Q4 2021 Wintrust Financial Corp Earnings Call

Thank you Matt.

Welcome to <unk> financial Corporation's fourth quarter, and full year 2021 earnings conference call.

Review of the results will be made by Edward Weymer, founder and Chief Executive Officer, Tim Crane, President, David Dykstra, Vice Chairman and Chief operating Officer, and Richard Murphy, Vice Chairman and Chief lending Officer.

As part of their reviews, the presenters may make reference to both the earnings press release and the earnings release presentation.

Following their presentations there will be a formal question and answer session.

During the course of today's call when Trust 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 <unk>.

Actual results to differ materially from the information discussed during this call are detailed in our earnings press release and 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 earnings release presentation include a reconciliation of each non-GAAP financial measure to the nearest comparable GAAP financial measure.

As a reminder, this conference call is being recorded.

Now I'll turn the conference call over to Mr. Edward Weymer.

Good morning, everybody and welcome to our fourth quarter 'twenty one earnings call.

With me always are Dave Dykstra.

Dave Starkey bogey, Tim Crane and rich Murphy.

At the same format as we usually as we adapted early in the year it seems you're pretty well.

I'll give some general comments regarding our results.

Turn it over to Tim for more detail on the balance sheet.

Dave Dykstra resilience of other income and expense.

Murphy will then follow up with.

The discussion on credit.

And back to me for some summary comments about the future.

And.

And time for questions.

Some of you already know 12 27 21.

Mark the <unk> anniversary of US opening our first bank.

Little more than $6 billion of capital raised from friends neighbors and family 11, Hardy souls embarked on the journey.

Absolutely no delusions of grandeur.

Our goal is simple to create a new type of community bank clinical buy in high touch banking technology.

Hi Tech high touch.

However, people and businesses and the communities we serve.

All along at the center of our homegrown.

All along the side of our homegrown culture, and four pillars, our shareholders employees customers and communities we serve.

Waver from that commitment in the 30 years, we've been in existence.

Of course this anniversary I've been asked many times, what I'm most proud of about wind trusts.

The <unk> 400 employees in makeup of entrust and I'm pretty proud of that.

<unk> 50 billion in banking assets and $35 billion in wealth management.

As we amassed over the years and pretty proud of that too.

As our record earnings we have delivered over the years, yes.

In fact, our stock price books.

So the fact that stock price both century, Mark feel pretty.

Who out there too.

We would say I'm very proud of however, what I'm. Most proud of is the fact, our culture has endured over that period culture dedicated doing the right thing for our constituents all the time.

Take the blame share the fame and avoid the shame and enjoy the game our culture in a nutshell have endured even though we have grown beyond our wildest dreams.

So enough of the walk down memory Lane, let's talk about.

The quarter year to date results, although another very successful quarter previous calls I referred to as <unk>.

$1 billion quarters, so its different its a $2 billion a quarter.

As a trop $2 $3 billion to $50, one 4 billion, some 2% growth of $5 $1 billion versus 12 31 'twenty.

Corals in a pvp in loans held for sale.

I went to $34 2 billion.

$2 billion for the quarter 16, 16, 6% growth.

Or about five $4 9 billion.

Plasma support $2 billion or $2 1 billion to our.

Growth for the quarter, 13, 5% or $5 2 billion up to <unk> 20.

Bogo, who is enhanced by the purchase portfolios Lisa Jones from Allstate, approximately $550 million, Tim will talk about this a little bit more.

On the balance sheet front, our strategy, which we adapted the start of the pandemic in April 2020.

Of growing through the period and enhancing our interest rate sensitivity position has paid off in spades.

Mortgage and PPP loans took us through the depth of the pandemic our.

Our growth in core loans was more than replace the earnings power of these assets.

We're extremely well positioned for higher rates.

They appear to be here finally.

Well, Paul Harvey page.

Yes.

The earnings front, we recorded record year $466 million or <unk> 50 per diluted common share.

<unk> recorded income of $99 million dollars 58 per diluted common share.

We have a sense of the FERC third quarter, mainly because of the deposit precision.

It was a $9 3 million.

As opposed to negative provision of almost $8 million.

Positive provision was brought about by.

The acquisition double accounting, we have to do there.

And the fact that our grow loans have grown so.

IC.

Net interest income was up $8 5 million compared to Q3.

Core net interest income was up $15 $5 million.

As the PPP transfusion was down 7 million Bucks.

Earning asset.

Well basically loan levels.

Five basis point decline in deposit costs are major causes change.

Loan pipelines remain consistently strong plus we started 2000 22022, a nice head start.

Ending loan balances.

December Arizona at $136 billion.

Slide utilization was up a smidge, that's kind of a smidge is that technical term, we use around here, but not close to historical averages. We will discuss at Murphy will talk about this in detail names over $1 billion loan growth, if and when utilization returned to normal.

NIM was down slightly four basis points of additional liquidity.

You can expect us to begin investing our excess liquidity characterized our liquidity portfolios lower three years closer to almost six plus years, we will be prudent in our investment timing, though.

Credit quality got even better believe it or not <unk> will also cover this in his review of credit I will note that we did conduct an asset sale noted in our release.

We'll continue to cull the portfolio through the bad assets potentially bad assets as soon as possible.

<unk> pre tax pre provision income was up approximately $5 million $146 3 million.

We expect to sell an occasion to grow nicely in 2022, especially when rates rise as anticipated on this in my closing remarks.

Last point I want to make is our wealth management business assets under administration were up almost $1 billion in the quarter approximately $5 5 billion year over year to $35 5 billion.

14% growth rate.

Obviously the market of these zones with core growth of account.

<unk> is impressive.

<unk> run rates when from an annualized $107 million of fourth quarter, 2021 or $30 million of fall.

Quarter of 2021.

2000, 2000 22020.

Hey, guys I feel like Joe Biden there.

Okay.

So I'm not going to talk for two hours.

Very proud of the progress made this year and look forward to.

Our continued growth in this area that a lot of momentum there I'll turn it over Tim will take us through the balance sheet.

Great. Thanks, Ed.

To highlight a couple of balance sheet items as well as comment on a couple items likely to be of interest.

The $2 billion in loan growth that Ed referenced was spread nicely across all categories rich will add some color to that but it includes the $578 million of loans.

From the previously announced November purchased of the Allstate Agency loans.

This portfolio is a very nice add to our existing agency lending business.

Importantly, unlike some loan portfolio purchases that run off over time. This is a business that we believe we can continue to sustain and grow.

It's also important to note that the overall loan growth does not yet include much benefit from increased line utilization, where we only saw a modest improvement in the quarter.

On an annualized basis, the loan growth for the quarter, excluding the portfolio purchase and PPP was 18%.

Third straight quarter at or above 15%.

And Ed mentioned that the period end loan balances were well above the quarter average balances.

Obviously, PPP loans continue to run off down a little over a $5 billion in the quarter and now totaled $558 million a number we expect to decline relatively quickly with continued forgiveness activity.

Into 2022.

We expect continued strong loan growth, while our guidance remains our historical mid to high single digit loan growth on a percentage basis net of PPP. Our short term performance should continue to be at or above the high end of that range and likely better than peers.

The $2 billion of deposit growth.

Just under half of that was noninterest bearing deposits and the rest at very low cost.

As a result interest bearing deposit cost declined to 24 basis points.

While we believe there is some continued room for decline the changes will be smaller going forward as the majority of deposits have repriced during the low rate cycle.

On the investment front, we remained very liquid with approximately $6 1 billion in liquidity at year end.

And securities balance is essentially flat.

While I expect we will begin to deploy some of the liquidity in the first part of 'twenty two at somewhat higher rates than we saw in the fourth quarter, we remain cautious about locking in low long term yields and remain very well positioned for rates at higher levels.

On that topic anticipating a question or two about rising rates we've.

We've reported for several quarters that we are focused on remaining interest rate sensitive expecting the possibility of higher rates that continues to be the case and we will benefit from upward changes that the market is starting to price into the consensus forward curves.

Just a couple of highlights reinforcing ed's earlier comments.

Approximately 80% of our loans re price within a year you can see this on page 12 of the supplemental presentation.

Our spreads simply our loan yields versus our deposit cost improved for the third straight quarter.

Securities yields for many instruments are 20 to 50 basis highest higher than they were even a month ago.

And while it's slightly more complicated than this given loan floors loan indices.

The betas and competitor actions.

We believe each 25 basis point change in rates.

It's worth about $40 million to $50 million and pretax net interest income on an annualized basis.

Youll see thats in a paragraph on the second page of our press release.

The only thing that I would add is that early in the cycle deposit costs tend not to rise as rapidly as they may following subsequent later increases.

You can obviously do the math, but our net interest margin for the quarter was down four basis points attributed solely to the continued impact of more liquidity.

Absent that excess liquidity, our margin would have actually expanded by two basis points.

Without large continued inflows we expect the margin has bottomed and will certainly improve as rates begin to trend up.

Going forward, each 25 basis point increase in rates equates to approximately a 10 basis point improvement in margin and and Thats a big F. The current consensus rate forecast plays out it's conceivable margin will be around 3% at year end.

On the capital front, the bank's capital levels were down slightly as a result of the strong growth in the quarter, but remain well within our targeted levels and appropriate on a risk adjusted basis.

Lastly, we continue to be very pleased by our market momentum.

Last quarter, we highlighted the favorable Greenwich ratings and the satisfaction of our commercial clients.

I would add that when trust ended 2021 is the top SBA lender in Illinois.

In terms of customer behavior, we continue to see digital usage increased nicely in 2022, we will continue to improve on our digital offerings with a near total revamp of our consumer and small business digital services.

In addition to our high Tech improvements, we will also enhance our high touch activities with the addition of locations in Oak Park, Illinois in Rockford, Illinois, both attractive markets, where wind trust historically has had a limited presence.

As you can tell we feel very good about where we began 2022.

And with that I'll hand, it over to Dave.

Sure.

Great. Thanks, Tim I'll cover the noteworthy income statement categories.

Starting with the net interest income.

Some redundancy within Tim's comments here, but we will just go through quickly for the fourth quarter of 2021 net interest income totaled $296 million, an increase of $8 5 million as compared to the third quarter of 2021, and an increase of $36 6 million as compared to the fourth quarter of 2020.

<unk> was $5 million increase in net interest income in the fourth quarter compared to the prior quarter was primary due to average, earning asset growth, which was up 17, 4% on an annualized basis over the prior quarter net.

Net interest margin declined four basis points to $2 55 beneficial decline of six basis points for the rates paid on liabilities was offset by seven basis point decline on the yield on earning assets and a three basis point decline in the net free funds contribution.

<unk> and the decline in the reported net interest margin.

The yield on earning asset decline.

In the fourth quarter compared to the third quarter was as Tim said was almost entirely due to the short term liquidity build that we had during the quarter and.

And the decline in the interest bearing liability rate was primarily associated with a five basis point decline in our interest bearing deposits.

Mostly due to the repricing of time deposits.

It's important to note that the net interest income expanded despite the $7 million less of interest income associated with the PPP portfolio in the fourth quarter.

And the net interest margin would have stayed relatively stable excluding the impact of the PPP portfolio.

And would be down only one basis point.

Tim Crane mentioned the margin was affected by this excess liquidity on our balance sheet.

And that the rates are higher than they were a month ago. So as we begin to deploy some of that liquidity into the market. We expect the net interest income and net interest margin to benefit from that although we will continue to be cautious on deploying the liquidity.

Turning to the provision for credit losses, <unk> recorded a provision for credit losses of $9 $3 million compared to a negative provision of $7 $9 million from the prior quarter and $1 $2 million provision expense recorded in the year ago quarter.

The provision expense in the fourth quarter was driven largely by loan growth, excluding PPP loans of approximately $2.1 billion, including loans related to the acquisition of the insurance agency lending portfolio.

And also increased slightly due to a small rise in net charge offs.

Offsetting those increases for the provision where improvements in the macroeconomic environment and in the loan portfolio characteristics during the quarter, including improving loan risk rating migration.

Rich will cover credit quality in additional detail in just a couple of minutes.

Turning to the other noninterest income and noninterest expense sections.

In the noninterest income portion of the income statement, our wealth management revenue increased $1 million to another record level of $32 $5 million in the fourth quarter compared to $31 $5 million in the third quarter and up 21% from the $26 $8 million recorded in the year ago quarter.

Mortgage banking revenue saw a reasonably solid loan origination volume during the fourth quarter with lock adjusted origination volumes down approximately 22%, which was consistent with the guidance. We provided in our prior quarter's earnings release mortgage banking revenue decreased $2 7 million to $53 1 million in the fourth quarter revenue.

Was lower in the current quarter, primarily due to the lower lock adjusted origination volume combined with slight compression in the related production margin.

The lower production revenue was partially offset by a favorable favorable fair value adjustment of mortgage servicing rights. The company recorded a positive $6 $7 million valuation adjustment in the fourth quarter 'twenty, one related to mortgage servicing rights compared to a decrease of 888000 in the prior quarter.

