the one-time, there's a $13 million and the $7 million of foregone income when we made the decision to keep 10% of mortgage production on our books. More on this later.

CECL required huge provisions, $214 million versus $54 million in 2019, increase of $160 million. Meanwhile, net charge-offs in 2020 was $40.3 million, $9.2 million less than the previous year. NPLs and NPAs as percent of loans and assets respectively reached 4 basis points lower than last year. And then last year in and of itself was an excellent credit year. It closed here at 40 basis points and 32 basis points, respectively. One would think there was even a crisis going at. Then I have to write a nice note to Moody's, FASB and AICPA and thank them for putting CECL in when they did.

Asset deposits loan growth [indiscernible] the 10-year averages. Assets grew 23.2% versus a 12% CAGR over 10 years. Loans grew 19.7% versus 12% CAGR and deposits 23% during the year versus a 13% CAGR. We now have over $45 billion in assets. Again, mortgage really 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 most amazing is we accomplished this really by working remotely for the most part, taking 53,000 people and slip into a remote and being able to accomplish what we did our asset growth, we did with PPP and the like is just incredible to me. Incredible -- it just really is incredible, the entire Wintrust team. So, a great strategic ability and a can-do attitude that is unsurpassed. Simply proud of them and I told our Board this and truly was -- 2021, it really continues to be our finest hour.

Onto some earning statistics. Earned $101.2 million 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 were $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 and $4.68 per share, down 22%, mostly because of the huge CECL provision we had to take, but now 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.

Net interest margin of 2.54% was down 3 basis points. However, the net interest income was up $3 million as we had great loan growth in spite of the fact that it didn't look like it, but we'll get into that in a second because of the first levels of PPP loans, trying to get repaid or forgiven. It's like we had loans break-even, but really core loans were up nicely during the period. I'll talk about that in a second.

ROE at 10.3% for the quarter, 12.95% for the year. ROE was 7.5% for the year. Return on tangible equity for the full year, 9.5%. The overhead ratio was 112 basis points as compared to 87 basis points last quarter, but up 53 basis points a year before, 105 basis points year-to-date. We would have probably been a lot lower had we not had the one timers etc., but I think we feel pretty good about where we are in that regard. I'll talk about that in a second.

Tangible book value again grew nicely during the year. And again, as we go through all the time, that's one of our primary motivators is -- our drivers is, earnings growth, tangible book value growth and the asset growth.

The margin was again affected by excess liquidity on our balance sheet. We were going to do a number of things to approve the NII and NIM. Some of these are listed below. Note that our goal is to maintain the 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 large entities at goofy rates.

Our loan pipelines remained consistently strong in all facets of the business. We made a decision during the quarter to keep 10% of mortgage production on our books. Really beats buying mortgage back in this market. It did affect our earnings in the quarter as we held thanks to $180 million on our books in Q4. There is an 8 to 12 months break-even point on holding versus selling and that we have to take all the expenses related to the production upfront and we'll get it back in the margin, which is probably a good thing. Let's see.

We also pulled back $272 million of mortgages from Ginnie Mae. They were always on our books, but that was receiving our earnings. Earnings were going to the security holders and not us. We've retained their guarantee, but earn the income. So earning asset growth was actually when you think of it -- earning asset loan growth was actually up. We were $850 million during the quarter. Most of the growth took place toward the end of the quarter. So, we have a really good head start going forward into this year.

We commenced investing some liquidity assets from a longer duration. Currently aggregate duration of our liquidity portfolio is 1.3 years as opposed to five year to six year duration we usually operate with. So we have some room to do some accretive investing thus matching up the desired gap goals.

We also -- we've been taking applications for PPP Part 3 for over 10 days. Currently we have application in process of over 5,500, $1.175 billion. 30% have already been submitted to the SBA for approval. [Indiscernible] these loans approximate $44 million to be amortized over the life of the loans. So, at least through December of this year. Average ticket size of these loans is $214,000. The main 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 prongs of this current problem or crisis.

