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Wintrust Financial Corp (WTFC) Q2 2021 Earnings Call Transcript

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Wintrust Financial Corp (NASDAQ: WTFC)
Q2 2021 Earnings Call
Jul 20, 2021, 12:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Welcome to Wintrust Financial Corporation's Second Quarter and year-to-date 2021 Earnings Conference Call. A review of the results will be made by Edward Wehmer, 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 the reviews, the presenters may make reference to both the earnings press release and the earnings release presentation. Following the presentation, there will be a formal question-and-answer session. During the course of today's call, Wintrust management may make statements that constitute projections, expectations, beliefs or similar forward-looking statements. Actual results could differ materially from the results anticipated or projected in any such forward-looking statements. The company's forward-looking assumptions that could cause the actual results to differ materially from the information discussed during this call are detailed in our earnings press release and in the company's most recent Form 10-K and any subsequent filings on file with the SEC. Also our remarks may reference certain non-GAAP financial measures. Our earnings press release and earnings release presentation includes a reconciliation of its non-GAAP financial measures to the nearest comparable GAAP financial measure. As a reminder, this conference call is being recorded. I will now turn the conference call over to Mr. Edward Wehmer.

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Edward Wehmer -- Founder & Chief Executive Officer

Good morning everybody and welcome to our second quarter earnings call. As mentioned, with me are Dave Dykstra, our Chief Operating Officer; Dave Stoehr, our CFO; Kate Boege, our General Counsel; Tim Crane, President; and Rich Murphy, Vice Chairman of Credit. We're going to stick with the format we started in first quarter. You don't have to listen to me as much. You can listen to -- Dave is going to talk more. Well, I'm going to give some general comments about our results. Dave is going to -- Dave Dykstra will give us a detailed analysis of the income statement. Tim Crane will talk about the balance sheet. Rich Murphy will provide an overview of credit. And back to me for some summary comments and thoughts about the future, of course time for questions.

Last April at the start of the pandemic and the government massive response to it, Dakota in a long [Indecipherable] zero interest rate environment, I indicated Wintrust supports [Phonetic] would be to try to grow through it. Today we have accomplish this goal. So, so far so good. Second quarter shows the strategy is working. The growth today has been -- all our growth to date has been organic since that period of time. Third quarter was all round $1 billion quarter I'd like to say. Assets, deposits, and core loans out of PPP loans grew by approximately $1 billion plus or minus. Our growth prospects remain very good. And income for the quarter totaled $105 million or $1.70 per common share. Year-to-date income was $258.3 million or $4.24 per common share.

Our reported net interest margin grew nine basis points to 2.63% while net interest income was up $17.7 million in Q1. But to back out the PPP loan income, the NIM grew three basis points, 2.49%. Core loan growth and investment activity was at the end of the quarter. So, this bodes well for quarter three. Period end loans exceeded average loans in the quarter by over $800 million. So we start Q3 with a nice -- with that in our back pocket. I'd say [Phonetic] loan growth was excellent, our pipeline -- and the pipelines in all our businesses remain very good. It's important to note line usage it's out to an all-time low about 39%. Normal average is closer to 50%. So we're going to go back there, we have $1 billion of growth built in there.

Credit quality got even better with net charge-offs totaling two basis points, NPLs and NPAs reached down. NPLs were -- fell $11.3 million to $87.7 million or 27 basis points. Our NPAs fell $1.6 million to stand at 22 basis points, total assets. This resulted in a reserve release of about $53.3 million. Keep saying credit can't get better, it keeps getting better, it's hard to believe. The mortgage experienced inevitable decline in the quarter. Dave will discuss this in detail. It should be noted wealth management has been that -- had been immune to this growth story. Assets under administration grew to $2 billion or 5.3% or 25% annualized in the quarter, [Indecipherable] will see overall market and new business. Our wealth management assets now total $34.2 billion, [Indecipherable] to $32.2 billion in the quarter 1, $30 billion at the end of the prior year. I will turn to Dave who would review the income statement.

Tim Crane -- President

This is Tim. I'll do the balance sheet, maybe just for a second and then turn it over to Dave. As Ed mentioned, in the quarter assets grew a $1.1 billion to $46.7 billion. A couple of items worth highlighting here. First, we experienced very strong core loan growth. Loans excluding PPP were up $1.2 billion in the quarter. Growth was spread nicely across loan categories, commercial real estate and our niche businesses. Rich will share a little more detail in a few minutes.

