Q4 2020 Wintrust Financial Corp Earnings Call
Ladies and gentlemen, todays conference is scheduled to begin shortly please continue to standby. Thank you for your patience, ladies and gentlemen, todays conference is scheduled to begin shortly.
Continued and standby. Thank you for your patience.
[music].
Welcome to win Trust Financial Corporation fourth quarter and year to day 2020 earnings Conference call.
Following a review of the results by Edward Weymer, 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 the tier of the todays call. When trust management may make statements that cause and just.
Constitute projections expectations beliefs or similar similar forward looking statements actual results could differ materially from the results anticipated or projected and 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 on our earnings press release and then the company's most recent form 10-K and any subsequent filings on file with the S. E. T. Also our remarks may reference certain non-GAAP financial measures.
Our earnings press release and slide presentation include a reconciliation of each non-GAAP financial measure to the nearest comparable GAAP financial measure as a reminder, this conference call is being reported I will now turn the call Prince call over to Mr. Edward Weymer.
Hi, everybody welcome to our fourth quarter earnings call and thanks sure.
And again with me as always are Dave Dykstra, Dave Stoehr, our CFO, Kate Boege, our general counsel and Crane, and our President and Rich Murphy, our vice chairman and charge of a credit on it.
Same for them and as usual I Gotta go 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, some time for questions.
And given all of the 2020 he brought to the table.
I think when interest really had a remarkable year pretax pre provision earnings increased 13%.
Which exceeded our 10 year, CAGR, which stood at 10% not too shabby.
I know that we've made that have beat the analysts' estimates this quarter for P. J P. P income, but we're much closer than you think considering the.
One timers of $13 million and a $7 million of foregone income.
And we made the decision to keep 10 per cent of more mortgage production on our books more on this later.
Cecil required huge provisions.
$214 million versus $54 million, and 2019 increased $160 million.
And while net charge offs in 2020 with $40 3 million.
$9 2 million or less and the previous year Npls and NPA is as a percent of loans and assets, respectively, which four basis points lower than last year.
And in and of itself was an excellent credit year.
It closed here at 40 basis points to 32 basis points respectively.
One would think there wasn't even a crisis going on and it has to write a nice note Moody's fares being a CPA and thank him for reported Cecil and when they did.
Asset deposits and loan growth all exceeded 10 year averages.
<unk> grew 23, 2% versus a 12% CAGR over 10 years.
Loans grew 19, 7% versus a 12% CAGR and deposits growth.
And 3% and during the year with a 13% CAGR, we now have over $45 billion and assets.
Again mortgage area you hit the cover off the ball by design, we hope it would do that because when rates go low and we use of mortgages to cover our until we can catch up on the margin side.
And what's the most amazing because we accomplished is really by working remotely for the most part they can and 5300 people and slip into a remote and.
Being able to accomplish what we did our asset growth what we did with P. P P and the Lakers this incredible debate.
Incredible it just really is incredible and the entire winter, Steve So great strategic ability and it can do attitude.
That is unsurpassed couldn't be prouder of them and I told our board this and.
Truly was a 2021 and this.
It really continues to be our finest hour.
And under some earnings statistics and.
And $101.2 million for the year down 6% from the fourth quarter were up 18% from the third quarter, but up 18% from on the same time last year.
Sure and $1 63 two.
And 2% from the first quarter from the third quarter and 13% from the fourth quarter of last year.
And we made 293 million Bucks.
$4.68 per share on 22%, mostly because of the huge seesaw provisions we had the day.
And that we're pretty good shape.
Pretax pre provision of $135 million or $604 million year to date was that it was up over 9% over the same period last year and <unk>.
13% over the prior year.
I.
Net interest margin of $2 54 was about three basis points.
However, the net interest income was up 3 million Bucks.
As we had great loan growth and so.
Probably the fact that.
And it didn't look like it but we will get into that second because of the first levels of P. P. P loans and trying to get repaid or forgiven.
So we had loans breaking of a really core loans were up.
Nicely during the period, we'll talk about that and the second.
Are we at 10, 3% per quarter, 10 to 12.2 and 5% per year.
R O R O or so and have presented here are for the year return on tangible equity for the full year, 954% and overhead ratio was 112 basis points.
As compared to 87 basis points.
Quarter on a 53 basis points a year before.
And that five basis points year to date.
And we would've probably been a lot lower had we not right.
And the one timers, etc, but.
And we feel pretty good about where we are on that regard I'll talk about and the second tangible book value again grew nicely during the year.
And as we go through all the time.
One of our primary motivators is.
Drivers is.
Our earnings growth tangible book value growth and asset growth.
The margin was again affected by excess liquidity on our balance sheet and began to do a number of things to improve the NII and NIM.
Some of these are listed below note that our goal is to maintain a debt interest rate sensitivity position throughout these efforts.