Looking forward based on current market conditions, we anticipate mortgage revenue, excluding any MSR valuation adjustments to be fairly similar to the first quarter.

Fairly similar in the first quarter of 2022, as we experienced in the fourth quarter 2021.

Obviously, the mortgage servicing rights valuation is tied closely to interest rates and we're not going to speculate on what those may be at the end of the first quarter of 2022, but based on current market conditions.

It would point to a higher valuation, but obviously lots of time to go yet in the quarter.

Other noninterest income totaled $18 9 million in the fourth quarter of 2021 down approximately $4 $5 million from the $23 4 million recorded in the prior quarter.

Two primary reasons for the lower revenue in this category include $1 $3 million of lower swap fee revenue and $3 $7 million of lower income from investments and partnerships, which are primarily related to investments that we have to support our CRA purposes.

In the noninterest expense categories noninterest expense stayed relatively stable with the past five quarters and totaled $283 4 million in the fourth quarter up approximately $1 $3 million from the $282 1 million recorded in the prior quarter.

There are a handful of categories that account for the majority of the change from the prior quarter that I'll focus on but I think it's important to put the expense growth in the context of the company growing its balance sheet by $2 $3 billion during the quarter.

Salaries and employee benefits expense decreased by $3 8 million in the fourth quarter of <unk> 21, compared to the third quarter of the year.

The decline is primarily related to a $7 $1 million of lower compensation expense associated with mortgage banking commissions and incentive compensation program expense.

In the fourth quarter relative to the third quarter with those savings, partially offset by increased staffing costs as the company continues to grow.

Software and equipment expense totaled $23 $7 million in the fourth quarter that was an increase of $1 $7 million as compared to the prior quarter.

The increase was primarily due to accelerated depreciation related to the reduction in the useful life of certain software that is being that is planned to be replaced we continued to upgrade our digital customer experience as well as increased expenses associated with upgrading our data centers and <unk>.

Other software enhancements to support our growth ongoing digital enhancements and cyber security efforts.

Oreo expenses were actually negative by approximately 641000 in the fourth quarter as the company recorded gains of approximately $843000 on sales of Oreo properties.

These gains were an amount that exceeded the aggregate cost of the Oreo expenses and valuation charges on other Oreo properties.

Although this expense category was negative it was approximately $890000 less negative than the third quarter, which also had gains on the sale of Oreo properties.

I think it's important to note that we've been aggressive in liquidating Oreo assets in the amount of already on our balance sheet.

At the end of the year was a mere $4 3 million compared to $13 8 million at the end of the prior quarter and $16 $6 million at the end of 2020.

Other than the expense categories I just discussed no other expense category had a change of more than $900000 and all those other expense categories in the aggregate were up less than $2 5 million compared to the third quarter of 2021.

The net overhead ratio a measure of operational efficiency remained relatively stable in the fourth quarter relative to the third quarter. The net over at net overhead ratio stood at 121%, which is down one basis points from the one 2% recorded in the third quarter and.

And the ratio continues to benefit from strong balance sheet growth and good mortgage banking results.

The efficiency ratio also stayed relatively stable at approximately 66% in both the third and the fourth quarters of the year.

So in summary, the core fundamentals were strong with growth in pretax pre provision net income robust loan and deposit growth increased net interest income despite sizable PPP loan reductions.

Another record wealth management revenue quarter seasonally adjusted strong mortgage banking revenues relatively stable net overhead efficiency ratio strong pipelines and fantastic credit metrics, so with that I'll turn it over to rich.

Thanks, Dave.

As noted earlier credit performance for the fourth quarter was very solid from a number of perspectives.

As detailed on slide five of the deck loan growth for the quarter net of PPP was just over $2 billion.

As Tim noted that number included the Allstate portfolio acquisition of $578 million, resulting in net loan growth of over $1 4 billion equally.

Equally as important and similar to the third quarter was the nature of this growth, which was spread across our loan portfolio, specifically winter us life loans, which were up $387 million core C&I loans, which were up $392 million.

First insurance funding, which was up $239 million. In addition, the asset based lending group leasing and franchise teams all showed solid growth.

This quarter's growth close out a very productive year for wind Trust, where we saw net loan growth excluding PPP of $4 9 billion $4 3 billion. If you net out the Allstate acquisition, an increase of 14, 6% for the year.

As noted in prior earnings calls, we continue to see very solid momentum in our core C&I portfolio portfolio pipelines have been strong throughout the year and we saw that materialize into increased outstandings during the past two quarters.

We continue to believe that ongoing market disruption and our success during PPP are the primary driving factors.

We are optimistic about loan growth in 2022 for a number of reasons.

Our pipelines continue to be very strong line utilization as detailed on slide 18 continues to trend up from 36% to 40%. During this past year, when netting out mortgage warehouse lines and we anticipate this trend will continue.

We have seen the average loan size in our first insurance portfolio grow by over 10%. This past year to 39000 and over 40000 in the fourth quarter. We believe these levels will continue into 2022.

And winter slight finance had a very strong year growing their portfolio by 20%. This momentum was maintained through the fourth quarter and should continue into 2022.

As a result, as Tim mentioned, we are reaffirming our loan growth guidance of mid to high single digit growth through 2022.

We think our short term performance should continue to be at the higher end of that range and we should continue to outperform our peer group.

From a credit quality perspective as detailed on slide 17, we continue to see solid credit performance across the portfolio. This can be seen in a number of metrics.

Nonperforming loans decreased from $90 million or 27 basis points to $74 million or 21 basis points a.

A meaningful part of this reduction came from the sale of a $10 million portfolio of loans. The majority of these were nonperforming.

Npls continue to be at record low levels and roughly half of where they were this time last year.

Charge offs for the quarter were $6 2 million approximately $2 million of which was a result of the loan sale that we just discussed.

And we as Dave pointed out we continue to see credit risk ratings show positive migration as our customers continue to recover from the pandemic.

That concludes my comments on credit and I'll turn it back to Ed to wrap up.

Good job.

As I mentioned at the end of the call. Our strategy has been to grow the balance sheet during the period of low rates use our structural hedges mortgages.

Mortgages to buffer the loss of net interest income so as of the time as balance sheet growth can offset.

Fee income was due to lower rates.

<unk> is one unexpected benefit add on to this strategy.

Both of those be accomplished while enhancing our interest rate sensitivity position.

<unk> <unk> of higher rates.

In the near term, which appear to be on the near term horizon.

We're more than covered the PPP loan run off which was our goal with core loans.

It is fair to say that to date. This change has been accomplished in spades.

Excellent growth, we've put up over this period and they all say preferred purchase has been organic other than the Allstate.

Portfolio, which has been organic.

The acquisition market appears to be getting more accurate so expectations remain fairly high.

Two to evaluate opportunities in all areas of our business as they arise.

As you know we take what the market gives us the right hours given its great organic growth.

We will continue our historical approach to potential deals.

Where it makes sense as you all know I'm deathly allergic to earnings and book value dilution.

Sure well positioned wherever the market brings us credit metrics are at their lowest levels in years.

Loan pipelines remain consistently strong across the board.

We expect this to continue due to our reputation in the market the market disruption that has and will continue to take place.

Riverside, earning asset base continues continues to serve us well.

Our line utilization should rise of inflation stay strong.

We're $1 billion of additional loan growth if you will.

<unk> returned to historical levels.

Who we expect wealth management revenue and asset to continue the current glide path.

Mortgages should continue to be meaningful, but with lower contributions in 2021.

As we mentioned in previous comments, our asset sensitivity business in places and position the advantage of the rising rates.

As Tim said every quarter point should add 4% to $50 million towards net interest income on an annualized basis.

I'm very much looking forward to seeing my beach volume, it's been under water for a long time.

We have the ability to put more of our liquidity to use if it run as rates rise.

We've already been legging into this strategy.

<unk>.

We're always and have always been a growth company and this has not changed.

As your direct your attention to the charts on pages four through eight in the release the.

The CAGR is indicated in those charts.

All of our vital statistics, because there is 10 years of work.

Numbers would be similar if not better if you went back to impair 30 years of our existence.

I put this body of work against any other bank in the country.

I'm very proud of our entire interest team who worked so hard to make this happen.

<unk> 30 years bring.

With that I'll turn it over to for questions.

Yes.

As a reminder to ask a question. Please press star one on your Touchtone telephone to withdraw your question press the pound key once again Thats star one on your Touchtone telephone to ask a question. Please standby, while we compile the Q&A roster.

Our first question comes from the line of John <unk> of RBC capital markets. Your line is open.

Good morning, guys.

Hi, John Good morning, John .

Good.

Congrats on the 30 years.

<unk> 50 billion.

Notable arguably it isn't that hard to believe.

Maybe.

Tim or Mark can you talk a little bit about the.

Kind of late growth in the quarter and what you think drove that it's a pretty good jumping off point for Q1, but anything notable that you'd call out on that.

No I don't think so I think I think if you look back.

Prior year ends you see a similar phenomenon.

There is always a rush to.

Get deals closed before year end.

C&I was up but.

Again as I pointed out.

It was really across categories.

Just a big Rush also in the life finance area deals closing before the end of the year.

So I don't think its really atypical for a year end.

But it was very pronounced this year, we were earlier in the quarter.

We are commenting that.

The.

The feedback were getting was very solid performance for the quarter, but it wasn't materializing and then just really in December it really started to ramp up quite a bit and I really just think it's a function of just that deadline of $12 31 in the holidays and everybody just.

Pushing things across the line so.

And the other thing is I think everybody was dealing with.

A fair amount of capacity issues from attorneys and appraisers and everybody else and.

There was definitely a push at the end here to get things through the pipeline. So.

Other than that I don't know Tim would you add anything no I think that maybe a handful of people that thinking that they were going to complete some sort of transaction trying to get it in before some tax related activity might have come up but that turned out not to be the case alright lets see turned out there was a lot of really no change in the fourth quarter.

A lot of things that didn't close are going to close in the first quarter. So.

Sorry, John we missed you there Jim.

But you are still saying no no real change in the pipeline despite that strength at year end.

Yes.

The pipeline looks pretty strong.

Okay.

Tim your comment on deposit cost not ryzen early.

In a rate hike cycle, what point do you start to think about that or maybe said another way how much runway do you think you have in terms of your deposit betas.

Yes, John I think it's going to be hard to tell because a lot of the market has a lot of liquidity right now and so.

Mike prior cycles, where people might have been a little bit higher on the loan to deposit scale.

We'll just kind of have to see we've seen very little deposit competition, so far and.

Given the very low levels, we start at.

The betas will obviously work themselves up over the cycle.

Yes.

I think Kevin This is Dave I think if you look at the prior cycle, we didn't see any rates in the first two right.

<unk> by the fed and you really only started to see pressure on the third rate hike of 25.

Its efficacy.

Right and the timing of all that and what competition, but as Tim said with all the liquidity in the market.

I expect it to happen any faster than that we think it could potentially the betas could lag a little bit more than that given all of the deposits in the system.

It seems that way.

Just a quick one for you Dave on mortgage on your mortgage guidance you are saying.

Start with the $28 million production revenue number add servicing and then take our best shot at it.

MSR valuation is not the right way to look at it.

Yes.

Are the other way is just take the $53 million of total mortgage banking revenue and back off the $6 $7 million of MSR and say that that's your base, but yes, okay. Okay. Great. Thanks, guys.

Just a point on that we think are written actual actual closed originations will probably be down just a little bit in the first quarter, but we think the pipeline will build at the end of the at the end of the quarter. So if that happens the lock adjusted origination should be fairly similar in that revenue should be fairly similar.

Okay.

Thank you. Our next question comes from David Long of Raymond James. Please go ahead.

Good morning, everyone.

Good good.

You guys talked a little bit about the strong loan growth in the quarter, but just curious if I could get a little bit more color on what are these new relationships as utilization uptick Inc.

Where where where are these new loans coming from.

Yes, I think utilization as we talked about is up a little bit.

Businesses are doing better and utilization is very real.

We have probably a ways to go there and you think you would see numbers closer to 50%. We're at 40%. So I think theres still lots of headroom, there, but I think in general.

Thinking about the different loan products.

Most of this is really coming as a result of market disruption in the C&I space because we as we've talked about in prior calls I think we are really kind of become the bank in Chicago to go to.

And.

You look at what's going on with CIBC in some of the changes there you look at.

What's happened with MB fifth third and a lot of the changes there.

First Midwest acquisition Theres, just a lot of things that have gone on where decisions arent getting made locally anymore and we've always positioned ourselves opening remarks talked about this is we are the we have always been the local alternative to the big banks, we continue to be that and people do like that they like being able to walk in and.

Meet with the people, who are making the credit decisions, making the people who are.

Running the company. It is a key differentiator and most of that is resulting in these new relationships coming over but then if you look at like the life portfolio that is that's all new relationships I mean that is just people.

Is that really like the product see how it fits into their estate planning.