On a percentage basis, this $1.2 billion equates to 15% annualized growth, and on a year-to-date basis our loan growth excluding PPP is just over 11% annualized. As Ed mentioned, we believe these growth numbers are solid, and as during the quarter we continued to see a decline in utilization. The trend in the coming quarters we hope will reverse and will help rather than hurt our loan growth activity. In addition, the pipelines remain strong as we see evidence of accelerating economic activity in our markets. With respect to PPP loans, we saw a reduction of $1.4 billion as the forgiveness activity accelerated materially during the quarter. Total PPP loans at the end of the quarter were $1.9 billion, down from a peak of $3.3 billion at the end of the first quarter. For the remainder of the year, we remain comfortable with our loan growth target of mid to high single-digits on a percentage basis, but could see upside with either improved line of credit utilization or continued strong market conditions.

Deposit growth for the quarter was $932 million, the majority of the growth in non-interest bearing DDA. This represents annualized growth of nearly 10%. Deposit costs continue to fall as we primarily reprice term deposits. For the quarter, the cost of interest bearing deposits fell an additional 7 basis points to 38 basis points, a trend we expect to continue in the coming quarters. Notably, the non-interest bearing DDA deposits now comprise a third of our total deposits. As we've noted in prior quarters, we're monitoring the significant deposit growth carefully. However, we view stable low-cost deposits as a strength of our company and we'll continue to grow those deposits related to client relationships.

Obviously like many institutions, we also remain very liquid. With rates falling and at low levels for most of the quarter, we held our securities position essentially stable during the quarter. We remain cautious in our deployment of the excess liquidity, wary of locking in low -- long-term yields. We continue to evaluate our options in view of the appropriate deployment of this liquidity as an opportunity in future periods. Given where we think volumes will land going forward, we expect generally steady to improving net interest income in the coming quarters despite lower levels of PPP accretion, and excluding PPP expect a generally steady net interest margin. Capital levels essentially held steady during the quarter with strong growth and remain appropriate given the conservative risk profile of the bank.

Overall, we remain well positioned to benefit from either stronger economic activity or higher rates or both as we enter the second half of the year. Dave?

David Dykstra -- Vice Chairman & Chief Operating Officer

All right. Thanks, Tim. As Ed indicated, I'll cover the noteworthy income statement categories starting first with the net interest income. For the second quarter of 2021, net interest income totaled $279.6 million, that was an increase of $17.7 million as compared to the first quarter of 2021, and an increase of $16.5 million as compared to the second quarter of last year. The $17.7 million increase in net interest income compared to the first quarter was primarily due to the earning asset growth, which was up 9% over the prior quarter, net interest margin expansion and one additional day in the second quarter. And for your reference, one additional day approximates $3 million of net interest income for Wintrust. The net interest margin improved 9 basis points from the prior quarter to 2.63% as the rate on interest bearing liabilities declined 7 basis points in the second quarter as compared to the prior quarter, and a 4 basis point increase in the yield on earning assets was partially offset by a 2 basis point decline in our net free funds contribution. The 4 basis point improvement in the yield on earning assets was comprised of a 3 basis point increase in the yield on loans and a 13 basis point increase in the yield on liquidity management assets due to the appointment of a portion of our liquidity into investment securities late in the first quarter. The decrease in the rate paid on interest bearing liabilities was primarily due to a 7 basis point decrease in the rate paid on interest-bearing deposits, primarily due to the lower repricing of time deposits.

PPP fee accretion as we noted in the press release was $25.2 million of recognition in the second quarter compared to $19.2 million in the first quarter of 2021 as forgiveness activity accelerated during the quarter. And additionally, as Tim noted, the margin was again affected by excess liquidity on the balance sheet and we believe the -- that the deployment of such liquidity when market conditions improve will be tailwind to our net interest margin.

Turning to the provision for credit losses, similar to many other banks that have reported this quarter, one press recorded a negative provision for credit losses of $15.3 million compared to a directionally similar negative provision of $45.3 million in the prior quarter and $135.1 million provision expense recorded in the year ago quarter. The negative provision was driven by a reduction in the allowance for credit losses primarily due to improvements in macroeconomic forecast, including improvements in the commercial real estate price index and the BAA corporate credit spreads. Additionally company saw improvement in loan portfolio characteristics during the quarter, including decreases in COVID 19 related loan modifications and improving loan risk rating migrations.