Apparently not only the margin, but on the earning asset front, we did complete one round of branch retail -- around 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 additional 10 branches and took $1.4 million charge this quarter related to closings. These branches were all acquired over the years and currently needed -- not to be needed due to proximity to other Wintrust locations. This will save us probably $5 million plus or minus a year.

Should also be noted that we're down over 100 positions in retail due to attrition. We've not replaced the staff that left. We believe there to be a like amount of additional excess capacity on our existing footprint due to continued use of online services really brought about by the pandemic. These additional savings will offset the cost of branches currently on the drawing board for 2021 and 2022.

I'm just a little bit worried that we're much bigger now and when we do -- when life does get back to normal, we really don't want to -- we want to keep our service level enhanced. 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 done with an average price that made the acquisition accretive toward earnings and tangible book value. We will continue to monitor for additional opportunities.

In the other income side, not to take a sunder, but mortgage area hit the cover off the ball, all year. Fourth quarter, as mentioned, indicated at the start of our program, we're booking 10% of production on our books [indiscernible] profitable over the long run. Wealth management also had a good year, especially a good fourth quarter so we can build on it going forward. Total assets under administration surpassed $30 billion, $30.1 billion to be exact of growth -- growth of $1.19 billion in the quarter. We got the markets help, but the majority of the growth was from new accounts, bodes well for the future.

On the balance sheet front, assets grew $1.350 billion. The average earning assets were up $937 million. Loans, as we said earlier, without PPP we're up $606 million in all facets of the business. To add back the Ginnie Mae's we bought back, we really did hit on the books, but made earning closer to the $850 million of earning asset growth we had, the majority of which took place as I mentioned in the last part of the quarter, really by almost $678 million plus the buyback of Ginnie's. So this really whole $678 million average versus quarter end in the fourth quarter. So again, that's a number. Plus the Ginnie's that we started earning on this quarter bodes pretty well.

Deposits were up $1.2 billion. That's after the repayment of $600 million of high plus institutional money we return during the quarter. So again, we continue to grow through the cycle.

Loan deposit ratio was 86.5%, down from 89% as the first two rounds of PPP continue to pay off. It's a good thing.

Loans in deposits, as I mentioned, loan growth was good across the board and we feel good with our pipelines are strong. We feel very good about where we are right now. Deposit growth was extraordinary for both quarter and the year and we hope to continue that growth as that really is a franchise value of the company.

On the credit side, we discussed a the beginning of presentation. Needless to say the numbers which were good to begin with, have gotten even better. The very low provision we took of $1.8 million, is not really reserve release in my opinion. Based on economic facts, it's rather a indication of overall portfolio improvement. Through 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 grants, understanding that your first loss is your best loss; we always look good on recovery.

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

[David Dykstra, VC & COO]

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 higher equity valuations, which impact the pricing on 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 the fair value model assumptions of $5.2 million in the fourth quarter as compared to a decrease of $3.0 million in the prior quarter and a drop of approximately $0.5 billion 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's required to record the value of the mortgage-related derivatives related to loans in the pipeline at quarter end that are estimated to be to close and to be sold. As such from the pipeline of the loans declines, the revenue declines accordingly. Similarly, if the pipeline of loans for sale increases, then we would see associated increases in net revenue. So, the reduction of the pipelines like $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.

So approximately $192 million that we kept on the books and $200 million 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 or 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 and partnerships, which are primarily related to SBIC investments to support CRE 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 employee benefits expense category increased approximately $7.1 million in the fourth quarter from the prior quarter. The salary expense component of that category was up approximately $3.7 million. The primary cause of the increase related to increased staffing to support the overall increase in mortgage originations and technology-related staffing to support our ongoing development of enhanced digital products and capabilities. The reported amounts also saw the increase in the deferred compensation expense of a net $0.7 million that was impacted by the BOLI returns that I previously discussed.

Turning to commissions and incentive comp. That category is up $3.9 million in the fourth quarter relative to the third quarter with that change being driven largely by the additional commissions related to higher amount of post 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 commissions expense on mortgages are paid when the mortgage loans close and we had record closings in the current quarter that exceeded the prior quarter or its 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 was due to increased software licensing expenses including some increases related to online mortgage usage, PPP loan servicing enhancements, network upgrades to support our growth and digital enhancements and various other software upgrades as well as the write-off of certain software systems that have been retired early as a result of our implementation of certain new systems. We continued to invest in software and technology to enhance our customer delivery system and products as well as invest in our systems that support our continued growth.