And what was maintained with GAAP of 12 to 15 per cent in other words, we have to stay disciplined here and I'd go along and lock in this the margin entities goofy rates.
Our loan pipelines remain consistently strong and all facets of the business.
We made a decision during the year.
During the quarter to keep 10% of mortgage production on our books.
Beach buying back.
On the mortgage backs and this market.
As did our affect earnings and our quarters, we held $180 million on our books and Q4.
Or is it eight to 12 months.
From above breakeven point on holding versus selling and.
And that we have to take all of the expenses.
Related to the production upfront.
And that would get it back and the margin.
Which is probably a good thing.
Blah Blah blah blah could see we also pulled 200 back $272 million of mortgages from Ginnie Mae and were always on our books.
And what you're receiving no earnings.
Going to the security holders and not us.
Retained their guarantee but on the income earning asset growth is actually what do you think all bad.
Earning asset loan growth was actually up over $850 million during the quarter.
The most of the growth took place towards the end of the quarter.
And we're gonna have a really good head start going forward into.
And to this year.
We commenced investing on similar liquidity assets.
A longer duration.
The aggregate the ratio liquidity portfolios 1.3 years as opposed to five to six year duration and we usually operating with.
So we have some room to do so and Quito investing.
Messing up the desired GAAP goals.
We also on though we've been taken application for P. P. P. Part three for over 10 days currently have application and that process of over 50, 501.1, and seven $5 billion.
30% have already been submitted.
The SBA for approval.
These rate these loans approximately $44 million.
Advertisers over the life of the loans.
So at least through December of this year average ticket size these loans and $214000.
Mean sizes and $72000 we.
We really beat everybody to the market by almost 10 days and.
We are we on 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 helped to help our clients.
Out there who are who need just to get through the last draw.
<unk> of this current problem and crisis.
Pardon me and not really the margin, but on the earning asset for and we did complete one round of branch retail.
Around one of our branch retail.
Realization approach.
Three southwestern Wisconsin branches.
They're not and our prime footprint and will record a small gain approximately $4 million and quarter two 'twenty 'twenty one.
We also announced plans to close and initial 10 branches and took.
The $1 $4 million charge this quarter related to the closings.
These branches are all acquired over the years and return would be needed.
So that could be needed due to proximity to other waitress locations.
And so it was probably $5 million plus or minus a year.
Should also be and all that we're down over 100 positions and retail due to attrition and we're not replace the staff that left.
We believe them to be a like amount of additional excess capacity on existing footprint.
And do the continued use of online services.
And really brought about by the pandemic.
These additional savings will offset the cost of branches currently on the drawing board for 2021 and 'twenty two.
And just a little bit worried that whereas we're much bigger now and what we do and life does get back to normal we really don't want to we want to keep our service level and hands on a bite the ball and right now so we'll see where we go with it.
We always continue to look for other additional efficiencies the market.
Also in quarter, four we were able to restart our stock purchase program acquiring almost.
925000 shares on the quarter. It was to do this and the average price and made the acquisition accretive to both earnings and tangible book value.
We will continue to monitor for additional opportunities.
And the other income side and not to take a standard but the mortgage area hit the cover off the ball all year.
As mentioned indicated at the start of our program with <unk> 10 per cent of production on our books for its current earnings book profitable over the long run.
Wealth management also had a good year, especially a good fourth quarter, but we can build on going forward total assets under administration and surpassed $30 billion 30 per wanted to be exact of growth.
<unk> growth of one point, and one $9 billion and the quarter.
And any market has helped but the majority of the growth was from the couch new accounts bodes well for the future.
On the balance sheet fronts.
Assets grew 1 billion three three.
And $3 50.
Hum average, earning assets were up $937 million.
Loans as we said earlier without P people were up $606 million and all facets of the business to add back the Ginnie Mae's, we bought back.
They really did hit on the books, we've made earnings closer to the $850 million of earning asset growth. We had the majority of which took place.
I mentioned on last part of the quarter.
Really by almost $678 million plus the buyback of the Genies.
So this is really a whole $678 million.
The average oh versus while quarter end and.
And the fourth quarter.
So again, that's a number plus the <unk>.
Plus the journey that we started earning on this quarter and bodes pretty well composite true up 1 billion to adapt.
And that's after the repayment of $600 million of.
Oh, Hi, plus institutional money will return during the quarter. So again, we continue to grow through the through the cycle.
Loan deposit ratio was 86, 5% down from 89 as has the first right first two rounds of PPP continued to pay off.
And it's a good thing.
Loan to deposits loans.
And deposits.
As I mentioned loan growth was good across the board.
And we feel good but our pipelines are strong and feel very good about where we are right now and it's much deposit growth was extraordinary growth a quarter and the year and we.
We hope to continue that growth is that really just the franchise value of the company.