Slide 13 through 20 of the presentation deck that we provided on our website, we'll give you additional details about the improvement in the non-performing loan, the COVID 19 modified loans, and the macroeconomic factors impacting the allowance for credit losses. And Rich will cover credit quality in a lot more detail in just a few minutes.

Turning to non-interest income, the non-interest expense and the income tax sections. In the non-interest income portion of the income statement, our wealth management revenue increased $1.4 million to another record level of $30.7 million in the second quarter compared to $29.3 million in the first quarter, and that revenue sources up 36% from the $22.6 million recorded in the year ago quarter. This revenue source has been positively impacted by higher equity valuations, which impact the pricing on our managed asset accounts.

Turning to mortgage banking revenue, we saw reasonably strong loan origination volumes during the second quarter, but that origination volume was off the record high level seen in the past few quarters to lower refinance activity in the marketplace. To that end, the company originated approximately $1.7 billion of mortgage loans for sale in the second quarter of 2021, down 22% from the approximately $2.2 billion in each of the prior quarter and the second quarter of last year. Mortgage banking revenue decreased to $50.6 million for the second quarter as compared to $113.5 million in the first quarter of 2021 contributing to the $62.9 million reduction in revenue were the following items. A $29 million decline in revenue related to the impact of the MSR valuation and the MSR capitalization net of pay-offs and pay-downs. The $29 million negative impact of the value of the mortgage servicing rights primarily related to a positive fair value adjustment of $18 million in the first quarter of the year as compared to a decrease of $5.5 million in the current quarter, as well as the decrease in the value of capitalization of retained mortgage servicing rights due to a decline in loans sold with servicing retained. Another $21 million reduction was due to reduced gain on sale primarily associated with the aforementioned lower production volume. And a $13 million decline due to secondary marketing gains and mark-to-market impact of declining interest rate lock commitment pipeline. So our pipeline was smaller at the end of the second quarter than the first quarter.

First quarter of 2021 also benefited from atypical elevated levels of secondary marketing gains related to the market environment in the first quarter where we had strong investor demand, general margin enhancement due to historically strong consumer demand and the timing associated with recognized gains on hedging trades in the prior quarter. The normalization of that market drove a quarterly swing to a more typical range of secondary gains in the second quarter. Looking forward, based on the current pipeline activity, we expect mortgage originations we saw in the third quarter to be very similar to slightly less than the origination volumes we experienced in the second quarter. And the mortgage revenue excluding any MSR valuation adjustments to be roughly in line with the second quarter or in the mid $50 million range. However, I should note that although the aforementioned revenue estimate for the third quarter is expected to be in line with the second quarter, the operating expenses should trend lower in the third quarter. As many of you know, we essentially record the net mortgage revenue when we lock the interest rate commitment on the majority of loans that we expect to originate and sell. Accordingly, expense reductions lagged the revenue recognition as we still need to underwrite process and close those loans that are in the pipeline as well as pay commissions once the loans close. Since the mortgage loans in the pipeline were substantially higher at the end of the first quarter, the expenses associated with processing and closing that pipeline naturally lagged end of the second quarter and lagged the drop-off in revenue. As the pipeline of loans has decreased during the second quarter, we would expect to see a corresponding decrease in mortgage-related expenses in the third quarter.

So, currently, assuming the mid $50 million range of revenue, excluding any MSR valuation, we anticipate mortgage-related non-interest expenses to decline further in the third quarter in the $8 million range. I should note that when you evaluate the mortgage expenses relative to market revenue decline, you should consider the $29 million of the MSR valuation decline of $13 million related to the secondary marketing gains in decline in the pipeline or $42 million in aggregate of revenue decline would not have any associated expense reduction, so those amounts are simply valuation measurements. So the expense reductions really follow through with the production decline of $21 million. So our mortgage expense reductions in the first quarter were generally $7 million to $8 million of commission reductions, a couple of million dollars of other expense reductions, and then we expected an additional $8 million of expense reductions in the third quarter.