Occupancy expense totaled $19.7 million in the fourth quarter, increasing $3.9 million. The increase was due to the $1.4 million impairment charge associated with the planned closures of the 10 branches that Ed referred to. Increased real estate tax assessments from the prior quarter and 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 sports venues have begun to increase their events again.

In summary, if you look at this and add up the components, there was -- roughly $11 million of the increase relates to mortgage activity, including $6.6 million of an additional earn out on the mortgage acquisitions we had and roughly $4.5 million of increased salary and benefit costs for the record level of mortgage closings during the quarter. So we would expect that to decrease in the future quarters as the pipelines are down and we believe we won't have any significant additional contingent consideration going forward. And, we have the $1.4 million of branch closures. So, between those items, that's roughly $12 million plus of expenses that were related to the mortgage and/or 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%, up slightly from the third quarter, but on a year-to-date basis, the net overhead ratio was 1.05% and down 52 basis points from the 1.57% recorded in 2019.

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

[Edward Wehmer, Founder & CEO]

Thank you, Dave.

2020 was a pretty interesting and challenging year to say the least. In some respect though -- in some respects, it's a very rewarding year. That being said, it'd be nice to return to some degree of normalcy. We always in our -- in the Company, we -- our mascot is Sisyphus. Remember, what Sisyphus -- I think I've said this before in earlier calls. Got to push the rock up the hill every day and every night it would fall down and you got to push it up the next day. On 12/31 every year, I sort of listen for the rock falling down and we got to push it back up. We're well on our way to push it up this year. I think we're very well-positioned to 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, continue to our always conservative credit standards.

Earlier, we discussed all levers we're pulling to increase earnings in the margin. Loan pipelines are made strong and PPP round 3 give us an unexpected lift for the year. We continue to call the portfolio for problem credits to improve on all 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. In the expansion front, a number of new branches planned for the next 24 months into areas we do not currently serve. On the acquisition front, we continue to search out deals in all areas of our business. The recent rebound in our stock price, we would now have currency to use in deals. Remember how much abhor dilution. It's nice to get a little bit of currency back. You can be assured of our consistent conservative approach potential deals.

I'll say -- I want to end by saying '21 marks our 30th year in business. On December 27, 2021, we will hit the 30-year anniversary opening our first bank. So the long way from the car tables and beer, 1,100 square feet and 11 employees, but we've never lost sight of our basic operating principles. This has served as well. It's kind of funny. I think there is 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 any out there?

[Operator]

[Operator Instructions],

Our first question comes from the line of Jon Arfstrom RBC Capital. Your line is now open.

[Jon Arfstrom, RBC Capital]

Pretty 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?

[Edward Wehmer, Founder & CEO]

Well, we're going to stay within that 10% to 15% gap position that we always desire, but I don't want to go buy a bunch of mortgage banks at 1.40%, when I can get the jumbo loans on the books at 3% to 3.25%. I know it's got a payback of call it a year, but why not? We have with this liquidity to work. These are very good deals. The returns are pretty good at them. We probably gave up between the $200 million that we -- that we booked this quarter. So in the next quarter gave up probably $8 million in revenue to get your 4% production margin or $400 million would be more than that, it'd be a lot more, $16 million, maybe $13 million, $14 million we would add additional revenue this quarter, certainly going to keep everybody happy on the PPP front, 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 banks at half the price.

[Jon Arfstrom, RBC Capital]

Okay, got it.

[David Dykstra, VC & COO]

And, John, as Ed mentioned, we're targeting maybe 10% of our production. So, it hurts a little bit, but we're not doing like half of our production, but it still provides a long-term benefit an earning lover could use going forward, although it sacrifices current quarter revenue.