On the credit side, we discuss credit the beginning of the presentation Needless to say the numbers, which are good to begin with if he's got even better.
It's a pretty low provisions, we took a 1.18 billion.
Millions and that really reserve release in my opinion.
Just on and economic factors, rather indication of overall portfolio.
So hard work of our credit team $275 million of loans were upgraded.
And $40 million on non accruals and paid off this was accomplished through portfolio sales and you sort of said the main street lending products.
Successful execution and we'd like.
Pending exit strategies.
We continue to cull the portfolio for cracks and understanding that your first loss is your best loss, we'd always look good on recovery.
I'll now turn the call over to day was going to provide some additional detail on other income expenses and taxes paid.
Alright, Thanks, Ed.
As usual I'll briefly touch on the significant noninterest income and noninterest expense sections that had changes from the prior quarter, starting with the noninterest income section our wealth management revenue increased $1 $8 million to $26 8 million and the fourth quarter compared to $25 million and the third quarter of 2020 and up.
7% from $25 million recorded and the year ago quarter.
This revenue source has been positively impacted by higher equity valuations, which impact the pricing on a portion of our managed assets accounts.
Mortgage banking revenue as Ed referred to was seasonally strong due to the continuing low interest rate environment.
It declined 20% or $21 7 million to $86 $8 million and the fourth quarter from the record level of $108 $5 million posted and the prior quarter and was up a strong 81% from the $47 nine nine recorded in the fourth quarter of last year.
The company originated approximately $2 $4 billion of mortgage loans for sale and the fourth quarter a record up from approximately $2 $2 billion on the prior quarter and up from substantially from the $1 2 billion of loans that we.
Originated for sale and the fourth quarter of last year.
The decline and the categories revenue from the prior quarter resulted from.
First a decrease on the value of the mortgage servicing rights related to the fair value model assumptions of $5 $2 million and the fourth quarter as compared to a decrease of three point and $1 million on the prior quarter.
And a drop of approximately half a billion dollars and the pipeline of mortgages being originated per sale, including a reduction of approximately 200 million debt. The company is earmarked to be originated on held for investment during the first quarter of 2021.
The company is required to record the valuable mortgage related derivatives related to the loans and the pipeline at quarter end that are estimated to be.
To close and to be sold now aside from the pipeline on the loans declines the revenue declines accordingly. Similarly, if the pipelines of loans per sale increases then we would see associated increases in net revenue. So the reduction of the pipelines by $500 million.
Sacrifices revenue and 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 and the fourth quarter and we also sacrifice the revenue on those loans and the current quarter.
But again should recognize the revenue through the margin going forward. So approximately a 192 that we kept on the books and 200 debt within the pipeline that we sacrifice the revenue on the current quarter for the benefit of future quarters.
While the mortgage revenue decline and it remains a very strong quarter for our mortgage banking business. We currently expect originations and the first quarter to be very strong again.
Due to the continuation on 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 rate capitalization servicing costs et cetera, but again, a record quarter and total we recorded our originated two and a half a billion dollars of loans that closed either per sale or that we kept on our on our balance our balance sheet.
Other non interest income totaled $19 $7 million and the fourth quarter up approximately $6 $4 million from $13 3 million recorded and the prior quarter and the primary reasons for the higher revenue and this category included $901000 of higher swap fee revenue and $2 6 million.
And so if higher income investments and partnerships, which are primary related to SB IC investments to support CRE on purposes.
Additionally, bully income was up approximately $1 $6 million from the third quarter, primarily as a result of a $9 million of higher earnings on bolt on investments that support deferred compensation and benefit plans, which were positively impacted by the.
On the equity market returns and.
And also on that point 9 million dollar death, and put that we recorded during the quarter.
I should note that the $9 million of increase related to deferred compensation plan would would show a similar increase in expenses. So the mouse and essence offset each other between the other income and the.
Compensation expense by $9 million.
Turning to the noninterest expense categories noninterest expenses totaled $281 $9 million for the fourth quarter up approximately $17 $6 million or 7% from the $2 $64.2 million recorded on 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 on the fourth quarter from the prior quarter.
The salary expense component of that category was up approximately $3 $7 million primary causes of the interest related to increased staffing to support the overall increase in mortgage originations and technology related to staffing to support our ongoing development of enhanced digital products and capabilities.
The reported amounts also saw the increase and the deferred compensation expense of a net $7 million that was impacted by the bully returns on I previously discussed.
Turning to commissions and incentive comp.
And that category was up $3 $9 million on the fourth quarter relative to the third quarter would that change me and driven largely by the additional commissions related to higher amount of post mortgages and slightly higher wealth management brokerage and trading activity and as well as a little bit of higher.
And incentive compensation expense recorded in the fourth quarter and have to remember that the commissions expense on mortgages are paid when the mortgage loans kohls.