Has become a much more popular product in the industry and.

We are just capturing market share of that and getting more opportunities. So it definitely is new relationships.

Got it and then on the deposit side sort of the same direction here, but at $2 billion in growth in the quarter is this are these sticky deposits do you expect these to stay on I talked about the deposit beta but but.

We'll be deposit stay on the balance sheet.

Expect a run off at any point once once rates start moving higher.

Well I think I have a mix issue in ratio moving higher but but.

I'll add to sits in demand right now.

But.

I believe we don't know basically.

Well people pull out of money out they all had a lot of cash they pull it out pull out will it come back to us probably.

<unk>.

But.

That's why we're being a little bit slow on our.

We take this into consideration as we look at the.

Investing.

Our excess liquidity.

Comment yes.

Think thats, all right Theres, probably a little bit of tax related activity that will occur in April . There is obviously people have sold some businesses that are parked money for for their tax obligations, but we watch it very carefully David in.

We will react appropriately.

It was a lot of a lot of growth.

Yes, definitely and then just.

So far this quarter.

What was that.

Seems to be hanging in there so far right.

Got it got it I.

I may have missed this with data.

But were there any merger in merger charges associated with the Allstate portfolio that was purchased that were baked into the operating expense number in the quarter.

Yes. It was a very small I mean, we had legal fees associated with that David.

Great.

A very small amount less less than half a million or so.

Nothing significant.

Great. Thanks, guys I appreciate it.

Thank you. Our next question comes from Terry Mcevoy of.

Stephens Your question please.

Hi, good morning, how are you.

How have you been.

Good. Thanks, I went back it took a decade to grow your deposits $2 billion you crossed that Mark in 2001, where as you did that just in the last quarter. So congrats on the fourth quarter.

Yes.

I guess a couple of questions can you maybe how are you thinking about expense growth in 2022, a lot of talk of wage inflation, but then on the flip side, maybe a softer mortgage market.

Will impact some of your salaries and benefits.

Dave.

Yes, I think that context is probably correct area and I think the way we look at it.

It will sound like a broken record compared to prior quarters as we try to focus on that net overhead ratio.

Because.

The mortgage business, if it goes up and down.

The expenses go up and down.

And so we look at the operating leverage from that perspective.

It's in the low 120 of the last two quarters, we expect to sort of hold that line.

Bit if mortgages go down then it's possible that that trends up into the $1 30 range. So I think our target for net overhead ratio is still sort of in the 130 basis point range.

But we expect to get leverage but there clearly is some some pressure on wages out there, but as you said.

Mortgage volumes are down then that those commissions will be down and related expenses.

<unk>.

We also we also have those expenses supporting sprint business right loans and deposits. So is the spread business goes up there's a lot of built in growth already.

Actually for next quarter with over $1 billion worth of ending on earning assets over average and so those spread income will start to come through in the growth in the balance sheet will offset it. So we do think there'll be some pressure there, but we're also investing in.

Robotic process automation in some areas so not that it.

<unk> necessarily.

Would would cut a bunch of.

Positions, but it would eliminate the need to add positions as we grow and so we're going to be able to leverage technology.

And the like and so some of the digital enhancements, we're doing are going to reduce time to complete.

Complete some some functions in the organization, which should also help.

Let us leverage those technological advancements for growth. So yes, there is pressure there, but but we also think there's leverage in the system and certainly if.

We don't think that our net overhead ratio.

Targets are going up.

We think we can grow into any of those sort of increases and if there is a rate increase then that way more than offset any pressure that you would have won on those line items.

Thanks for that Dave and then just as a follow up your commentary on bank M&A.

A few years ago, you are looking and talking about larger deals.

I guess is the message here youre going to take what the market gives you if something pops up or is there a bias towards a larger transaction.

Think about markets would you be willing to expand into a newer market.

I really don't think we've changed we're very opportunistic as it comes to acquisitions.

I can't.

The couple of quarters ago.

Got that.

The Big Bank kind of accounts that that was just chum in the water.

I get a shark upper a whale or below.

Hello, Fisher I don't know, but.

Tom.

I can't imagine us doing.

Bigger deal right now.

<unk>.

It drives me Crazy.

Talk to people evolve.

$1 billion add up.

All worried about themselves are not about their shareholders drives me nuts said that before I'll say it again.

But.

And we're going to be opportunistic in terms of.

I can't imagine us doing a very large deal.

But I can't imagine us doing.

Deal that.

Either end market.

Spanning the market to contiguous states I think.

Northwest, Indiana is still on our in our bucket list, we got to get there to expand in Wisconsin.

And in the rest of the Illinois.

Sure.

But we only have 8% 9% market share here in Chicago.

Plenty of room for us to grow here.

As Tim mentioned, we're opening up a couple of new branches.

New areas, we're not in those.

Those numbers are still have to get to.

So we would take what the market gives us.

I can't imagine, we'll do a big deal but.

We're always looking and we'll be very opportunistic, but as I said I'm allergic to.

Dilution.

They've got a big Epipen.

Think we do a big deal that would dilute the crap out of us.

I appreciate that thank you.

Yes.

It's intriguing that I could.

He has an episode on that but we'll wait for another day.

Yes.

Thanks.

Thank you. Our next question comes from Ben <unk> of.

Your line is open.

Good morning, guys.

Good morning.

I was curious.

In your opening remarks.

Every rate hike equates to about 10 basis points on the margin I was curious.

Since you guys are asset sensitive is there any part of that Tam a delayed effect than for example, if the market is pricing in a hike in March would you believe to see that turn in the second quarter or is it just really conservative immediately three following on.

Sure.

Well.

I guess, what we would point to is just what we said at night, so $40 million to $50 million over the next.

All 12 months and so.

Okay.

I think I think it's going to depend on competition.

The other things.

Past that that bill.

And if it's front end loaded or not I think as Tim indicated.

Based upon an earlier question that Theres, probably a lag in the deposit costs rise because of all the liquidity in the market, which it may be front end loaded a little bit more.

You could get an increase on your earning assets a little quicker than your deposits are going to reprice, but.

There are so many moving parts to that.

The equation at what could happen with the slope of the yield curve et cetera, but I think that general guidance is good right now and we will try to fine tune it as rates go up.

I think we'll just stick with what we gave you there.

Got you Okay. That's fair and then when you think about.

Hiring and the potential for talent, obviously expenses.

Increased industry wide in terms of the salary line and the guidance is for even more I was curious how you guys.

Approach.

Talent and the cost associated with that you need to see.

Revenue associated with the town of ours are supporting back offices that can potentially also increase the salary line items.

Well I can take part of that and Dave can add I mean, we continue to believe we're an attractive endpoint for bankers and revenue producers and rich talked about the disruption in the market that will.

We will drive that.

Is there a little bit of pressure from a wage standpoint, yes, I don't think thats anything atypical from our standpoint at this point.

Generally hiring commercial bankers so.

We think the people are really important they will help us continue to grow the company.

The back office side of things.

We're doing a lot to limit the number of people, we would need and the ability to scale up.

So.

There'll be some impact, but I don't think it'll be outsized at this point.

Yes, I think we're always generally.

In the market for revenue produced producers right.

And so maybe that adds a little bit until they bring their book over with them, but.

If we can hire good people that produce.

Loans I mean, we're always investing in the business right. So we would do that if there is good people and we always have for the last 30 years. So no change in that approach.

Gotcha, Okay I appreciate it thanks guys.

Okay.

Thank you. Our next question comes from Brock Vandervliet of UBS. Your line is open.

Good morning, Thanks for the thanks for the question.

I guess going back to I think as David <unk> question on deposit trends.

Sure.

Youre kind of in line with other banks in terms of having a vacuum.

25 increased your deposit base 25, 30% since Covid started have you.

Have your bankers started engaging with large.

<unk> of deposits to try and get a sense of.

Their stickiness.

Or is that is that coming are you trying to.

Claire Cochin and Thats.

And move into a higher rate environment.

Well, Tim is in charge of stickiness.

Right.

A good question and Brian we actually have we are our structure is well positioned to do that because each of our banks can reach out to their largest clients.

Sort of determine.

What their intentions are.

As we did that in the fourth quarter.

Didn't see people reporting.

Large outflows are large volatility and remember some of the deposit growth is actually consumer based and related to new account activity and the stimulus payments and alike, but.

We are currently pleased that we're up to about 34%, 35% DDA.

It's obviously helpful to us going forward and a lot of it's related to the addition of new clients. So.

<unk> point earlier, we will watch for some volatility but.

We still think absent all of the noise, we have and would have had very very strong deposit growth.

Got it Okay, and then separately.

I've been noticing.

Noticing this for a couple of quarters just in terms of wealth management.

It seems like many.

Community, even regional banks larger banks struggle with wealth management, it's a product that's a line item, but it just doesn't move.

Clearly not the case here and just if you were to kind.

Now to briefly summarize your go to market strategy, there and why you think it's.

Distinctive versus.

Yes, maybe more traditional.

Bank wealth offerings.

Well.

It took a long time together.

Their wealth management business is a tough business.

And we thought we'd be there and then another piece.

Last year, they said all the pieces are here.

Dave <unk> he was talking about the bears at time.

Scared the Hell on me, but they've been able to go and build and grow.

I would say their approach to market is kind of the same as ours, It's high touch high Tech.

It seems to be resolved.

Resonating well with the clients.

Our name is out there a little bit more.

Our size helps.

Our reputation is out there.

We're doing a better job of cross selling so.

Hi.

I don't know if we do anything different other than the fact that our products are growing our service is good our name is good.

<unk>.

That's how we're doing it so.

One brick at a time.

Okay sounds good.

Thank you. Our next question comes from Chris Mcgratty of K VW. Please go ahead.

Hey, good morning.

Ed you mentioned.

Dave mentioned, the 3% NIM.

By the end of the year.

Im interested if the futures is right.

I'm interested in what assumptions you may be making on just the mix of your balance sheet, given the elevated cash in that assumption.

Chris It's Tim.

The assumption is that we deploy a little bit of liquidity and that we continue to get the growth that we've talked about.

Part of it is obviously pure interest rate help as the various indices move but.

They're pretty simplistic assumptions.

I think we just have to be careful is that there are bunch of deposit indices and theres competitors in the mix.

Number of other factors so.

We just wanted to be a little bit cautious in terms of forecasting what that might look like but.

We're clearly positioned to benefit from rates up and expect that we will get a nice lift.

Okay, but that doesn't assume.

Liquidity levels go to pre pandemic levels, that's just a slow gradual remax right, yes, yes, it's not assuming Michaels if youre wondering if it assumes all 6 billion of excess liquidity to work, it's not doing that.

Yes slow steady investment so.

What I was getting at thank you.

Maybe another question maybe for Ed.

You guys have had a good history of having a pulse on big changes in the market I remember the financial crisis, you guys pull back.

Everything is going really well.

What's the.

Whats the wall of worry if there is one.

<unk>.

I don't know we worry about everything.

We're basic bold time bankers, that's why at the end of my initial comments above you have to look at how we responded to everything from.

The great recession to the pandemic.

911, and during that period of time, we've been able to maneuver in.

We're very very quickly.

To react to that.

I think that that.

That's the same situation here, we don't know what the market is going to give us.

But we're going to take what it gives us that get greedy.

We're diversified enough to know that something isn't working.

We don't have to do that we could do something else will be working.

So.

I guess, what I am.

Worry about most is although deposit stay which I'm always worried about that.

Loan quality cannot be this good for I keep saying that but.

Going to continue to cull the portfolio and might even do another sale or so just to keep that obviously even lower.

So.

I don't know where you guys say.

I think I think that's the worry.

Win rates low for long I think the bigger concern was was there a race to the bottom on spot.

Loan pricing, because it's better than fed funds concept I think with the with the perception now that rates are going up I think people arent going to want to lock lock in those low loan rates, but if for some reason we went back to.

Low for long rate environment, you worry that people just continue to price down the loan products, but.

Our pipelines and our ability to get loans on our pricing metrics.

<unk>.

<unk> set we have as far as profitability, we've been able to do it. So if you're worried about it but I think that worry is sort of.

Goes away a little bit with rising rates because people don't want.

In the lower spreads so.

Just hope they increase the rates but.

Competition is something we will deal with all the time, but as we saw in <unk> hundred seven people race to the bottom on spreads.

I was concerned that might happen, but I think that concern is going away now Chris I, maybe would add to what Dave said I think that.

The old adage about.

The worst loans are made in the best of times.

The thing that we the credit team here is constantly thinking about which is when there is so much liquidity in the marketplace you see banks doing irrational things and we just have to be constantly mindful that there is no loan out there that we absolutely have to do we have good loan growth.

If you just can't get there because somebody else is doing something stupid, you just got to step away and.

We think we've made good prudent credit decisions, but it is a very competitive market out there and.

Just as Ed said credit can stay this good forever.

<unk>.

Time will tell.

That's great color. Thank you very much.