[Jon Arfstrom, RBC Capital]

Right. Okay. And then, Dave, just sticking on mortgage, I know this kind of comes up every quarter. But talk a little bit about maybe your near-term expectations for volumes and maybe this matters more than ever, but just remind us of your ability to accordion some of the mortgage expenses if volumes do really continue to come down in 2021 and is that something we should be concerned about for the bottom line. Thanks.

[David Dykstra, VC & COO]

Yes. We'll have to see where applications come in, but we -- the pipelines are down $0.5 billion. So, if you look at that and say between investments and closings, we did $2.5 billion. It will probably be $2 billion plus or minus as far as [indiscernible] in the first quarter. And then, quite frankly we have to see what the spring buying season's like, second quarter could be more than that, but I think all in including investments and for sale, $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 and contract workers. So that goes to your accordion. Those can go up and down rather quickly. So, I think we can accordion expenses well and we manage for that. We're focused on that.

And 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 record volumes of production. And so, we added this quarter to it because we did have record production volume quarter and record [indiscernible]. So we do think we can accordion well. We do think the volume will be strong in the first quarter. Not quite as strong as $2.5 billion all-in closings we did this quarter, but still historically a very strong quarter.

[Operator]

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

[Edward Wehmer, Founder & CEO]

Hi, Terry. Terry?

[Terry McEvoy, Stephens]

Yes, can you hear me?

[Edward Wehmer, Founder & CEO]

Now we can hear you.

[Terry McEvoy, Stephens]

Okay, sorry about that, little 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 of times you've mentioned that 15 basis point 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.

[Edward Wehmer, Founder & CEO]

Well, it will depend really on loan growth and deposit -- both deposit costs are going to come down. That's going to happen. Loan growth is going to happen, but what it really depends on is, we figure we could put $1 billion to $1.5 billion with the work in the investment portfolio. So, we're going to lag that in though because rates seem like they're going up. And, why I put it all on now and hedge our bet a little. I mean, I think they will go up before they go down.

So, I think you got to deal with those numbers we gave you. It might be a little bit more staccato than you'd like, but we'll take advantage of what the market gives us and I think that next quarter, you should start seeing some benefit of it. The payout where LIBOR goes and we think we'll be in pretty good shape.

But I can't give you more than that just because I give you all the tools, 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 specifically 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 -- 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 will go to work in the first quarter of the $0.5 billion we think we have to play within the investment portfolio, and we'll see where it goes from there. Dave, you got any other comment on that?

[David Dykstra, VC & COO]

Yes, the only thing I would say, Terry, is that I think the margins basically popped out though. It went down a few basis points this quarter, but we had significant liquidity come again so that you're earning 12 basis points or 13 basis points on. Barring additional inefficient liquidity coming down, which I think might have a little pressure if that happens, but we think the margins really bottomed out and the margin goes up from here as we do the -- as Ed talked about and PPP loans will -- the new PPP loans will come in to help offset the run-off of the old PPP loans and we're -- I think we're in pretty good shape.

But I think the margin has really bottomed out here and barring some big swing in the curve environment that would be negative to us, if the curve flattened even more and went inverted, but we don't expect that. We think the margins bottomed out and we have lots of levers. I think that's one of the great stuff we have here is we have [indiscernible] we put to use and there is 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.

[Terry McEvoy, Stephens]

Thank you. And then, just as a follow up question of the advertising and marketing costs lower this year because of just the pandemic. I believe, earlier you mentioned stadium, sporting events starting to open up again. Could you just talk about kind of your thoughts for 2021 on that line? I don't want to be surprised assuming they go back to more normal levels, which a year ago in the fourth quarter was $12.5 million.

[Edward Wehmer, Founder & CEO]

Yes. Well, it just all depends on when people are allowed back into stadiums. We cut deals that though it's in the stadium, we shouldn't have to pay, because once we've paid in the past, we don't have tickets and ticket issues and the like, but with the onset of the -- I've been 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 if it is, but I just don't think you're going to have fans in the stands for half of the year in which case it will be less.

What can I say? I mean, just follow the baseball. Baseball's our biggest cost and if they don't have fans in the stands, they won't have to pay as much and the basketball same thing, we still -- we have Northwestern [indiscernible]. And with no fans in the stands, we don't have to pay as much. So it will -- because they're playing, it will be more than last year, but less than our high points. Does that makes sense?