And we had record closings and the current quarter that exceeded the prior quarter, whereas revenue is also recorded on.
And the pipelines, so a little bit of a disconnect there but.
<unk>.
Higher commissions due to higher closings.
Loss offsetting the aforementioned increases and employee benefits.
It was a decrease and employee benefits of approximately $520000 from the prior quarter due to a slight decrease and employee insurance claims and a slightly lower level of payroll taxes.
Equipment expense totaled $26 million, and the fourth quarter and increase of $3 $3 million as compared to the prior quarter total of $17 3 million.
The increase was due to increased software license <unk> license fees and expenses, including some increases related to our online mortgage usage PPP loan servicing and enhancements.
Network upgrades to support our growth and digital and enhancements and various other income.
<unk> upgrades as well as the write off of certain software systems that have been retired early and as a result of our.
Patient of news and certain new systems.
We continue to invest and software and technology to enhance our customer delivery system and products as well as invest on our systems and support our continued growth.
Occupancy expense totaled $19 7 million on 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.
And increased real estate tax assessments from the prior quarter and.
And a higher level of utility charges.
Advertising and marketing expenses increased by $2 million and the fourth quarter compared to the prior quarter. This was primarily related to increased digital advertising campaigns and.
And community impact and sports sponsorship spending his various community based on sports venues have begun to increase their events again.
And.
In summary.
If you look at this and add up the components.
And there was roughly $11 million of the increase relates to mortgage activity, including $6 $6 million of and additional earn out on the mortgage acquisitions, we had and roughly $4 $5 million of increased salary and benefit costs for the rec.
Our record level of mortgage closings during the during the quarter. So we would expect that to deep decrease and the future quarters as the pipelines are down and we believe we won't have any significant and.
Additional contingent consideration going forward and.
And we had the $1 $4 million of branch closures, so between those items and Thats.
Roughly.
12, plus million dollars of of expenses that were related to the mortgage and our branch closures that we would expect to decline and 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 had mentioned that our net overhead ratio.
Was 1.1 and 2%.
It was up slightly from the third quarter, but on a year to date basis. The net overhead ratio was one point on 5% went down 52 basis points from the 157% recorded and.
And 2019.
And with that and I will throw the discussion back over to Ed.
Thank you Dave.
2020 was a pretty interesting and challenging year to say the least some.
Some respect those are very respected very rewarding year.
That being said it would be nice to return to some degree of normalcy.
We always and are in the company, we are a mascot assist the foots and.
And remember it's just the force I think I've said this before on earlier calls and a push to rack up the Hill every day.
And every night and would fall down and you have to push it up the next day.
On 12 31 every year.
I tell everybody listen to the rock quality that we got to push it back up.
On our way to push it up this year I think we're very well positioned.
Start 2021, and a very good place.
We have to take what the market gives us.
And we need to grow through this low interest rate period.
That's in a way that maintains and above normal interest rate sensitivity position maintains our always on always conservative credit standards.
Earlier discussed all levers, we're pulling to increase earnings and the margin on.
And pipelines, you made strong and PPP round, three and give us and unexpected lift for the year and continue to cull the portfolio for problem credits.
To improve on all on our already stellar credit statistics and also today is assigned.
We will also continue to find other cost saving ideas.
However, we're always going to invest and the business not to do so to be absolutely fatal cash.
Capital levels, we've made it more and more than adequate levels.
The expansion front number 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 and all areas of our business. The recent rebound and our stock price we would now have.
Currency to use and deals.
And remember how much we are poor dilution.
So it's nice to get a little bit of currency back.
You can be assured of our consistent conservative approach.
Actual deals.
I'll say I wanted to and by saying 2021 marks our 30 <unk> year in business and day.
December 27, 2021, we will hit the three year.
On the 30 year anniversary opening our first bank.
Come a long way from the car tables and beer.
And that would hurt square feet and 11 employees.
We've now, 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 it and we could hit $50 billion 30 years.
And assure you that 30 years ago. This has never and our wildest dreams.
But it is kind of cool if you think about it.
As always you can be assured of our best efforts. We appreciate your support and now it can go over to questions. If there any out there.
As a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound key please standby, while we compile the Q&A roster.
Our first question comes from the line of John Armstrong from RBC Capital. Your line is now open.
Thanks, Good morning, guys.
Hey, good doing well and doing well.
Question on.
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.
And why you did it what you are putting on the balance sheet and and how far you want to take that.
Well.
We've got we're going to stay within that 10% to 15%.
GAAP position and we always desire but.
I don't want to go out and buy a bunch of mortgage backs and 141 I can get Keith jump.
<unk> loans on the books and three to three and a quarter.
And I know, it's got a payback of.
Call It a year.
But you know.
Why not.
We have to put this liquidity to work these are very good deals.
On the returns are pretty good on them.
Probably gave up between the 200 and we.