Thank you. Our next question comes from Nathan race of Piper Sandler Your line is open.

Nathan.

Please make sure your line is muted.

<unk> phone lift your handset.

Apologies there I appreciate you guys I. Appreciate you guys, taking the questions just going back to the excess liquidity deployment discussion just given the greater slope that we've seen in the yield curve of late is it maybe more of the willingness their sense of urgency to maybe put some liquidity to work in higher yielding securities in the first half of this year as opposed to maybe up.

More of a latter approach.

Particularly just given the potential for the long end of the curve to flatten out as the fed raises short term rates and start to unwind its balance sheet.

It's a great question.

Les we've begun legging into it a little bit we have plenty of liquidity to do so.

We're going to take our time make sure that there is some.

He said earlier to make sure those deposits are going to stay the growth is very worried about that a little bit but.

Sure.

We are certainly good sources of deposits not just on our retail side, but <unk>, our deferred exchange Scott produces a lot of deposits.

Management produces a lot of deposits. So we have a very good business.

Deposit source, but.

And by Us.

No I don't think Theres, a rush I think we're patient and we have been rewarded a little bit as rates have moved quite a bit in the last month or so.

As we said we're going to deploy some but I don't think were in a hurry.

Yes.

I'd love to use it via loan growth I mean, and deploy it that way and see where deposits take us, but that's our first choice.

We still like the deposit to your inventory, we want to get more and more deposits I mean, I don't know.

Problem with.

And deposits and liquidity just another lever we can pull when the time is right.

So.

We are very active in terms of getting more deposits for our customers and putting that out just because.

Yes, more inventory that.

Yes.

Nathan I don't think anybody can predict what that yield curve is going to do so we've invested at all right now I guarantee you the.

Conventional ginnie Maes that go up 50 basis points.

<unk>.

Next quarter, so we're going to.

We're going to be.

Later and see what the market gives I mean, the market expectation for rate increases are completely different now than they were three quarters ago or two quarters ago. So I.

I don't think anybody knows what it does so.

We will take it over time, and we'll be prudent but.

Tim says vaults are the first choice.

Choice and then latter end of this liquidity and see where it takes us.

Personally I believe anyway, and this inflation as we said all along.

Is that a transitory it's never was.

You're closer to a spiral with anybody who wants to tell you you are.

Quarter have pointed to going to cut it personally.

Or even a full point isn't going to stop.

Way too much liquidity the government's way to involve.

Sure.

So I actually believe that.

You're going to see even higher rates than are.

Coming down the Pike, but we will have the forecasted but that's my personal opinion.

We got to just be very prudent in how we lay the money out of <unk>.

Lay it all out and make a bet that way but.

We're so well positioned right now.

To take advantage of whatever the market brings us in pretty good shape. So.

The leg into it and the timing will be somewhat to the cattle but.

We'll see.

That's a great lever to have default.

Yes, definitely I appreciate that color on a separate topic just thinking about mortgage.

Related expenses, and just kind of the outlook along those lines this year.

Perhaps or Dave if mortgage volumes are maybe half the levels that we saw in the first quarter of 2021 is it as simple as kind of looking at the comp line and assume that is also reduced by half or have there been other kind of implementations within the mortgage cost structure that could lead.

That expense bucket to be maybe a little more variable than what we've seen in the past from you guys as the volumes come down.

I don't think its exactly linear.

Spreads in the first quarter of last year were a lot higher so is there a spread compression that revenue goes away.

But their commissions are based upon units not based on revenue so.

I don't think its linear because.

Cool.

If you got into the higher.

Production quarters margins were much much wider and so.

It's not quite linear, but if you sort of normalize the production margins.

And then I think you can get closer to your concept, but I think you have to take into account that under Dodd Frank you can't pay commissions based on the revenue you generate you have to pay commissions based on the units and so I think you'd have to normalize your revenues.

Which is why we always push to the net overhead ratio.

It's hard to know where theyre going to be.

The net overhead ratio at current levels or one.

We're expecting.

130, <unk> or $1 21 in this quarter, but our target is really sort of a $1 30 to 135 range.

Mortgages pick up.

That number will go down.

But the other thing you can you can think of the name.

MSR is going to play into this too so if rates go up and our volumes down MSR has gone up.

Evaluation is going to go up and our servicing portfolio continues to grow and so we will have additional revenues off of that too but.

So lots of lots of moving parts there.

Unlike account the MSR.

Do we but fact is it does add to earnings and capital and does that.

Does help.

On the way up and that hurts on the way down so.

I guess I'm, just kind of going back to a more normalized mortgage environment, maybe in the first quarter of 2020.

Incentive comp was 32.

So if you guys do a similar level of volumes in the first quarter of this year is that kind of a good level go up or has there been any kind of nuances within your mortgage structure that could cause those expenses to be more variable than what we've seen in the past.

I don't think we've really changed our cost structure there but.

I remember the incentive line.

In the press release includes bonuses and long term incentive comp and commissions for wealth and mortgage and everything else is not just the mortgage line.

Got it.

I really appreciate all the color thanks, everyone.

Thank you.

Thank you again to ask a question. Please press star one and you touched on China, calling again star one on your Touchtone telephone to ask a question.

Our next question comes from the line Michael Young of Choice Securities. Your line is open.

Hey, Thanks for taking the question.

Happy Happy 30 years Ed.

Call back a couple of your references.

Frame that into question so.

Starting off the year this year, maybe pushing more of a beach fall up the hill what areas do you want to sort of reinvest in some of the higher rates kind of pull through and really benefit.

The earnings stream.

Well.

<unk> never stopped investing in the business I mean, we're a growth company you have to invest in the business.

We've always kept.

Earnings growth tangible book value growth in mind.

So while we are who we are continue to invest in the <unk>.

Digital channels.

Of that about three years ago.

We have not done a very good job of explaining to you how much we spent but it's been a lot of money we spent too.

<unk>.

I will get out there.

It's working because all the Greenwich Awards, we won as you can see in the.

In the earnings release.

June we're going to rollout a major component of.

Deep Blue, which is full remake of the individual or the retail digital stuff.

We're in great shape to do that but stuff is expensive so.

We do monitor we do we think we'll be fine.

We care, we prioritized nicely.

Robotics is something we're looking into a lot of the law.

Our different businesses.

You take that you can take some of these road.

Procedure as we go through and.

Make them non people, which should keep the people costs down and.

They had to productivity.

We always look for other businesses that we can get into.

<unk> added a couple this year smaller ones.

We continue to do that and continue to do that.

Diversification is still very important on both the deposit and the.

And the asset side.

So we will look for other.

Deposit sources and.

Loan products to get out there.

And our people people happy.

So.

Miss anything Dave.

No I think thats, good epipen, Universal Epipen, Swabbing Epipen, many epipen I like poking at.

Yeah.

Perfect.

And then my second question is just a follow up on kind of the liquidity management asset. If we look back to like 2018 as rates were rising and reaching higher levels. It was more of a mid teens kind of percentage of earning assets versus 23% today.

<unk> was yielding somewhere around two 7% versus one 9% today. So is there anything structurally changed either within the company or within the market that would prevent it from getting back to those levels. If we were back into that sort of rate environment in a year or two years from now.

It really all depends on loan growth, we always ran 85% to 90% loan to deposits time, we got overnight, where 92% 93 and beyond.

Im comfortable that other people are happy.

But.

You get the 85 to 90.

Personal loans and deposits.

Bring it back down to.

A little bit lower levels in terms of the overall.

Liquidity portfolio.

So we're about three years duration on all of our liquidity, including their money.

Excluding the overnight money we have.

Musical iron six five years so.

That's kind of going to be the basis of his appointment as.

Love to get the loans back to 85% to 90, which is our target range.

But.

And then invest after that.

Makes sense.

Yes, no I think it does just real quick on the duration you were saying at six five years now.

Yeah.

Astoria and Thats, what we have been asked.

Or three we're a little over $3 one now.

So plenty of room to okay.

Growth.

Okay perfect. Thanks, I appreciate it.

Thank you. Our next question comes from Russell Gunther of D. A Davidson your line is open.

Hey, good afternoon, guys I just have one follow up on the overhead ratio discussion so.

Commentary of a 120 moving towards 130 to 135 that longer term target is mortgage normalizes.

As we overlay the asset sensitivity discussion and that glide path to a 3% margin.

In that scenario do you think you can sustain around current levels or even improve upon.

Or are the franchise investment and growth mode still likely to take us to that 130 ish range.

Well, the 130 doesn't really get impacted by margin because the net overhead ratio was noninterest income minus noninterest expense and that take that result divided by average assets and so.

That's how we sort of breakdown as we look at managing the company and manage your margin you manage your provision costs and the new manager net net overhead.

Ratio, which is non margin related so.

<unk>.

The increase in rates other than potentially reducing mortgage production.

Not really have an impact on the net overhead ratio. So we've been <unk> 120 and were 120 this quarter with a relatively.

<unk>.

Softer rich seasonally softer mortgage volume so.

But that included an MSR adjustment if you take that MSR adjustment out youre up closer to 130, so the $1 30 sort of us.

Today's sort of environment without an MSR benefit and.

So we think as we continue to grow we should be able to hold that or improve upon it as we get operating leverage but rising rates doesn't necessarily directly impacted net overhead ratio and if you think back.

5% was was there a net overhead goal.

<unk> been able to get more leverage into the system as we've been able to grow.

And so down to $1 30 to 135 is not bad.

That's the kind of leverage we picked up by.

Being able to handle more assets with under that.

Under that.

Expense base so.

As we continue to grow next year, we came in at.

Now hypothetically I don't know what happened with like 60 billion that going to happen but.

I would expect them to go down even more.

As you get more and more leverage out of it but.

We shall see yes, so so I think the shortage.

The only thing the rates impact on the net net overhead ratio generally speaking is.

Yes.

The mortgage rates go up and mortgage servicing rights going to gain in value and you're probably going to put pressure on your originations.

And so you just have to take that into account.

I appreciate it guys.

Explanation and thank you for that and then maybe asked a different way on the in that 3% margin range do you expect to be able to demonstrate overall positive operating leverage in 'twenty two.

From an efficiency perspective.

Yes, yes.

Okay, Alright got it.

Thank you again, that's it for me thank.

Thank you.

Thank you we have a follow up question from Brock Vandervliet of UBS. Your question. Please.

Thanks for taking the follow up just on just on mortgage I was looking through the press release here.

Half the volume was refi I am assuming that should be following them pretty fast here given the move in rates are you.

Trimming expenses in that.

In that segment preparing for heavier sailing or Havent, you moved in that direction yet.

Oh yeah.

We've been able to.

A reduced staff in the mortgage area.

The data that show because we utilize them in a different area.

Our premium finance life business is growing so fast we need to get some help.

But.

We got really good people, we like to keep them involved but.

We are we are monitoring mortgage.

Mortgage costs.

We want to keep that fixed variable concept going.

Lower fixed expense get more variable variable expenses.

We're accomplishing that I believe and we'll go from there but yes.

It all the time.

I think <unk> in the first quarter, we're probably thinking 60%.

Purchased 60%, 65% purchase and refi ticking down but.

Even even though some of the.

Potential borrowers.

Arent in a position to do a refi just because of lower rates, we are seeing some cash out refis.

A big part of the refi volume now so people kind of use and the 30 year product as their home equity product of old and and so thats keeping that refi volume up a little bit because there's a fair amount of cash out refi is going on and people are willing to maybe even do it at a little bit higher rate because.

Yes.

30 year am on the loan versus a home equity line, which would be a lower am and they keep their payments down. So we're seeing a lot of cash out refis.

We are finally in a place that youre going to youre going to see.

Obviously home values continue to go up.

People will go back to that pattern.

It always is.

If you look at the parent.

Mortgage and home equity line.

The old equity line pay up the home equity line with a new mortgage and go from there.

I would imagine we're kind of getting into that period of time, that's kind of the inflationary way to do it I guess.

Okay.

I noticed the MSR market.

112 basis points, where youre carrying that MSR asset just for context back in 18, or so before before rates started coming down.

Was that.

Roughly I'm just trying to.

Gauge what kind of a ceiling, we could have on that on that mark.

Brian I don't have that in front of me I'll a lot there was a time, where those numbers were in the one 130 range. So I don't know if that was 2018 or not but it certainly could go up higher than this 130 to 140 makes sense.

And we've got a hell of a lot more than we had back then so.

Okay, Great I appreciate all the color guys.

Thank you.

Thank you at this time I would like to turn the call back over to Edward <unk> for closing remarks, Sir.

Everybody for listening in.

We'll give you our best efforts going forward.

Turning to take what the market gives us that get greedy.

Don't be stupid to do the right thing like we've always done.

Again hats off to our staff who.

I have been through Hell and back to make this happen.

They do a wonderful job keeping.

Keeping our customers happy.

And.

Talk to you in a quarter. If you have any questions. Please don't hesitate to call any of us on the call. Thank you very much.

Yes.