[Operator]

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

[Chris McGratty, KBW]

Hey, good morning. David, just wanted to go back on the question on the mortgage that you put on the balance sheet. I've seen some of your broader peers do similar strategies buying -- they've bought loans out of the warehouse. I'm wondering if the -- if you could speak to the credit characteristics of these loans that are being put on.

[Edward Wehmer, Founder & CEO]

Paul you want do that or let Murph to do that.

[Rich Murphy, VC & CLO]

Yes, Chris, it's -- as you probably have seen from other banks. Right now in credit quality through our bank and also through our warehouse, customers, it's really never been better. I mean if you look at average NPS scores, I mean things -- the Bank's 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.

[Chris McGratty, KBW]

And these are -- are these conforming? Are these -- you said they're jumbo. Are they prime or there's like ulti characteristics to them?

[Rich Murphy, VC & CLO]

No, these are all prime jumbo.

[Chris McGratty, KBW]

Okay. Cool. And then just another question, time growth into the 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.

[Edward Wehmer, Founder & CEO]

Well, we really like -- we don't like dilution at all. We love the accretive aspects what we've done to-date. I mean, being able to buy below tangible book value and in terms of helping earnings at all, it all worked. And now the stock price up, it's a little tougher, but you never know what's going on there or whether it will go down again. We're prepared to buy it back. We hate dilution. We abhor afford dilution. We want to be accretive. So, as long as it would -- makes good sense, we'll buy some. We still have some capacity to buy now out of the existing authority. Dave, how much do we have?

[David Stoehr]

Yes. So our initial authority was $125 million and we've 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 that's -- so, generally we try to be opportunistic and buy it -- generally our average price on this, but 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.

[Chris McGratty, KBW]

And then maybe one more if I could, obviously, there's a big, big merger in the Midwest with Huntington and TCF. Obviously, TCF Chicago is a little bit different, but interested in any potential opportunities from dislocation, a different matter from Fifth Third's deal a couple years back. Thanks.

[Edward Wehmer, Founder & CEO]

Dislocate, we love that when that happens. Dislocation is our middle name. With the Huntington deal, TCF was not that really that strong in Chicago with most of their locations being in grocery stores. Not really our cup of tea. Recall TCF was -- years ago was the fee king of the world and we don't play that game. So, really those customers are welcome at our place, but obviously we don't care just to be product sort of thing and we'll see where that goes.

The other side, the disruption caused by Fifth Third buying MB is still ongoing. 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 and directly -- 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 [indiscernible] it was not -- they took it, Fifth Third didn't want, so that business is up for grabs, we hired good people from them, very profitable business.

So it's not just the business we pick up, its lines of business you could pick up too. It's kind of interesting. So disruptions good. They've recently announced a $2 billion to local bank. We're in a market. We compete being bought by a downstate Illinois bank. That will be an opportunity for us. So, we love the disruption. We love to take advantage of it.

Right now, we're excited about our prospects in the PPP world. We really -- the way our system works opening up, really before anybody else in the market with flawless execution. Really goes from soup to nuts very quickly. Actually we're seeing a lessened demands of our customers now. We're trying to do outreach to prospects and to -- we've always done for low to moderate some -- 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, they answer questions and help them get through it.

But we think that the halo effect from the previous PPP wanted to hopefully will carry over into this one and our decks are pretty well clear because of the efficiency and the hard work of our people, getting them cleared. It's been awesome. So, we -- there is a lot of disruption, a lot of opportunity in the market. As I said our pipelines are extremely full, it's coming from some place. We are not making up with that expansion just about here, but -- so we continue to take business from our competitors.

[Operator]

Thank you. [Operator Instructions].

Our next question comes from the line of Nathan Race from Piper Sandler. Your line is now open.

[Nathan Race, Piper Sandler]

Just going back to that last point, Ed, on the PPP. I guess with the third round opening up here recently, what are your expectations in terms of volumes coming out of that over the next quarter or two?