We book this quarter was 200 and next quarter gave up probably $8 billion and revenue grew 4% production margin.
400, it would be more than that.
A lot more at 16 million, maybe 13, and 14 million Bucks you would add additional revenue and this quarter certainly would've kept everybody happy on the <unk> front.
But it.
It just makes sense that rather and go out and do.
And with that way.
We can.
We can book them and put them on the margin.
And make.
And make some money as opposed to buying large bags is half the price.
Okay got it.
And John and John John and as Ed mentioned, we're targeting and maybe 10% of our production. So you know.
And it hurts a little bit but.
We're not.
We're not doing like half of our production, but it's still.
Still provides a long term benefit and and earning lumber to use going forward, although and sacrifices current quarter revenue right.
Right right Okay.
And then and then Dave just sticking on mortgage I know this kind of comes up every quarter, but.
Talk a little bit on but maybe your near term expectations for volumes and and maybe this matters more than ever but just remind us of.
Your ability to accordion and some of the mortgage mortgage expenses.
And if volume to really continue to come down in 'twenty, one and is that something we should be concerned about for the bottom line. Thanks.
Yeah. So.
I have to see where applications come in but we.
The pipelines are down half on half 1 billion. So if you look at that and say.
Between the investments and and.
And closings, we did two and a $5 billion.
And probably to be 2 billion plus or minus as far as.
And the and the first quarter and.
And then quite frankly, we have to see what the spring buying season like second quarter, because it could be more than that but I think all in including investments and per sale.
Building on plus or minus is reasonable. So we still think it's going to be a strong quarter a lot of the increase and the salaries expense.
Related to temporary.
And contract workers so.
And that goes to your accordion and those can go up and down rather quickly and.
So I think we can accordion and expenses.
Well and we manage for that and we're focused on that.
Unfortunately, the pipeline and the production has been strong recently, so we havent had to do this it's more it's more of an issue of and do you have enough people to process record volumes of production and and so we added this quarter to it.
We did have record production volume.
Record corn and Paul.
And we do think we kind of corp debt well, we do think the volume on will be strong and the first quarter net.
And quite as strong as well and a half million all and closings. We did this quarter, but still historically, a very strong quarter.
Okay.
Alright, Thanks, a lot guys.
Thank you. Our next question comes from the line of carrier and Nikolai from Stephens. Your line is now open.
Hi, Terry.
Terry.
Can you hear me.
Now we can hear you, okay, sorry about that the old Newport and my apologies maybe.
And maybe start with the net interest margin could you just talk about the outlook for the margin with and without kind of PPP fees and then a couple of times, you've mentioned that 15% to 30 basis point margin expansion as you kind of redeploy that excess liquidity and just over the next 12 months the opportunity to to achieve that NIM expansion.
To that event.
Closed the it'll depend really on loan growth and.
Deposit.
Deposit growth should have room to come down and that's going to happen.
Loan growth is going to happen.
But what it really depends on as well.
Figure, we can put $1 billion 1 billion and $5 worth of work and the investment portfolio, we're going to lag debt and no because rates because it seem like they're going up.
And why put it all on now and on hedge our bet a little I mean, I think they'll go up before they go down so.
And he got to deal with those numbers, we gave you which is good and that it might be a little bit more.
On the Caddo than you'd like but.
We will take advantage of what the market gives us and.
I think that the.
Next quarter, you should start seeing some benefit of it depending on where LIBOR goes and.
We are.
We think will be and 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.
And we gave you the ranges of where it's going to come.
I don't want to be.
And I don't want to be totally specific because it's all a function of.
And where market rates are where we think they are going and we don't want to lock in this margin, but we.
We do want to leave room for expansion.
So like today, and I think we've put about $600 million to work and that's it.
Fair number.
And the first quarter and full.
It'll won't work and the first quarter of the 1 billion and a half we think we have to play within the investment portfolio and we.
And we'll see where it goes from there and Dave you get on the other comment on that yes.
And the thing I would say Terry and I think the margin basically Bob Alto.
And it went down a few basis points this quarter, but you know we had significant liquidity come and again, so that you earn and 12 or 13 basis points on so.
The barring additional <unk> and liquidity coming down.
And all of which I think might have a little pressure if that happened, but we think the margins really bottomed out and the margin goes up from here as we do the and that Ed talked about.
And PPP.
PPP loans will the new PPP loans will come in to help offset the.
The run off of the old PPP loans, and we're I think we're in pretty good shape.
I think you know.
On the margin and that's really bottomed out here and and the bar and some big swing and.
The curve environment.
That would be negative to us.
Flat and even more went and burden.
And we don't expect that.
We think the margins bottomed out and and we have lots of love and I think that's one of the great. Recent we have here because we haven't modeled net.
Put to use and Theres on earnings lever, there and and and we believe we bottomed out and.