<unk> seen in April .

This concludes today's conference call. Thank you for participating you may now disconnect.

[music].

Yes.

[music].

[music].

[music].

Yes.

Welcome to win for US financial Corporation's fourth quarter and full year 2021 earnings Conference call. A review of the results will be made by Edward Weymer, founder and Chief Executive Officer, Tim Crane, President, David Dykstra, Vice Chairman and Chief operating Officer.

And Richard Murphy, Vice Chairman and Chief lending officer as part of their reviews. The presenters may make reference to both the earnings press release and the earnings release presentation.

Following their presentations there will be a formal question and answer session. During the course of today's call. When trust 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 in 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 the company's most recent Form 10-K and any subsequent filings on file with the SEC also our remarks.

We may reference certain non-GAAP financial measures.

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

As a reminder, this conference call is being recorded I will now turn the conference call over to Mr. Edward waiver.

Good morning, everybody and welcome to our fourth quarter 'twenty one earnings call.

As always are Dave Dykstra.

David Starkey bogey, Tim Crane and rich Murphy.

We will have the same format as we usually as we adapted earlier in the year seems to do pretty well.

I'll give some general comments regarding our results.

Turn it over to Tim for more detail on the balance sheet.

Turn it over to Dave Dykstra is you're going to have other income and expense.

Murphy will then follow up with.

The discussion on credit.

And back to me for some summary comments about the future.

<unk>.

And then time for questions.

Some of you already know 12, 27 21 marked the 13th anniversary of US opening our first bank.

Little more than $6 billion of capital raised from friends neighbors and family 11, Hardy souls embarked on the journey.

But absolutely no delusions of grandeur.

Although as simple to create a new type of community Bank of America.

By a high touch banking, but technology <unk> high Tech high touch.

Our people and businesses in the communities we serve.

All along at the center of our homegrown.

All along the <unk> culture.

Four pillars.

Shareholders employees customers and communities we serve.

Waver from that commitment in the 30 years, we've been in existence.

Of course this anniversary I've been asked many times, what I'm most proud of about wind Trust.

<unk> thousand 400 employees in makeup of entrust and I'm pretty proud of that.

<unk> 50 billion in banking assets and $35 billion in wealth management assets, we've amassed over the years have pretty proud of that too.

So the record earnings we have delivered over the years, yes.

In fact, our stock price book.

So the fact of its stock price both century park feel pretty good about that too.

We would say I'm very proud of however, what I'm. Most proud of is the fact, our culture has endured over that period.

<unk> dedicated doing the right thing for our constituents all the time.

Take the blame share the famous avoid the shame and enjoy the game our culture in a nutshell have endured even though we have grown beyond our wildest dreams.

So now for the walk down memory Lane, let's talk about.

Quarter year to date results, although another very successful quarter previous calls I referred to.

As $1 billion of quarters. So it is different it's a $2 billion a quarter.

<unk> two $3 billion to $50, one 4 billion.

2% growth are $5 1 billion versus.

Versus 12 31 'twenty.

Carlo <unk> and loans held for sale.

I went to $34 2 billion.

$2 billion for the quarter, 16, 16, 6% growth for <unk>.

$504 9 billion.

Classes, the $42 billion or $2 1 billion.

Growth for the quarter, 13, 5% or $5 2 billion up to sell through on 'twenty.

Bogo was enhanced by the purchase portfolios <unk> Jones from RBC, approximately $550 million, Tim will talk about this a little bit more.

And the balance sheet front, our strategy, which we adapted the start of the pandemic in April 2020.

Our growing through the period enhancing our interest rate sensitivity position has paid off in spades.

Origin, PPP loans took us through the depth of the pandemic as.

Our growth in core loans was more than replace the earnings power of these assets.

We are extremely well positioned for higher rates.

They appear to be here finally.

Hi, Paul Harvey paid.

On the earnings front, we recorded record year 466 million incentive fee per diluted common share.

We recorded income of $99 million of dollars 58 per diluted common share <unk> results for the third quarter, mainly because of the positive precision.

Is it a $9 3 million.

As opposed to negative provision of almost $8 million.

Positive provision was brought about by.

The acquisition of the double accounting, we have to do there.

And the fact that our growth loans have grown so nicely.

Net interest income was up $8 5 million compared to Q3.

Core net interest income was up $15 5 million.

As the PPP Transfused was down 7 million Bucks.

Earning asset.

Well basically loan levels.

Five basis point decline in deposit costs, a major change.

Loan pipelines remain consistently strong plus we start 2000 22022.

Head start.

Ending loan balances.

In December our results at $136 billion.

But utilization was up a smidge, that's kind of a smidge is that technical term, we use around here, but not close to historical averages, but we'll discuss as Marshall talked about this in detail names over $1 billion loan growth, if and when utilization returned to normal.

NIM was down slightly four basis points of additional liquidity to rates rise you can expect us to begin testing our excess liquidity characterizing our liquidity portfolios lower three years closer to almost six plus years, we will be prudent in our investment timing, though.

Credit quality got even better believe it or not <unk> will also cover this in his review of credit I will note that we did conduct an asset sale noted in our release.

We'll continue to cull the portfolio gives it a bad asset essentially bad assets as soon as possible.

<unk> pre tax pre provision income was up approximately $5 million 146 by $3 million.

We expect to some of the key to grow nicely in 2022, especially as rates rise as anticipated on this in my closing remarks.

Last point I want to make is our wealth management business assets under administration were up almost $1 billion in the quarter approximately $5 $5 billion year over year to $35 5 billion.

14% growth rate.

Obviously the market is very good core growth of accounts.

Our account does is impressive.

<unk> run rates.

Annualized $107 million of fourth quarter, 2021, $30 million of fourth quarter of 2021.

202000 22020.

Yeah, again, I feel like Joe Biden there.

So I'm not going to talk for two hours.

Very proud of the progress made this year look forward.

Our continued growth in this area that a lot of momentum there I'll turn it over Tim will take you through the balance sheet.

Great. Thanks, Ed I'd like to highlight a couple of balance sheet items as well as comment on a couple of items likely to be of interest.

The $2 billion in loan growth that Ed referenced was spread nicely across all categories rich will add some color to that but it includes the $578 million of loans.

From the previously announced November purchased of the Allstate Agency loans.

This portfolio is a very nice add to our existing agency lending business.

<unk>, Unlike some loan portfolio purchases that run off overtime.

This is a business that we believe we can continue to sustain and grow.

It's also important to note that the overall loan growth does not yet include much benefit from increased line utilization, where we only saw a modest improvement in the quarter.

On an annualized basis, the loan growth for the quarter, excluding the portfolio purchase and PPP was 18%.

Third straight quarter at or above, 15% and Ed mentioned that the period end loan balances were well above the quarter average balances.

Obviously, PPP loans continue to run off down a little over a $5 billion in the quarter and now totaled $558 million a number we expect to decline relatively quickly with continued forgiveness activity.

Into 2022, we expect continued strong loan growth, while our guidance remains our historical mid to high single digit loan growth on a percentage basis net of PPP. Our short term performance should continue to be at or above the high end of that range and likely better than peers.

The $2 billion of deposit growth just under half of that was noninterest bearing deposits and the rest at very low cost.

As a result interest bearing deposit costs declined to 24 basis points.

While we believe there is some continued room for decline the changes will be smaller going forward as the majority of deposits have repriced during the low rate cycle.

On the investment front, we remained very liquid with approximately $6 1 billion in liquidity at year end and securities balance is essentially flat.

While I expect we will begin to deploy some of the liquidity in the first part of 'twenty two at somewhat higher rates than we saw in the fourth quarter, we remain cautious about locking in low long term yields and remain very well positioned for rates at higher levels.

On that topic anticipating a question or two about rising rates we've.

We've reported for several quarters that we have focused on remaining interest rate sensitive expecting the possibility of higher rates that continues to be the case and we will benefit from upward changes that the market is starting to price into the consensus forward curves.

Just a couple of highlights reinforcing ed's earlier comments.

Approximately 80% of our loans re price within a year you can see this on page 12 of the supplemental presentation.

Our spreads simply our loan yields versus our deposit cost improved for the third straight quarter.

Securities yields for many instruments are 20 to 50 basis highest higher than they were even a month ago.

And while it's slightly more complicated than this given loan floors loan indices deposit betas and competitor actions, we believe each 25 basis point change in rates.

Worth about $40 million to $50 million and pre tax net interest income on an annualized basis and youll see thats in a paragraph on the second page of our press release.

The only thing that I would add is that early in the cycle deposit costs tend not to rise as rapidly as they may following subsequent later increases.

You can obviously do the math, but our net interest margin for the quarter was down four basis points.

Attributed solely to the continued impact of more liquidity.

Upset that excess liquidity, our margin would have actually expanded by two basis points.

Without large continued inflows we expect the margin has bottomed and will certainly improve as rates begin to trend up.

Going forward, each 25 basis point increase in rates equates to approximately a 10 basis point improvement in margin.

Yes, and Thats a big if the current consensus rate forecast plays out it's conceivable margin will be around 3% at year end.

On the capital front, the bank's capital levels are down slightly as a result of the strong growth in the quarter, but remain well within our targeted levels and appropriate on a risk adjusted basis.

Lastly, we continue to be very pleased by our market momentum.

Last quarter, we highlighted the favorable Greenwich ratings and the satisfaction of our commercial clients.

I would add that when trust ended 2021 is the top SBA lender in Illinois.

In terms of customer behavior, we continue to see digital usage increased nicely in 2022, we will continue to improve on our digital offerings with a near total revamp of our consumer and small business digital services.

In addition to our high Tech improvements, we will also enhance our high touch activities with the addition of locations in Oak Park, Illinois, Rockford, Illinois, both attractive markets, where wind trust historically has had a limited presence.

As you can tell we feel very good about where we begin 2022.

And with that I'll hand, it over to Dave.

Yes.

Great. Thanks, Tim I'll cover the noteworthy income statement categories.

Starting with the net interest income.

Some redundancy within Tim's comments here, but we will just go through quickly for the fourth quarter of 2021 net interest income totaled $296 million, an increase of $8 5 million as compared to the third quarter of 2021, and an increase of $36 6 million as compared to the fourth quarter of 2020.

<unk> was $5 million increase in net interest income in the fourth quarter compared to the prior quarter was primary due to average, earning asset growth, which was up 17, 4% on an annualized basis over the prior quarter.

Net interest margin declined four basis points to $2 55.

Beneficial decline of six basis points for the rates paid on liabilities was offset by seven basis point decline on the yield on earning assets and a three basis point decline in the net free funds contribution resulting in the decline in our reported net interest margin.

The yield on earning assets decline.

In the fourth quarter compared to the third quarter was as Tim said was almost entirely due to the short term liquidity build that we had during the quarter and.

And the decline in the interest bearing liability rate was primarily associated with a five basis point decline in our interest bearing deposits.

Mostly due to the repricing of time deposits.

It is important to note that the net interest income expanded despite the $7 million less of interest income associated with the PPP portfolio in the fourth quarter.

And the net interest margin would have stayed relatively stable excluding the impact of the PPP portfolio.

And would be down only one basis points.

Tim Crane mentioned the margin was affected by this excess liquidity on our balance sheet.

And that the rates are higher than they were a month ago. So as we begin to deploy some of that liquidity into them.

We expect the net interest income and net interest margin to benefit from that although we will continue to be cautious on deploying the liquidity.

Turning to the provision for credit losses, when we recorded a provision for credit losses of $9 3 million compared to a negative provision of $7 9 million in the prior quarter and a $1 $2 million provision expense recorded in the year ago quarter.

The provision expense in the fourth quarter was driven largely by a loan growth, excluding PPP loans of approximately $2.1 billion, including loans related to the acquisition of the insurance agency lending portfolio.

And also increased slightly due to a small rise in net charge offs.

Offsetting those increases for the provision where improvements in the macroeconomic environment and in our loan portfolio characteristics during the quarter, including improving loan risk rating migration.

Rich will cover credit quality in additional detail in just a couple of minutes.

Turning to the other noninterest income and noninterest expense sections.

In the noninterest income portion of the income statement, our wealth management revenue increased $1 million to another record level of $32 $5 million in the fourth quarter compared to $31 $5 million in the third quarter and up 21% from the $26 8 million recorded in the year ago quarter.

Mortgage banking revenue saw a reasonably solid loan origination volume during the fourth quarter with lock adjusted origination volumes down approximately 22%, which was consistent with the guidance. We provided in our prior quarter's earnings release mortgage banking revenue decreased $2 7 million to $53 1 million in the fourth quarter revenue.

Was lower in the current quarter, primarily due to the lower lock adjusted origination volume combined with slight compression in the related production margin.

The lower production revenue was partially offset by a favorable favorable fair value adjustment of mortgage servicing rights. The company recorded a positive $6 $7 million valuation adjustment in the fourth quarter 'twenty, one related to mortgage servicing rights compared to a decrease of 888000 in the prior quarter.