[Edward Wehmer, Founder & CEO]

We're already at what I say $1.175 billion. I think that there is still some room there if it goes to $1.5 billion or $2 billion. It gets kind of funky where we don't really open it up in general because of the broad aspects. I think that knowing your customer is important. We have so many on the prospect list. So we do know for one -- with one shape or form or another that -- we're now in the outreach. We're calling people and asking them about it for the prospects and just seeing customers we think all who haven't taken advantage of it, prospects and certainly the low to moderate some, we're working very hard on those.

So, I would think we could be anywhere between $1.5 to $2 billion if we're $1.1 billion now. Maybe $1.4 billion, $1.5 billion on the low side, $2 billion on the high side would be a good number. Just depends how long it goes and it's a restock of money or not. SBA is being kind of funky and deals over $2 million or -- because if you never do on the first loan, going 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 holding them in advance if it's a second round. Murph, you want to talk about that a little?

[Rich Murphy, VC & CLO]

Yes, 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. I think there's going to be a heightened audit attention place done these and with the transition going on in Washington right now, it's a little bit up in the year. But generally speaking, I mean, I think -- as it relates to volumes, I mean, that's right. I mean, we've seen a tremendous amount of growth early on in this latest round by those highly affected customers and it's obviously good from outstandings. They have some of the fee recognition, but kind of most importantly, it's just -- what we're seeing these customers will really been pounded over the course of the last 10 months getting some help here. It's just -- it's really great to see just from -- just watching them and then watching our own portfolio so.

[Nathan Race, Piper Sandler]

Got it. That's helpful. And kind of changing gears along those lines. I mean, back out PPP, it looks like loans were up 10% year-over-year in 2020. With onboarding more production on the residential side in 2021, what are your kind of growth expectations in 2021, keeping in mind the hires and so forth.

[Edward Wehmer, Founder & CEO]

Rich or Tim can take that?

[Rich Murphy, VC & CLO]

Yes, I would just say just in general, we have -- our guidance is 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 one of the more challenging years to get that. Fortunately, it's just we have so many different loan engines that we utilize and if we take a look at this year, we saw every one of them really have a pretty solid year. So, the premium finance group had just a spectacular year. CRE had a good first half of the year. C&I had a great second half of the year. So, it's really 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, we should be pretty much right back at that mid to high-single-digit growth range. Obviously a lot depends on how the economy continues to rebound, but overall feeling pretty good.

[Nathan Race, Piper Sandler]

Okay. Got it. And if I can just ask one more -- sorry.

[Edward Wehmer, Founder & CEO]

Tim, anything you want to say about that?

[Tim Crane, President]

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.

[Edward Wehmer, Founder & CEO]

Yes. Okay, great. It also seems that that there -- as these shots start to -- I'm getting my shot on Monday by the way. I am an old guy getting my shot. So, as that starts happening, there is 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 asset right now, it takes forever to get it because inventories are so low. We'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 stays at 49% and 50%. But I think you may see a little bit more coming with the -- but I think we're going to roar out of this in come June and July when you get the herd immunity if everything works right. So, who know -- I think it was -- notwithstanding that, we are going to be at high-single-digits this year based on all the information we have right now, but it's just going to enhance it, I think.

[Nathan Race, Piper Sandler]

Okay, great. And if I could just ask one more on expenses. Just trying to foothill all those items that were discussed earlier. The MBA is forecasting volumes to be down 20%, 22% this year and with advertising spend, perhaps not likely to get back to full run-rate levels and then you got the branch consolidations and closures and the contingent consideration perhaps going away entirely, is it fair to expect expenses versus 2020 to be up low-single-digit or flattish? Any thoughts just overall along those lines?

[Edward Wehmer, Founder & CEO]

Well -- so a lot of it really depends on where that Mortgage number comes out at, but if you followed the MBA forecast and all else sort of being equal, it's probably mid-single-digit expense growth is sort of where I would expect it to come out because we do some salary increases and we are growing and we are investing in the digital improvements, etc. So mid-single-digits is about right.

[Nathan Race, Piper Sandler]

Okay, great. That's very helpful.