Now, let's just trying to time.
And how and when to put liquidity to work.
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.
Assuming they go back to more normal levels, which a year ago and the fourth quarter was $12 $5 million.
Yeah.
Well it just all depends on and what people are allowed back and stadiums.
We cut deals that always in the stadium, we shouldnt have to pay as much he paid and the past tickets and ticket issues and the like but.
With the onset of the of the being able to go get the shots.
By June and July and have people and there. So I don't know if it's going to be as high as it was in a higher.
<unk>.
We are still obligated to to.
To pay and if it is but I just thought that you're going to have fans and the stands for half of the year and what.
Which case it'll be less.
What can I say.
Sure.
You know I mean, just follow the baseball baseball's our biggest cost.
And if they don't have fans and the stands.
And they don't have to pay as much.
And the basketball and same thing, we still we have northwestern Marquette and Nepal.
And.
And the fans and the stands we don't have to pay us book So.
And because they are playing and it'll be more than last year, but.
And our high points to make sense.
Understood I appreciate that thanks, guys.
Thank you Sir.
Thank you.
Our next question comes from the line of Chris Mcgratty from <unk>. Your line is now open.
Hey, good morning.
And David.
Hey, Matt.
David I want to go back on the question on the mortgages you put on the balance sheet I've seen some of your <unk>.
Broader peers do similar strategies.
Fine.
Loans out of the warehouse and I'm wondering if.
If you could speak to the credit characteristics of these loans that are being put on.
Paul.
Let me, let mark to that.
Yeah, Chris it's.
And as you probably have seen from other banks right now and credit quality through our bank and also through our warehouse customers has really never been better I mean, if you look at average and characters scores and things.
On the box, obviously got tighter over the last number of years, but.
And what we're seeing right now is just outstanding.
Quality so.
I feel very good about holding use on our balance sheet.
And these are are these conforming or are these some sorry, you said, they're jumbo are they.
Prime or there was I think all day characteristics of them no. These are all prime and prime jumbo.
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 and I've always.
And you'd yourselves as more optimized capital versus massive excess but.
Interest and your thoughts, but dependent and Tom easing a bit.
Well, we really like we don't like dilution at all.
We love the accretive aspects of what we've done to date.
And being able to buy below book and tangible book value.
And in terms of helping earnings at all and all work right now the stock price up is a little tougher but.
You never know with.
With what's going on on the World go down again, we are prepared to buy it back.
And we hate dilution, we afford dilution we wanted to be accretive so it's.
As long as that.
Base, good sensible base and we saw some capacity to buy now.
Existing authority, Dave how much do we have.
Yes, so our initial authority was $125 million and we bought back $92 million to date.
And the first quarter of 2000, and we did.
$37 million, and then and the fourth quarter of 2020, and we did $54 9 million. So a total of $92 million.
Out of that program. So we had $32 $9 million left that we could.
Could do but.
And so generally we tried to be opportunistic.
And by it.
Generally you know our average price on the city and then.
And the fourth quarter was $56 a share.
And we'll monitor the price will look at you know what what other opportunities are out there for capital deployment as far as the growth and the.
Like in and play by play by ear.
And then maybe one more if I could obviously theres, a big big merger and the Midwest with with Huntington and Tcf.
Tcs Chicago is a little bit different but interested and any potential opportunities from dislocation.
And matter from fifth third zone couple of years back.
Oh Dislocate, we love it when that happens.
Dislocations.
Is there a middle name.
And with the Huntington deal Tcf was that that really that strong and Chicago.
With most of their.
Locations being and grocery stores.
And that really our cup of tea.
We call at Tcf was.
Years ago was the.
The fee King of the World.
And.
We don't play that game, so really those customers are welcome and our.
And our place, but I'll say sales care to sort of be product sort of thing and.
We'll see where that goes the other side.
The disruption caused by.
Hum fifth third buying.
And B is still ongoing and.
We.
We've hired a number of their bankers.
And we're getting good business from them, we actually started a new.
Currency Division.
It's coming from them, it's a business and <unk>.
Directly.
And I will very directly and our previous great, Dave and MRSA and I were all involved with.
We were the largest in the and the Chicago Fed district in terms of handling these guys.
And then B bought deal for us.
It was that.
They took it the fifth third and want it so that business is up for grabs we hired good people from them very profitable business. So.
That just the the.
And the business how big of its of lines of business you can pick up too which is kind of interesting. So disruptions good Theres recently announced day.
And 1 billion too.
Local bank.
And we compete being bought by by a downstate, Illinois Bank there'll be an opportunity for us. So we loved the disruption we love to.
Take advantage of it.
Right now we're excited about our prospects and.
And the PPP World.
We really are the way our system works and opening up but really before anybody else and the market was flawless execution.
And when it goes from soup to nuts very quickly.