With that being said, I have to caveat that in the last few days, the interest rates have dropped considerably and the pipeline of new applications have increased. If that continues, we would expect the mortgage revenue to be higher than what I just guided and expenses associated with that revenue would also guide a little higher than what I just said, but we should be able to lock in that net $8 million of additional profitability on that production decline in revenue that we saw. Also I should note that [Indecipherable] valuation adjustment and the state interest rates and we're not going to speculate on where rates will be at the end of the third quarter, and so those amounts that I just talked about would be exclusive of the MSRs. Other non-interest income totaled $20.4 million in the second quarter, was up $4.7 million from the $15.7 million recorded in the prior quarter. The primary reason for that increase was a $4 million gain on the sale of few branch locations in South Western Wisconsin that previously disclosed transaction closed during the second quarter. In the non-interest expense categories, non-interest expenses totaled $280.1 million, down approximately $6.8 million or 2% from the $286.9 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. First, salaries and employee benefits expense decreased by $8 million in the second quarter compared to the first quarter. The $8 million decline is primarily related to $7.6 million of lower commissions and incentive comp, primarily related to the decline in commissions related to the lower mortgage originations that I just talked about. Occupancy expense totaled $17.7 million in the first quarter, decreasing $2.3 million from the $20 million recorded in the prior quarter. That decrease was primarily the result of the first quarter of the year, including a $1.4 million impairment charge associated with the plant closure of a branch location, and the current quarter having a lower level of maintenance and repairs expense. Similar to recent years other than 2020 which was impacted by the pandemic, marketing expenses increased by approximately $2.8 million from the first quarter to $11.3 million. As we've discussed on previous calls, this category of expenses increased as our corporate sponsorships tend to be higher in the second and third quarter of the year due primarily to our marketing efforts related to various major and minor league baseball sponsorships, as well as sponsorship of summer time events held in the communities that we serve. So other than those expense categories that I discussed, all other expense categories in the aggregate were up by less than $1 million compared to the first quarter and nothing noteworthy to discuss.

Moving on the income tax expense, the effective tax rate in the first quarter was approximately 27% which is in the 26% to 27% range that we would normally expect. So nothing significant there to talk about. So in summary, other than the nuance associated with the normalizing mortgage market and the undesirable swing in the MSR valuation, the core fundamentals were strong with robust loan and deposit growth, increased net interest margin, improved credit quality, record wealth management revenue, and lower expenses. So with that, I will conclude my comments and turn it over to Rich Murphy.

Rich Murphy -- Vice Chairman & Chief Lending Officer

Thanks, Dave. As noted earlier, credit performance for the quarter was very solid from a number of perspectives. Loan growth net of PPP was $1.2 billion and this growth was across the portfolio, but a couple of areas really stood out. First, Insurance Funding, where we financed commercial insurance premiums, grew by $563 million, an outstanding quarter which was the result of a number of new larger relationships, a hardening market which took our average premium up to 39,000 from 34,000 in the first quarter, and the continued popularity of financing insurance premiums due to lower interest rates. And Wintrust Life Finance grew by $248 million or 16% annualized. As we have seen this product grow by over $1 billion over the past year as more people are looking at life insurance as a key part of their state plan and the market allows them to finance the product at historically low rates.

From a core loan perspective, commercial loans excluding PPP grew by $148 million or 6.3% annualized, most of which closed at the very end of the quarter. And commercial real estate loans grew by $134 million or 6.3% annualized as well. A couple of additional notes on loan growth. Pipeline levels continue to look very strong. The total core pipeline is approximately $1.3 billion and consistent with what we saw in Q1. And as Ed and Tim pointed out, while we are pleased with the overall level of core loan growth, we think that this number is muted by the line of -- the level of line utilization which fell to 38% in Q2 compared to pre-pandemic levels in the upper 40% range. This lower utilization resulted in funded balances being reduced by approximately $1 billion. And I'd also like to point out the granularity within the portfolio. As we have talked about in prior quarters, one of the keys to our credit portfolio has been diversification across a number of product lines. This quarter was a great example of that strategy. While we continue to have good consistent growth from our core portfolio, our niche products have allowed us to grow the overall portfolio well ahead of projections. In addition, slide 12 details the geographic diversification in our portfolio. As we have stated before, Wintrust will always have a Chicago Milwaukee Nexus. However, as this slide illustrates, our various product lines provide us with a meaningful amount of credit opportunities outside of our primary markets.

From a credit quality perspective as detailed on slide 13, we continue to see meaningful improvement in credit performance across the portfolio as the economy continues to recover from the pandemic. This can be seen in a number of metrics. Nonperforming loans to reduce from $99 million at the end of Q1 to $88 million at the end of the second quarter. This is roughly half the level of NPLs we saw at the end of the third quarter of 2020. We recorded $2 million of net charge-offs during the quarter, which was down from $13 million in the previous quarter. This is a very good quarter from a charge-off perspective and helped by a number of recoveries primarily out of the first Insurance Funding portfolio. We also saw a reduction of over 40% in COVID 19 modified loans from $254 million to $146 million during the quarter as outlined on slide 19. The majority of these remaining modified loans are primarily in our select high-risk impact industries. And credit ratings continue to show meaningful positive migrations as our customers continue to recover.