[Edward Wehmer, Founder & CEO]

One thing to keep in mind is we did double up on the -- with the mortgage sales by keeping 10% of the books this quarter and taking 10% out of the next quarter, we had all the expenses and all the revenue of that, so little bit wild there too, but I don't think expenses [indiscernible] if you take the one-timers as opposed to the little move we made, it's a time issue with a lot of it, but we shall see.

[Operator]

Thank you. Our next question comes from the line of Michael Young from Truist Securities. Your line is now open.

[Michael Young, Truist Securities]

Hey, thanks for taking the question.

[Edward Wehmer, Founder & CEO]

That's the first Truist Securities I've heard from anybody.

[Michael Young, Truist Securities]

Well, glad to make the introduction.

[Edward Wehmer, Founder & CEO]

What's up, Michael? Everything good.

[Michael Young, Truist Securities]

Yes doing well. Just wanted to ask maybe kind of a higher level question. You've in the past kind of referred people to the net overhead ratio to kind of balanced growth in investment with earnings and profitability. Is that still kind of how you're thinking and managing the business, obviously, coming out of kind of this fog of war, you will, where do you think we can get to on that ratio if that's still the right ratio to look at?

[Edward Wehmer, Founder & CEO]

Oh, yes. I think it is. We're fortunate to have the -- why we have the mortgage business while we investing is for times exactly like this when rates go down, they can pick it up for us. That certainly helps that overhead ratio. If you look at almost equaled what the run-off of the margin was, but there'll be a period of time. And there we're going to get kind of influx here to be influx where it might. It's got to go up in the margin. We hope to have the margin moving as fast. We shall see. But we always said, less than 1.5% was good. We have lowered that down to 1%, but with our size down about 1.35%, 1.41% --1.25% to 1.35% be a good number for us in the budget, it's what -- Tim, do you remember?

[Tim Crane, President]

Yes. We typically don't give out the budget numbers, but I think in a sort of a norm -- more normal mortgage market, I think 1.30s is probably where we would think we could be, given the current environment. We're better than that right now because mortgages so strong but if mortgages fall off, then I think you probably -- we are targeting 1.50% before. We've grown so much we think that's probably in the 1.30s now.

[Edward Wehmer, Founder & CEO]

Yes. 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. Do you follow the math there? Very easy.

[Michael Young, Truist Securities]

Okay. And maybe just as a follow-up, you've kind of mentioned efforts to cut some branches. You still have kind of the multiple bank subsidiaries. Would there be any opportunities to consolidate, maybe one or two of those. I know you've used it. It's part of the wealth strategy in the past and you haven't thought that made sense. But in this environment have things changed at all there?

[Edward Wehmer, Founder & CEO]

I mean it's open. But right now right now, we're very happy with where we are. I mean, that overhead ratio if -- put it this way. That's just a cost issue because the costs are minimal. If you think about everything, behind the scenes it's 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 15 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 we're -- probably will have to happen in the next two years or three years or four years, we probably would start collapsing charters here. And I like the number of 15, it's nice to have. People who know the markets, running their shops and feeling good about it. So yes, we could do it, but I think it would be a function of expansion out of our current market area, but we'd want to keep a charter in the different area and we -- it'd be a function of growth if you get down to it, but nothing on the horizon now. I mean, we're growing awfully fast; we're doing pretty well, credits good. Why would I just try to screw it up.

[Operator]

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.

[Edward Wehmer, Founder & CEO]

Well, thank you. We appreciate you all listening in today. Get your shots if you can. I'll let you know how it goes for me. They never bother me that much, but this is going to be an interesting time, an interesting year. I think you could can that we kind of have our hands around what we want to do and let's see if we can get there.

But if you look at our history that 10% PDPP growth with our growth in loan -- our historical 10-year growth in loans, you can 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 against anybody. So keep the faith. We're working everybody's best behalf. And everybody, we'll talk to you soon.

If you have additional questions, feel free to call me or Dave or Murph or Tim or Dave Stoehr or Kath Boege. Have a great day everybody and thank you very much.

[Operator]

Ladies and gentlemen, this concludes today's conference call. Thanks for participating. You may now disconnect.