Looking forward based on current market conditions, we anticipate mortgage revenue, excluding any MSR valuation adjustments to be fairly similar to the first quarter.

Fairly similar in the first quarter of 2022, as we experienced in the fourth quarter 2021.

Obviously, the mortgage servicing rights valuation is tied closely to interest rates and we're not going to speculate on what those maybe at the end of the first quarter of 2022, but based on current market conditions.

It would point to a higher valuation, but obviously lots of time to go yet in the quarter.

Other noninterest income totaled $18 9 million in the fourth quarter of 2021 down approximately $4 5 million from the $23 4 million recorded in the prior quarter.

Two primary reasons for the lower revenue in this category include $1 $3 million of lower swap fee revenue and $3 $7 million of lower income from investments and partnerships, which are primarily related to investments that we have to support our CRA purposes.

In the noninterest expense categories noninterest expense stayed relatively stable with the past five quarters and totaled $283 4 million in the fourth quarter up approximately $1 $3 million from the $282 1 million recorded in the prior quarter.

There are a handful of categories that account for the majority of the change from the prior quarter that I'll focus on but I think it's important to put the expense growth in the context of the company growing its balance sheet by $2 $3 billion during the quarter.

Salaries and employee benefits expense decreased by $3 8 million in the fourth quarter of 'twenty, one compared to the third quarter of the year.

The decline is primarily related to a $7 $1 million of lower compensation expense associated with mortgage banking commissions and incentive compensation program expense.

In the fourth quarter relative to the third quarter with those savings, partially offset by increased staffing costs as the company continues to grow.

Software and equipment expense totaled $23 $7 million in the fourth quarter that was an increase of $1 $7 million as compared to the prior quarter.

The increase was primarily due to accelerated depreciation related to the reduction in the useful life of certain software that is being that is planned to be replaced so we continued to upgrade our digital customer experience as well as increased expenses associated with upgrading our data centers and <unk>.

Other software enhancements to support our growth ongoing digital enhancements and cyber security efforts.

Oreo expenses were actually negative by approximately 641000 in the fourth quarter as the company recorded gains of approximately $843000 on sales of Oreo properties.

These gains for an amount that exceeded the aggregate cost of the Oreo expenses and valuation charges on other Oreo properties.

Although this expense category was negative it was approximately $890000 less negative than the third quarter, which also had gains on the sale of Oreo properties.

I think it's important to note that we've been aggressive in liquidating Oreo assets in the amount of Oreo on our balance sheet.

At the end of the year was a mere $4 3 million compared to $13 8 million at the end of the prior quarter and $16 $6 million at the end of 2020.

Other than the expense categories I just discussed no other expense category had a change of more than $900000 and all those other expense categories in the aggregate were up less than $2 5 million compared to the third quarter of 2021.

The net overhead ratio a measure of operational efficiency remained relatively stable in the fourth quarter relative to the third quarter. The net over at net overhead ratio stood at 121%, which is down one basis point from the one 2% recorded in the third quarter and.

And the ratio continues to benefit from strong balance sheet growth and good mortgage banking results.

The efficiency ratio also stayed relatively stable at approximately 66% in both the third and the fourth quarters of the year.

So in summary, the core fundamentals were strong with growth in pretax pre provision net income robust loan and deposit growth increased net interest income despite sizable PPP loan reductions.

Another record wealth management revenue quarter seasonally adjusted strong mortgage banking revenues relatively stable net overhead efficiency ratio strong pipelines and fantastic credit metrics, so with that I'll turn it over to rich.

Thanks, Dave.

As noted earlier credit performance for the fourth quarter was very solid from a number of perspectives.

As detailed on slide five of the deck loan growth for the quarter net of PPP was just over $2 billion.

As Tim noted that number included the Allstate portfolio acquisition of $578 million, resulting in net loan growth of over $1 4 billion equally.

Equally as important and similar to the third quarter was the nature of this growth, which was spread across our loan portfolio, specifically winter us life loans, which were up $387 million core C&I loans, which were up $392 million.

First insurance funding, which was up $239 million. In addition, the asset based lending group leasing and franchise teams all showed solid growth.

This quarter's growth close out a very productive year for winter us where we saw net loan growth excluding PPP of $4 9 billion $4 3 billion. If you net out the Allstate acquisition, an increase of 14, 6% for the year.

As noted in prior earnings calls, we continue to see very solid momentum in our core C&I portfolio portfolio pipelines have been strong throughout the year and we saw that materialize into increased outstandings during the past two quarters.

We continue to believe that ongoing market disruption and our success during PPP are the primary driving factors.

We are optimistic about loan growth in 2022 for a number of reasons.

Our pipelines continue to be very strong line utilization as detailed on slide 18 continues to trend up from 36% to 40%. During this past year, when netting out mortgage warehouse lines and we anticipate this trend will continue.

We have seen the average loan size in our first insurance portfolio grow by over 10%. This past year to 39000 and over 40000 in the fourth quarter. We believe these levels will continue into 2022.

And winter slight finance had a very strong year growing their portfolio by 20%. This momentum was maintained through the fourth quarter and should continue into 2022.

As a result, as Tim mentioned, we are reaffirming our loan growth guidance of mid to high single digit growth through 2022.

We think our short term performance should continue to be at the higher end of that range and we should continue to outperform our peer group.

From a credit quality perspective as detailed on slide 17, we continue to see solid credit performance across the portfolio. This can be seen in a number of metrics.

Nonperforming loans decreased from $90 million or 27 basis points to $74 million or 21 basis points a.

A meaningful part of this reduction came from the sale of a $10 million portfolio of loans. The majority of these were nonperforming.

Npls continue to be at record low levels and roughly half of where they were this time last year.

Charge offs for the quarter were $6 2 million approximately $2 million of which was a result of the loan sale that we just discussed.

And we as Dave pointed out we continue to see credit risk ratings show positive migration as our customers continue to recover from the pandemic.

That concludes my comments on credit and I'll turn it back to Ed to wrap up.

Thanks Berke.

Good job.

As I mentioned at the end of the call. Our strategy has been to grow the balance sheet during the period of low rates.

Our structural hedges mortgages.

Mortgages to buffer the loss of net interest income. So it is time is balance sheet growth can offset.

Fee income was due to lower rates.

<unk> is one unexpected benefit add on to this strategy.

Oh, Hey, Bose be accomplished while enhancing our interest rate sensitivity position.

<unk> <unk> of higher rates.

In the near term, which appear to be on the near term horizon.

We're more than covered the PPP loan run off which was our goal with core loans.

It is fair to say that to date. This change has been accomplished in spades.

Excellent growth, we've put up over this period and they all say preferred purchase has been organic other than the Allstate.

Our focus has been organic.

Acquisition market appears to be getting more accurate, so expectations and fairly high.

Two to evaluate opportunities in all areas of our business as they arise.

As you know we take what the market gives us the right now has given us great organic growth.

We will continue our historical approach to potential deals.

Where it makes sense as you all know I'm deathly allergic to earnings and book value dilution.

Sure well positioned wherever the market brings us credit metrics are at their lowest levels in years.

Loan pipelines remain consistently strong across the board.

We expect this to continue due to our reputation in the market the market disruption that has and will continue to take place.

Riverside, earning asset base continues continues to serve us well.

Our line utilization should rise of inflation stay strong.

The $1 billion of additional loan growth if you will.

<unk> returned to historical levels.

Who we expect wealth management revenue and asset to continue the current glide path.

Mortgages should continue to be meaningful, but with lower contributions in 2021.

As we mentioned in previous comments, our asset sensitive business and places and position the advantage of the rising rates.

As Tim said every quarter point should add $40 million to $50 million to interest income on an annualized basis.

Very much looking forward to seeing my beach volume, it's been under water for a long time.

We have the ability to put more of our liquidity to us.

As rates rise.

We've already been legging into this strategy.

<unk>.

We're always and have always been a growth company and this has not changed.

As your direct your attention to the charts on pages four through eight in the release the.

The CAGR is indicated in those charts.

All of our vital statistics because their share over the last 10 years of work.

That would be similar if not better if you went back to the entire 30 years of our existence.

I put this body of work against any other bank in the country.

I'm very proud of our entire interest team works hard to make this happen.

<unk> 30 years bring.

With that I'll turn it over to for questions.

Yes.

Yes.

As a reminder to ask a question. Please press star one on your Touchtone telephone to withdraw your question press the pound key once again Thats star one on your Touchtone telephone to ask a question. Please standby, while we compile the Q&A roster.

Our first question comes from the line of John <unk> of RBC capital markets. Your line is open.

Thanks, Good morning, guys.

Hey, Joe Good morning, Joe and John .

Good.

Congrats on the 30 years.

<unk> 50 billion.

Notable arguably.

Hard to believe.

Yes.

Maybe.

Tim or Mark can you talk a little bit about the.

Kind of late growth in the quarter and what you think drove that it's a pretty good jumping off point for Q1.

Anything notable that you'd call out on that.

No I don't I don't think so I think I think if you look back at <unk>.

Prior year ends you see a similar phenomenon there is always a rush to get deals closed before year end.

C&I was up but.

Again as I pointed out it goes really across categories.

Just a big Rush also in the life finance area deals closing before the end of the year.

So I don't think its really atypical for a year end.

But it was very pronounced this year, we were earlier in the quarter.

We are commenting that.

<unk>.

The.

The feedback were getting was very solid performance for the quarter, but it wasn't materializing and then just really in December it really started to ramp up quite a bit and I really just think it's a function of just that deadline of $12 31 in the holidays and everybody just.

Pushing things across the line so.

And the other thing is I think everybody was dealing with.

A fair amount of capacity issues from attorneys and appraisers and everybody else and.

There was definitely a push at the end here to get things through the pipeline. So.

Other than that I don't know Tim would you add anything no I think that may be a handful of people that thinking that they were going to complete some sort of transaction trying to get it in before some tax related activity might have come up but that turned out not to be the case, alright, I will turn.

Turning out of there is a lot of the really no change in the fourth quarter due to not having any.

A lot of things that didn't close are going to close in the first quarter. So.

Sorry, John we missed you there.

Just.

Youre still saying no no real change in the pipeline despite that strength at year end.

The pipeline looks pretty strong.

Okay.

Tim your comment on deposit cost not rising early.

In a rate hike cycle, what point do you start to think about that or maybe said another way how much runway do you think you have in terms of your deposit betas.

Yes, John .

I think it's going to be hard to tell because a lot of the market has a lot of liquidity right now and so.

Unlike prior cycles, where people might have been a little bit higher on the loan to deposit scale.

We'll just kind of have to see we've seen very little deposit competition, so far and.

Given the very low levels, we start at.

The betas will obviously work themselves up over the cycle.

This is Dave I think if you look at the prior cycle, we didn't see any rates in the first two rate rises by the fed and you really only starting to see pressure on the third rate hike of 25, so its efficacy the size and the timing of all that and what competition does but as Tim said with all the liquidity.

In the market.

I expect it to happen any faster than that we think it could potentially betas could lag a little bit more than that given all of the deposits in the system.

It seems that way.

Just a quick one for you Dave on mortgage on your mortgage guidance Youre, saying.

Start with the $28 million production revenue number add servicing.

And then take our best shot at it.

MSR valuation is not the right way to look at it.

Yes.

Other way is just take the $53 million of total mortgage banking revenue and back off the $6 $7 million of MSR. Some to say that your that your base, but yes, okay. Okay got it thanks guys.

Just a point on that we think are written actual actual closed originations will probably be down just a little bit in the first quarter, but we think the pipeline will build at the end of the at the end of the quarter. So if that happens the lock adjusted origination should be fairly similar in the revenue should be fairly similar.

Okay.

Thank you. Our next question comes from David Long of Raymond James. Please go ahead.

Good morning, everyone.

Good good.

You guys talked a little bit about the strong loan growth in the quarter, but just curious if I can get a little bit more color on are these new relationships as utilization uptick Inc.

Where is where are these new loans coming from.

Yes, I think utilization as we talked about is up a little bit.

Businesses are doing better and utilization is very real.

We have probably a ways to go there and you think you would see numbers closer to 50%. We're at 40%. So I think theres still lots of headroom, there, but I think in general.

Thinking about the different loan products.

Most of this is really coming as a result of market disruption in the C&I space because we as we've talked about in prior calls I think we have really kind of become the bank in Chicago to go to.

<unk>.

You look at what's going on with CIBC in some of the changes there you look at.

What's happened with MB fifth third and a lot of the changes there.

First Midwest acquisition Theres, just a lot of things that have gone on where decisions are getting made locally anymore and we've always positioned ourselves opening remarks talked about this is we are the we have always been the local alternative to the big banks, we continue to be that and people do like that they like being able to walk in and.

Meet with the people, who are making the credit decisions, making the people who are.

Running the company. It is a key differentiator and most of that is resulting in these new relationships coming over but then if you look at like the life portfolio that is that's all new relationships I mean that is just people.

Is that really like the product see how it fits into their estate planning.