Finally on PPP as outlined on Slide 14, we funded $4.9 million to more than -- $4.9 billion to more than 15,000 different businesses through the PPP program. We cannot be happier with the results from this program and the positive effects on our customers and community. It was an enormous team effort and we are so proud of the employees of Wintrust who made it possible. We are now focused on working with our customers to process their applications for forgiveness. This is proceeding very well as we have now processed forgiveness applications and over 90% of our 2020 PPP loans and over 80% of those loans have received their final forgiveness decision. That concludes my comments, and I'll turn it back to Ed to wrap up.

Edward Wehmer -- Founder & Chief Executive Officer

Thanks, Rich. As I mentioned at the beginning of the call, our strategy throughout this has been to grow the balance sheet during this period of low rates, these are structural hedges like mortgages to buffer the loss of net interest income till such time as a balance sheet growth can offset the income loss due to lower rates. PPP loans were an expected benefit add-on to this strategy. All the above was we accomplished while enhancing our asset sensitivity position anticipation eventual higher rates. Balance sheet growth for the year, asset growth of $1.7 billion, the core loan was $1.7 billion, excluding loans held for sale on PPP, we've experienced all this as Tim laid out, has been done on a totally organic basis. The acquisition market which has been sleeping today, today appears to be picking up based upon the amount of inbound calls we've received lately. Sellers still have rather high expectations, so we're going to see where all this ends up. As Rich said, loan pipelines remain extremely strong in all our major categories. Our asset sensitivity position is where we want it. We continue to leg into our investment, our excess liquidity, take advantage of market blips [Indecipherable] we totally invested locking in allows you long-term rates does make a lot of sense to us.

Credit is remarkably good. Thanks to our consistently conservative credit standards, [Indecipherable] our loan portfolio both about our lending line and credit talks, NPAs, NPLs are lower than they were before the start of the pandemic. Our major areas delivering strong results and assets under administration continue to grow. So that the plan is working. We need to continue in order to bring this plan to total fulfillment. Organic growth should remain strong. We will take advantage of the opening of the acquisition market if it actually makes some sense. And want to be as core growth that would offset any reduction in PPP loans and we seem to be doing that. I think that the end of the day if we get another $1 billion loan growth quarter and by the end of the year, we should have made up for the PPP loans, which should actually help our margin to some extent and the net interest income. So basically, we feel very good about where we are right now, the plan is achieving what we set out to achieve and we will continue to take what the market gives us. And with that, I turn over to some questions. Thank you.

Questions and Answers:

Operator

[Operator Instructions] Your first question coming from the line of Jon Arfstrom with RBC Capital Markets. Your line is open.

Jon Arfstrom -- RBC Capital Markets -- Analyst

Thanks, good morning.

Edward Wehmer -- Founder & Chief Executive Officer

Hi, John.

Jon Arfstrom -- RBC Capital Markets -- Analyst

Thanks for the help on some of the expectations here and I think on mortgage and NII and expenses, and I did want to ask on the loan growth. Tim, you talked about accelerating economic activity, and then Rich you talked about a little bit higher commercial at the end of the quarter. Curious what you guys are seeing outside of the premium finance businesses in terms of some of the growth potential there, is it spreading to broaden out, and then just a sustainability of the premium finance growth as well.

Rich Murphy -- Vice Chairman & Chief Lending Officer

Yeah, I'll take the course question first. So I think that we are seeing our customers feeling much better. About the prospects going into the back half of the year. I think confidence has really improved dramatically. I think there are obviously some headwinds that are making people nervous. I think labor availability is an issue and obviously the uptick in COVID cases test people a little bit anxious, but overall I think we're feeling pretty good about where our existing customers are and I think you will see line utilization increase as we go into the back half of the year. And as we've talked about in the past Jon, the concept of becoming Chicago's bank has really started to happen. I mean we really feel like at this point in time we are a go-to-bank in terms of new opportunities. The pipelines are very good and I think we'll continue to bring more customers on as a result of the disruption that's been in the market. The most recent announcement as it relates to First Midwest helps us as well. So we're pretty confident about where core loan growth might be going into the back half of the year. As it relates to first insurance, I think the hard market is not going away anytime soon. I think that as you see the team and the P&C side has done a very good job bringing in new relationships, you got the hard market, you really have a lot of good strong momentum there. And the life side, similarly, we had anticipated that things were going to begin slowing down in the back half of the year. But in talking with that team as recent -- as recently as yesterday, they are also feeling very good about where the back half of the year could go. So again, we're not changing our guidance, but we're feeling pretty comfortable right now that momentum will continue at least through year-end.