Actually we were seeing a lesson demands on our customers now and trying to do outreach the prospects into flow.
We've always done for low to moderate some.
The low to moderate side of the equation we're running.
Local workshops.
And where people come in and actually do their applications.
And the practice and are there to answer questions and help them get through it.
But we think that the halo effect from the previous.
PPP wanted to hopefully will carryover into this one.
And our debts are pretty well cleared because of the efficiency and the hard work where people getting them cleared it's been awesome. So.
And.
Okay.
There's a lot of disruption a lot of opportunity and the market as I said, our pipelines are extremely full.
Coming from someplace.
We're not making it up as that expansion and just about it yet but.
So we continue to take business from our competitors.
Thanks, a lot for the color I appreciate it.
Thank you as a reminder to ask a question you will need to press star one on your telephone and withdraw your question press the pound key.
Our next question comes from the line of Nathan rate from Piper Sandler. Your line is now open.
Yeah, Hi, guys.
And just going back to that last point, Ed on Triple P. I.
I guess with the third round opening up here recently what are you.
Your expectations in terms of volumes coming out of debt over the next quarter or two.
Well, we're already and when I say 117 and $5 billion.
I think that.
Theres still some room, there and if it goes to one and a half for.
True.
It's kind of funky, we don't really go and open it up and general because of the broad aspects and knowing your customers importantly.
We have somebody on the prospect list. So that we do know for one word one shape or form or another.
Debt that we're now on the outreach, where a call on people and ask them about it.
<unk> and.
Existing customers, who we think are eligible whoever.
<unk> taken advantage of it.
Aspects and search.
And the low to match and we're working very hard on those.
I would say equity could be anywhere between one and half of $2 billion and if were one one now and 1415 on the low side $2 billion on the high side.
Good number just depends how long it goes and gets a restocking with money or not.
SBA as being kind of funky on.
Deals over.
2 million Bucks or.
And so because if you if you're a FERC if you never do on the first one.
And secondly, you go up to $10 million and this if you want.
But.
There'll be and kind of strange on the larger deals where they're pulling them in advance of its a second round mercury and I'm talking about debt a little.
Yes.
And right on the head.
We're just getting some interesting feedback from the SBA as it relates to some of these larger borrowers.
And I think theres going to be a heightened audit.
And.
Tension placed on these and.
And with the transition going on in Washington, right now, it's a little bit up on the air but generally speaking I mean, I think as it relates to volume. So I mean, that's right I mean, we've seen a tremendous amount of growth early on and this latest round by those highly affected customers and that's obviously good from Neil.
Our outstanding debt and staying on some of the fee recognition, but most importantly, and just deal. What we are seeing these customers who've really bad pounded and over the course of the last 10 months getting some help here is just really great to see just from just watching them and and watching our own portfolio. So.
Got it and that's helpful and kind of.
Changing gears along those lines.
Pete back out Triple P. It looks like loans were up 10% year over year and 2020.
With Onboarding more production on them.
On the.
Residential side and 2021, what are your kind of growth expectations, and 2021, and just keeping in mind the hires and so forth.
Debt ratio richer.
Rich or Tim correct me I'll take that.
Well, Yeah, I would just say just in general.
We have our guidance is kind of bad and that mid to high single digit growth over a number of years here and.
Going into this year I think we were thinking that it was going to be maybe one of the more challenging years to get that Fortunately. It just we have so many different.
Loan engine that we utilize and.
You take a look at this year we saw.
Every one of them really have a pretty solid year. So the premium finance group had a just a spectacular year.
CRE had a good first half of the year and 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.
And 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 rate right back at that mid to high single digit growth range. So obviously a lot of it depends on how the economy continues to rebound but.
Overall, feeling pretty good.
Okay got it and the Permian.
Sure.
Tim do you anything you want to say about that.
No I think rich covered it but we do believe the PPP process, we will continue to yield good prospects for us and that will help us get to those numbers. So.
Nothing that otherwise.
Yeah, Okay, great and looking at all sorts of things.
And things that that there.
And <unk>.
As these shots starts and I'm getting my shot on Monday, but other than that.
I'm, an old Guy and give my shot.
And as that starts happening there's so much pent up demand I think it's going to explode.
Ever tried to buy a refrigerator or any sort of hard assets right now it takes forever to get it because inventories are so low.
You can see and inventory build Colorado will require really even consider what's going on there.
Require a probably more line usage on line usage States day at 4900, 50%.
You may see a little bit more come on with.
But I think we're on a roll out of this income two and in July one when you get the herd immunity if everything works right. So.
Debt, who know I think that we're saying that we're gonna be and high single digits. This year based on all the information we have right now but.
But.
It's just going to enhance and I think.
Okay, great and if I could just ask one more on expenses just trying to fulfill all of those items that were discussed earlier. The MBA is forecasting volume to be down 2022% this year and with advertising spend perhaps not likely to get back to full run rate levels.