Has become a much more popular product in the industry and we.

We are just capturing market share of that and getting more opportunities. So it definitely is new relationships.

Got it and then on the deposit side sort of the same direction here, but at 2 billion in growth in the quarter is this at least sticky deposits do you expect these to stay on I talked about the deposit beta but will these deposit stay on the balance sheet do you expect a run off at any point once once rates start.

Moving higher.

Well I think I have a mix issue in ratio moving higher but.

I'll add to sits in demand right now.

But.

I believe we don't know basically.

Well people pull out of money out they all had a lot of cash they pull it out pull out will it come back to us probably.

<unk>.

But.

That's why we're being a little bit.

Slow on our.

We take this into consideration as we look at the.

Investing.

Our excess liquidity Timna I'll comment yes.

Think thats all right there is probably a little bit of tax related activity that will occur in April . There is obviously people have sold some businesses that are parked money for for their tax obligations, but we watch it very carefully David in.

We will react appropriately.

It was a lot of good okay, a lot of growth so yes.

Yes, definitely and then just.

So far this quarter.

What was that.

Seems to be hanging in there so far right.

Got it got it.

I may have missed this with Dave's question, but were there any merger in merger charges associated with the Allstate portfolio that was purchased that were baked into the operating expense number in the quarter.

Yes. It was a very small I mean, we had legal fees associated with David.

Yes.

Very small amount less less than half a million dollars so nothing significant.

Great. Thanks, guys I appreciate it.

Thank you. Our next question comes from Terry Mcevoy of Stephens. Your question. Please.

Hi, good morning, how are you.

Terry how have you been.

Good. Thanks, I went back it took a decade to grow your deposits $2 billion, you cross that Mark in 2001, where as you did that just in the last quarter. So congrats on the fourth quarter.

Yes.

Sure.

I guess a couple of questions can you maybe how are you thinking about expense growth in 2022, a lot of talk of wage inflation, but then on the flip side, maybe a softer mortgage market.

Will impact some of your salaries and benefits.

Dave.

Yes.

That context is probably correct Terry I think the way we look at it in.

It will sound like a broken record compared to prior quarters as we try to focus on that net overhead ratio.

Yeah.

The mortgage business, if it goes up and down.

The expenses go up and down.

And so we look at the operating leverage from that perspective.

Was in the low $1 20 at the last two quarters, we expect to sort of hold that line a little bit if mortgages go down then it's possible that that trends up into the $1 30 range. So I think our target for net overhead ratio is still sort of in the 130 basis point range.

We expect to get leverage, but there clearly is some some pressure on wages out there, but as you said.

Mortgage volumes are down then that those commissions will be down and related expenses.

We also we also have those expenses supporting sprint business right loans and deposits. So is the spread business goes up there's a lot of built in growth already.

Actually for next quarter with over $1 billion worth of ending on earning assets over average and so those spread income will start to come through in the growth in the balance sheet will offset it. So we do think there'll be some pressure there, but we're also investing in.

Robotic process automation in some areas so not that it necessarily.

Would cut a bunch of.

Positions, but it would eliminate the need to add positions as we grow and so we're going to be able to leverage technology.

And the like and so some of the digital enhancements, we're doing are going to reduce time to.

Complete some some functions in the organization, which should also help.

Let us leverage those technological advancements for growth. So yes, there is pressure there, but but we also think there's leverage in the system and certainly if.

We don't think that our net overhead ratio.

Targets are going up.

We think we can grow into any of those sort of increases and if there is a rate increase then that way more than offset any pressure that you would have on on those line items.

Thanks for that Dave and then just as a follow up your commentary on bank M&A.

A few years ago, Youre, looking and talking about larger deals.

I guess is the message here youre going to take what the market gives you if something pops up or is there a bias towards a larger transaction.

Think about markets would you be willing to expand into a newer market.

I really don't think we've changed.

Opportunistic as it comes to acquisitions.

I can't.

The couple of quarters ago.

Throughout that.

That's a big bank kind of accounts as those just chum in the water.

See if I get a shark upper a whale or.

Hello, Fisher I don't know, but.

I can't imagine us doing a bigger deal right now.

Sure.

It drives me Crazy.

Talk to people of all.

One 1 billion.

All worried about themselves and not about their shareholders drives me nuts said that before I'll say it again.

But.

And we're going to be opportunistic in terms of.

I can't imagine us doing a very large deal.

But I can't imagine us doing.

Deal that.

Either end market.

Spanning the market to contiguous states I think.

Northwest, Indiana is still on our in our bucket list, we got to get there to expand in Wisconsin.

And in the rest of the Illinois.

Sure.

But you only have 8%, 9% market share here in Chicago.

Plenty of room for us to grow here.

As Tim mentioned, we're opening up a couple of new branches.

New areas, we're not in.

Those numbers are still going to have to get to.

So we would take what the market gives us.

I can't imagine Youll do a big deal but.

We're always looking and we'll be very opportunistic, but as I said I'm allergic to.

Dilution and.

Dave has got a big epipen.

We do a big deal that would dilute the crap out of us.

I appreciate that thank you.

Yes.

It's intriguing that I could.

As an epic fit on that but we'll wait for another day.

Yes.

Thanks.

Thank you. Our next question comes from Ben <unk>.

Your line is open.

Good morning, guys.

Good morning.

I was curious.

In your opening remarks.

Every rate hike equates to about 10 basis points on the margin I was curious.

Since you guys are so asset sensitive is there any part of that Ted a delayed effect than for example, the market's pricing in a hike in March but do you believe to see that turn in the second quarter or is it potentially going to divert immediately three following on.

Well.

I guess, what we would point to is just what we said at night, so $40 million to $50 million over the next.

All 12 months and so.

Okay.

I think I think it's going to depend on competition.

The other things.

Past that that builds in if it's front end loaded or not I think as Tim indicated and based upon an earlier question that theres, probably a lag in the deposit costs rise because of all the liquidity in the market, which it may be front end loaded a little bit more that you could get an increase on your earning assets a little.

Then your deposits are going to reprice, but.

There are so many moving parts to it.

The equation and what could happen with the slope of the yield curve et cetera, but I think that general guidance is good right now and we will try to fine tune it as rates go up.

I think we'll just stick with what we gave you there.

Got it Okay. That's fair and then when you think about.

Hiring and the potential for talent, obviously expenses.

Increase industry wide in terms of the salary line and the guidance is for even more I was curious how you guys approach Tam.

Talent and the cost associated with that you need to see.

Revenue associated with the town of ours are supporting back office as I could potentially also increase the salary line items.

Well I can take part of that and Dave can add I mean, we continue to believe we're an attractive endpoint for bankers and revenue producers and rich talked about the disruption in the market that will.

We'll drive that.

Is there a little bit of pressure from a wage standpoint, yes, I don't think thats anything atypical from our standpoint at this point.

Generally hiring commercial bankers so.

We think that people are really important that will help us continue to grow the company.

The back office side of things.

We're doing a lot to limit the number of people, we would need and the ability to scale up.

So.

There'll be some impact, but I don't think it'll be outsized at this point.

Yes, I think we're always generally.

In the market for revenue produced producers right.

And so maybe that adds a little bit until they bring their book over with them, but.

We can hire good people that produce.

Loans I mean, we're always investing in the business right. So we would do that if there is good people and we always have for the last 30 years. So no change in that approach.

Gotcha, Okay I appreciate it thanks guys.

Okay.

Thank you. Our next question comes from Brock Vandervliet of UBS. Your line is open.

Hi, good morning, Thanks for the thanks for the question.

I guess going back to I think as David <unk> question on deposit trends.

Okay.

You are kind of in line with other banks in terms of having a vacuum.

25 increased your deposit base 25, 30% since Covid started have you.

Have your bankers started engaging with large.

On deposits to try and get a sense of.

There is stickiness.

Or is that is that coming how are you trying to.

The player coach and Thats.

And move into a higher rate environment.

Well, Tim is in charge of stickiness.

Right.

Good question and Brian we actually have we are our structure is well positioned to do that because each of our banks can reach out to their largest clients.

Sort of determine.

What their intentions are.

As we did that in the fourth quarter.

Didn't see people reporting.

Large outflows are large volatility and remember some of the deposit growth is actually consumer based and related to new account activity and the stimulus payments and alike, but.

We are currently pleased that we're up to about 34%, 35% DDA.

It's obviously helpful to us going forward and a lot of it's related to the addition of new clients. So.

<unk> point earlier, we will watch for some volatility but.

We still think absent all of the noise, we have and would have had very very strong deposit growth.

Got it Okay, and then separately.

I've been noticing.

Noticing us for a couple of quarters just in terms of wealth management.

It seems like many.

Community, even regional banks or even larger banks struggle with wealth management and it's a product that's a line item, but it just doesn't move.

Clearly not the case here and just if you were to kind.

Now to briefly summarize your go to market strategy, there and why you think it's.

Distinctive versus.

Yes, maybe more traditional.

Bank wealth offerings.

Well.

<unk> took a lot of time together.

Their wealth management business is a tough business.

And we thought we'd be there and then another piece.

But last year. They said all the pieces are here.

Dave <unk> talked about the bears at time.

Scared the Hell Army.

They have been able to go and build and grow let's.

Let's say their approach to market is kind of the same as ours, it's high touch high Tech.

It seems to be resolved.

Resonating well with the clients.

Our name is out there a little bit more.

Our size helps.

Our reputation is out there.

We're doing a better job of cross selling so.

Hi.

I don't know if we do anything different other than the fact that our products are good our service is good our name is good and.

That's how we're doing it so.

One brick at a time.

Okay sounds good.

Thank you. Our next question comes from Chris Mcgratty of K VW. Please go ahead.

Good morning.

As you mentioned.

Dave mentioned, the 3% NIM.

By the end of the year.

Interest.

The futures is right.

Interested in what assumptions you may be making on just the mix of your balance sheet, given the elevated cash in that assumption.

Chris It's Tim.

The assumption is that we took.

Play a little bit of liquidity and that we continue to get the growth that we've talked about.

Part of it is obviously pure interest rate help as the various indices move but.

They're pretty simplistic assumptions.

The other thing I think we just have to be careful is that there are bunch of deposit indices and theres competitors in the mix in a number of other factors. So.

Just wanted to be a little bit cautious in terms of forecasting what that might look like but.

We're clearly positioned to benefit from rates up and expect that we will get a nice lift.

Okay.

And assume.

Quiddity levels go to pre pandemic levels, that's just a slow gradual remax right, yes, it's not assuming my cost if you will.

Wondering if it assumes all 6 billion of excess liquidity to work is not doing that.

Yes, slow steady and investment so.

What I was getting at thank you.

Maybe another question maybe for Ed.

You guys have had a good history of having a pulse on big changes in the market I remember the financial crisis, you guys pulled back.

Everything is going really well right now.

What's the.

What's the wall of worry if there is one.

<unk>.

I don't know we worry about everything.

We're basic bold time bankers, that's why at the end of my initial comments about you have to look at how we've responded to everything from the great recession to the pandemic.

911, and during that period of time, we've been able to maneuver in.

We were very very quickly.

To react to that.

I think that that's the same situation here, we don't know what the market is going to give us.

But we're going to take what it gives us that get greedy.

We're diversified enough to know that something isn't working.

We don't have to do that we can do something else will be working.

So.

I guess, what I worry about most is.

The deposit stay.

Im.

I always worry about that.

Low quality cannot be this good for I keep saying that but we're.

We're going to continue to cull the portfolio and might even do another sale or so just to keep that obviously even lower.

So.

I don't know where you guys say.

I think I think.

The worry when.

<unk> low for long I think the bigger concern was it was.

Is there a race to the bottom on spot.

Loan pricing, because it's better than fed funds concept I think what the cost with the perception now that rates are going up I think people arent going to want to lock lock in those low loan rates, but if for some reason we went back to <unk>.

The low for long rate environment, you worry that people just continue to price down the loan products, but our pipelines and our ability to get loans on our pricing metric but pricing.

Matrix that we have as far as profitability, we've been able to do it. So if you're worried about it but I think that worry is sort of goes away a little bit with rising rates because people don't want to lock in lower spreads. So.

<unk>.

Just hope they increase the rates but.

Competition is something we will deal with all the time, but as we saw in all 607 people race to the bottom on spreads.

And I was concerned that might happen, but I think that concern is going away now Chris I, maybe would add to what Dave said I think that.

The old adage about.

The worst loans are made in the best of times. It is something that we the credit team here is constantly thinking about which is when there is so much liquidity in the marketplace you see banks doing irrational things and we just have to be constantly mindful that there is no loan out there that we absolutely have to do we have good loan growth.

If you just can't get there because somebody else is doing something stupid you just got to step away.

We think we've made.

Good prudent credit decisions, but it is a very competitive market out there and.

As Ed said credit can stay this good forever.

Time will tell.

That's great color. Thank you very much.

Thank you. Our next question comes from Nathan race of Piper Sandler Your line is open.

Sure.

Nathan.

Please make sure your line is muted speaker phone lift your handset.

Yes apologies there I appreciate you take I. Appreciate you guys, taking the questions just going back to the excess liquidity deployment discussion just given the greater slope that we've seen in the yield curve of late is it maybe more of a willingness their sense of urgency to maybe put some liquidity to work in higher yielding securities in the first half of this year as opposed to maybe.

Yeah.

More of a ladder approach.

Particularly just given the potential for the long end of the curve to flatten out as the fed raises short term rates and start to unwind its balance sheet.

It's a great question.

Going to lay we've begun legging into it a little bit we have plenty of liquidity to do so.

We're going to take our time make sure that there is.

Somebody said earlier to make sure those deposits are going to stay the growth is very worried about that a little bit but.

Yes.

We are certainly good sources of deposits. That's just our on our retail side, but see that are deferred exchange Scott produces a lot of deposits.

Management produces a lot of deposits. So we have a very good.

Deposit source, but.

And by Us.

No I don't think Theres, a rush I think we're patient and we have been rewarded a little bit as rates have moved quite a bit in the last month or so.

As we said we're going to deploy some butt.

I don't think were in a hurry.

Yeah.

I'd love to use it via loan growth I mean, and deploy it that way and see where deposits take us, but that's our first choice.

We still like the deposit so your inventory, we want to get more and more deposits.

I have no problem with.

And deposits and liquidity just another lever we can pull when the time is right.

So.

We are very active in terms of getting more deposits for our customers.

Playing that out just because.

Yes more inventory.

Yes.

Nathan I don't think anybody can predict what that yield curve is going to do so and we've invested at all right now guarantee.

Conventional Ginnie management about 50 basis points.

Yes.

Next quarter, so we're going to.

On the.

Ladder and see what the market, yes, I mean, the market expectation for rate increases are completely different now than they were three quarters ago or two quarters ago. So.

I don't think anybody knows what it does so.

We will take it over time, and we'll be prudent but.

<unk> launch of the first choice.

Choice and then latter end of this liquidity and see where it takes us I personally believe and this inflation as we said all along.

Is that a transitory it's never was.

You are closer to a spiral with anybody who wants to tell you you are.

Okay quarter have pointed to going to cut it personally.

Or even a full point isn't going to stop.

Way too much liquidity the government's way to involve.

Sure.

So I actually believe that.

You're going to see even higher rates than are coming down the pike.

We will.

The forecasted, but that's my personal opinion.

We got to just be very prudent in how we lay the money out you ought to be.

Well lay it all out and make a bet that way but.

We're so well positioned right now.

To take advantage of whatever the market brings us pretty good shape, so when a leg into it and the timing will be somewhat.

<unk>, but.

We'll see.

It's a great lever to have default.

Yes, definitely I appreciate that color on a separate topic just thinking about mortgage.

Related expenses, and just kind of the outlook along those lines this year.

Perhaps or Dave mortgage volumes are maybe half the levels that we saw in the first quarter of 2021 is it as simple as kind of looking at the comp line and assume that is also reduced by half or have there been other kind of implementations within the mortgage cost structure that could lead.

That expense bucket to be maybe a little more variable than what we've seen in the past from you guys as the volumes come down.

I don't think its exactly linear I mean is this.

Spreads in the first quarter of last year were a lot higher so is there a spread compression that revenue goes away.

But their commissions are based upon units not based on revenue so.

I don't think its linear because.

If you got into the higher.

Production quarters margins were much much wider and so.

It's not quite linear, but if you sort of normalize the production margins.

You can get closer to your concept, but I think you'd have to take into account that under Dodd Frank you can't pay commissions based on the revenue you generate you have to pay commissions based on the units and so I think you have to normalize your revenues.

Margins, which is why we always push to the net overhead ratio.

It's hard to know where theyre going to be but the net overhead ratio at current levels or one expecting.

130, <unk> or $1 21 in this quarter, but our target is really sort of a $1 30 to 135 range.

Martinez is pick up.

That number will go down.

But the other thing you can you can think of the name.

MSR is going to play into this too so if rates go up and our volumes down MSR is our golf Valley.

Evaluation is going to go up and our servicing portfolio continues to grow and so we will have additional revenues off of that too but.

So lots of lots of moving parts there.

Guys don't like to count the MSR.

Do we but fact is it does add to earnings and capital and does that.

Does help.

On the way up and that hurts on the way down so.

Hey, guys I'm, just kind of going back to a more normalized mortgage environment, maybe in the first quarter of 2020.

Incentive comp was 32.

So and if you guys do a similar level of volumes in the first quarter of this year is that kind of a good level go up or has there been any kind of nuances with the mortgage structure that could cause those expenses to be more variable than what we've seen in the past.

Okay.

No I don't think we've really changed our comp structure, there, but you have to remember the incentive line.

In the press release includes bonuses and long term incentive comp and commissions for wealth and mortgage and everything else is not just in the mortgage line.

Got it.

I really appreciate all the color thanks, everyone.

Thank you.

Thank you again to ask a question. Please press star one and you touched on China, calling again Thats star one on your Touchtone telephone to ask a question.

Our next question comes from the line Michael Young of Choice Securities. Your line is open.

Hey, Thanks for taking the question.

Happy Happy 30 years Ed.

Call back a couple of your references.

Frame that into question so.

Starting off the year this year, maybe pushing more of a beach fall up the hill what areas do you want to sort of reinvest in some of the higher rates kind of pull through and really benefit.

The earnings stream.

Well.

<unk> never stopped investing in the business I mean, we're a growth company you have to invest in the business.

We've always kept.

Earnings growth tangible book value growth in mind.

So while we are continue to invest in the <unk>.

Digital channels.

Sorry that about three years ago.

Done a very good job of explaining to you how much we spent but it's been a lot of money we spent too.

Two.

Ill get out there.

It's worth it because all the Greenwich Awards, we won as you can see in the.

In the earnings release.

Come June we're going to rollout a major component of.

Deep Blue, which is full remake of the individual or the retail digital stuff.

We're in great shape to do that but stuff is expensive so.

We do monitor we do we think we'll be fine we care, we prioritized nicely.

But.

Robotics is something we're looking into a lot of that.

A lot of different businesses.

You can take some of these road.

Procedure as we go through and.

Make them non people, which should keep the people costs down and.

And to productivity.

We always look for other businesses that we can get into.

<unk> added a couple of this year or smaller ones.

We continue to do that continue to do that.

Diversification is still very important on both the deposit and the.

And the asset side.

So we will look for other.

Deposit sources and.

Loan products that got out there.

And our people people happy.

So.

Most anything Dave.

No I think that's good it depends universal Epipen Swabbing Epipen, many epipen I like poking at.

Yeah.

Perfect.

And then my second question is just a follow up on kind of the liquidity management asset. If we look back to like 2018 as rates were rising and reaching higher levels. It was more of a mid teens kind of percentage of earning assets versus 23% today.

<unk> was yielding somewhere around two 7% versus one 9% today. So is there anything structurally changed either within the company or within the market that would prevent it from getting back to those levels. If we were back into that sort of rate environment in a year or two years from now.

It really all depends on loan growth, we always ran 85% to 90% loan to deposits time, we got overnight, we're at 92% 93.

Carsten will get other people happy.

But.

You get the 85 to 90.

Percent of loans and deposits.

Bring us back down to.

A little bit lower levels in terms of the overall.

Liquidity portfolio.

So we're about three years duration on all of our liquidity, including their money.

Excluding the overnight money we have.

Musical iron six five years so.

That's kind of going to be the basis of the appointment is low to get the loans back to 85% to 90, which is our targeted range.

But.

And then invest after that that makes sense.

Yes, no I think about just real quick on the duration you were saying at six five years now.

Yeah, historically, that's what we've been asked for.

Three we're a little over $3 one now.

So plenty of room to go.

Growth.

Okay perfect. Thanks, I appreciate it.

Thank you. Our next question comes from Russell Gunther of D. A Davidson your line is open.

Hey, good afternoon, guys I just have one follow up on the overhead ratio discussion. So the commentary of a 120 moving towards 130 to 135 that longer term target is mortgage normalizes.

As we overlay the asset sensitivity discussion and that glide path to a 3% margin.

In that scenario do you think you can sustain around current levels or even improve upon.

Or are the franchise investment and growth mode still likely to take us to that 130 ish range.

Well, the 130 doesn't really get impacted by a margin because of the net overhead ratio was noninterest income minus non interest expense and that take that result divided by average assets and so.

That's how we sort of breakdown as we look at managing the company and manage your margin you manage your provision costs and the new manager net net overhead.

Ratio, which is non margin related so.

<unk>.

The increase in rates other than potentially reducing mortgage production.

It doesn't really have an impact on the net overhead ratio. So we've been one $1 20, and 120 this quarter with a relatively.

Softer seasonally softer mortgage volume so.

Yeah.

But that included an MSR adjustment, if you take that MSR adjustment out.

Closer to 130, so the $1 30 sort of is.

Today's sort of environment without an MSR benefit.

But we think as we continue to grow we should be able to hold that or improve upon it as we get operating leverage but rising rates doesn't necessarily directly impacted net overhead ratio and if you think back.

5% was was there a net overhead goal.

We've been able to get more leverage into the system as we've been able to grow.

And so down to 130 to 135 is not bad.

That's kind of leverage we picked up by.

Being able to handle more assets under that.

Under that.

Expense base so.

As we continue to grow next year, we came in at.

Hypothetically I don't know what happened, but like $60 billion not going to happen but.

I would expect them to go down even more.

As you get more and more leverage out of it but.

We shall see yeah. So so I think the shortage.

The only thing the rates impact on the net net overhead ratio generally speaking is.

Yes.

The mortgage rates go up and mortgage servicing rights going to gain in value and you're probably going to put pressure on your originations.

And so you just have to take that into account.

I appreciate it guys great explanation.

And thank you for that and then maybe asked a different way on the in that 3% margin range do you expect to be able to demonstrate overall positive operating leverage in 'twenty two.

From an initiative perspective.

Yes, yes.

Okay, Alright got it.

Thank you again, that's it for me thank.

Thank you.

Thank you we have a follow up question from Brock Vandervliet of UBS. Your question. Please.

Thanks for taking the follow up just on just on mortgage I was looking through the press release here.

Half the volume was refi im assuming that should be following pretty fast here given the move in rates are you.

Trimming expenses in that.

In that segment preparing for heavier sailing or Havent, you moved in that direction yet.

Oh yeah.

We've been able to.

A reduced staff in the mortgage area.

That show because we utilize them in a different area.

Premium finance life business is growing so fast we need to get some help.

But.

We got really good people, we like to keep them involved but.

We are we are monitoring mortgage.

Mortgage costs.

We want to keep that fixed variable concept going.

No words lowered the fixed expense get more variable variable expenses.

We're accomplishing that I believe and we'll go from there, but yes looking at it all the time and I think <unk> in the first quarter, we're probably thinking 60%.

Purchased 60%, 65% purchase and refi is ticking down but.

Even even though some of the.

Potential borrowers.

Arent in a position to do a refi just because of lower rates, we are seeing some cash out refis.

A big part of the refi volume now so people kind of use and the 30 year product as their home equity product of old and and so thats keeping that refi volume up a little bit because there's a fair amount of cash out refi is going on and people are willing to maybe even do it at a little bit higher rate because.

Yes.

30 year am on the loan versus a home equity line, which would be a lower am and they keep their payments down. So we're seeing a lot of cash out refis.

We are finally in a place that youre going to youre going to see.

Obviously home values continue to go up.

People will go back to that pattern.

Dave.

And the whole day.

If you look at the parent.

Mortgage and home equity.

The all equity line pay up the home equity line with a new mortgage and go from there.

I would imagine we're kind of getting into that period of time, that's kind of the inflationary way to do it I guess.

Okay.

I noticed the MSR market.

112 basis points, where youre carrying that MSR asset just for context back in 18, or so before before rates started coming down.

It was that.

Roughly I'm just trying to.

Gauge what kind of ceiling, we could have on that on that mark.

Brian I don't have that in front of me there was a time, where those numbers were in the one $130 range. So I don't know if that was 2018 or not but certainly could could go up higher than this one three.

Going forward it makes sense.

And we've got a hell of a lot more than we had back then so.

Okay, Great I appreciate all the color guys.

You.

Thank you at this time I would like to turn the call back over to Edward <unk> for closing remarks, Sir.

Thank you everybody for listening in.

To give you our best efforts going forward.

To take what the market gives us.

Get greedy.

Don't be stupid to do the right thing like we've always done.

Again hats off to our staff.

<unk> been through Hell and back to make this happen.

They do a wonderful job and.

Keeping our customers happy.

And.

Talk to you in a quarter. If you have any other questions. Please don't hesitate to call any of us on the call. Thank you very much.

Yes.

<unk> seen April .

This concludes today's conference call. Thank you for participating you may now disconnect.