And then you've got the branch consolidations and closures and the contingent consideration, perhaps going away entirely.
And we expect expenses versus 2020 to be up low single digit or flattish and your thoughts just overall along those lines.
Well, you know and so a lot of it really depends on where and that mortgage number comes out at but.
If you followed the MBA for cash.
And you know.
I'll ask sort of being equal.
Probably.
Mid single digit expense growth is sort of.
Where I would expect it to come out because we do do some salary increases and we are growing and we are investing in digital.
The improvements et cetera, so mid mid single digits is about right.
Okay, Great that's very helpful.
Hi.
One thing to keep in mind as well.
We did double up on the.
The mortgage sales.
By keeping 10 per cent of the book this quarter and.
Taking 10% out of the next quarter, we had all the expenses and other revenue over that so little bit wild there too, but I don't think expenses are as bad as everybody thinks they are to take the one timers plus debt a little move we made it's a timing issue with a lot of it but we shall see.
Yep sounds good.
Scott.
Thank you. Our next question comes from the line of Michael Young from tuition Securities. Your line is now open.
First of all and thanks for taking the question.
That's the first true as securities I've heard from anybody.
[laughter], well glad glad to make the introduction.
Well, it's up by Covid and good.
Yeah, Yeah doing well just wanted to ask maybe a kind of a higher level question, you've you've in the past kind of referred people to the net overhead ratio and it kind of balanced growth and investment with with the earnings and profitability is that still kind of how you're thinking and managing the business, obviously coming out and kind of the fog of war.
You will where do you think we can get to on that ratio. If that's still the rate ratio to look out.
Yes, I think it is.
We're fortunate.
Have the more why we have the mortgage business, while we invest and as for times exactly like this when rates go down and can pick it up for us.
And it certainly helps that overhead ratio and you look at almost equaled what the what the run off of the.
Of the <unk>.
Margin wise.
But there'll be a period of time and there we're going to get kind of influx here there'll be influx where.
And it's Gotta go up and the margin will be moved and we hope day of the margin moving as fast we shall see but.
And we always said less than one and a half was good we've lowered that down to one but with our size down to about 135, one for one on.
25 to 135 would be a good number for us and.
And the budget, that's what Tim do you remember.
Well, yes, we typically don't give out the budget numbers, but yeah.
I think I think and on sort of a normal more normal margin market I think in the $1 <unk> is probably where we would.
I think we could be given the current environment.
We're better than that right now because mortgages, so strong, but if mortgages falloff and then.
Thank you you've probably we are targeting 150 before we've grown so much we think thats, probably and the $1 <unk> now.
Yeah.
And we wouldn't we would hope that debt.
We were up 30 basis points the margin goes up to 30 basis points to that's kind of how we work it.
So you can file the math there.
Pretty easy.
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 would there be any opportunities to consolidate maybe one or two of those I know you've used it as part of the wealth strategy and the path and you Havent thought that made sense, but.
And this environment have things changed at all there.
You know everything is open but right now.
Right now, we're very happy with where we are I mean.
Net overhead ratio.
And from.
And put it this way.
It's not just a.
On a cost issue because the costs are minimal.
If you think about everything behind the scenes is already consolidated and.
And runs that way.
Strictly a.
Morale.
And the 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.
Going to.
Move out of the Chicago area, which.
Probably would have to happen in the next two or three or four years.
We probably would start collapsing charters here and.
I like the number of <unk>.
And nice to have.
People, who know.
And the markets and.
They are running their shops and feeling good about it.
So yes, we could do it but I think it would be a function of.
The expansion out of our current market area, where we would want to keep a charter and the different area and we were.
It's just there'll be a function of growth so that you get down to it but nothing nothing on the horizon now.
And we're growing we're growing awfully fast we're doing pretty well credit is good.
I would just try to screw it up.
And it makes sense alright. Thanks.
Thank you at this time on is showing no further questions I would like to turn the call back over to Mr. Edward <unk> for closing remarks.
Well. Thank you. We appreciate you all listening in today.
Okay.
And get your shots, if you can and I'll, let you know how it goes for me.
And they never bother me that much but.
This is going to be an interesting time and interesting here I think you can see that we kind of have our hands around what we wanted to do and let's see if we can get there.
But if you look at our history with a 10% <unk> growth.
With our growth and lower historical 10 year growth and loans you take it back 30 years and see the numbers are even better but over the last 10 years, we've got terrific growth.
And then earnings and net book value and assets and deposits I would put our I'd put on our results upticks everybody anybody so keep the face we will.
We're working on everybody's best behalf.
We'll talk to you soon and if you have any additional questions feel free to call me or Dave or Merck for Tim or Dave Star or Keith Bogey and have a great day, everybody and thank you very much.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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