Jon Arfstrom -- RBC Capital Markets -- Analyst

Okay.

Edward Wehmer -- Founder & Chief Executive Officer

We have to thank Mr. Biden -- President Biden for -- talking about the state planning and the state taxes in that regard. So, at leas he's doing something right for us.

Jon Arfstrom -- RBC Capital Markets -- Analyst

That's good, that's good. Question for you, Dave, this is a more difficult question, but when you think about the mortgage line and I know there's a lot that goes into it. But the business really took off when the pandemic hit and when you look at some of the numbers prior to the pandemic, it was in the $50 million a quarter range. And I'm just wondering if there's anything materially different about your business today than where it was pre-pandemic other than rates and just obviously what I'm trying to get at is just longer term expectations for the business. So anything you can do to help us out on that, I'd appreciate.

David Dykstra -- Vice Chairman & Chief Operating Officer

Yeah, well, I think the mix between veterans first and the retail has been fairly stable. The refi volume has obviously dropped off a little bit, although with this recent drop I think that -- it looks like that may be picking up a little bit where people are bouncing back in. But longer term, I think we have better technology and we have better tools to reach people than just guys sitting in the street physically and those tools help those guys [Indecipherable] the Street physically to serve their customers better and do more deals. So I think our technology is better, but at the end of the day, it's still good, old-fashioned service with improved technology. I just -- I don't see anything substantially different between that mix of business or our ability to serve the customers. Obviously, we continue to expand our footprint a little bit into some different areas of the -- of our market, we hopefully can pick up some additional customers. But I wouldn't say it's dramatically different just on improved product improved service model.

Jon Arfstrom -- RBC Capital Markets -- Analyst

All right, thanks for the help.

Rich Murphy -- Vice Chairman & Chief Lending Officer

Thank you.

Operator

And our next question coming from the line of David Long with Raymond James, your line is open.

David Long -- Raymond James -- Analyst

Hi David. Good morning, everyone. Just as it relates to deposits, you've had some very good deposit growth, a lot of liquidity created. Is your sense that these deposits are sticky, are these new relationships, they're going to remain on your balance sheet for quite some time or [Indecipherable] as things improve and customers start to spend again, do you see a drop off in those deposits?

Edward Wehmer -- Founder & Chief Executive Officer

Well, judging by the activity in our treasury area, these are all the relationships for the most part. A lot of it is the leftover from the PPP loans. We picked up close to 500 new customers. As we bring them in, it -- those are pretty sticky. Those are all full relationship. So, Tim, your thoughts?

Tim Crane -- President

Yeah, I mean, David, we're watching it carefully, but we feel pretty good. I mean we continue to add households. We don't disclose numbers here, but we get the digital lift that everybody else is reporting on their calls and folks have good tool. So we've added a couple of branches which will continue to bring a few more online between now and end of the year. So I guess we'll watch it carefully. But so far it's pretty sticky.

David Long -- Raymond James -- Analyst

Got it. And then on the lending side, the commercial side with your core C&I stuff, as far as the competitive backdrop, we talked a little bit about that but internally are you guys doing anything differently. Are you able to loosen anything in your -- I don't know if it's standards is the right word, but how have you changed internally your willingness to lend on the commercial side over the last few quarters?

Edward Wehmer -- Founder & Chief Executive Officer

Well, David, I said this often, we do not change our loan policy or our pricing decisions right away, those are sacrosanct. So we're not seeing anymore we exceptions or deviations from our profitability models. So to say are we doing anything differently, I would say, no, we're not changing our credit stance at all. We never do that. Murphy, your thoughts?

Rich Murphy -- Vice Chairman & Chief Lending Officer

Yeah. No, I would agree with that. I mean, it's something we talk about on a regular basis in our credit meetings just where the market is at, because the market is very competitive. I'm sure you hear that through as you talk to other banks that price competition is very hot, structural competition is also pretty aggressive. So we're very mindful of that topic. And we just have to know where the lines are and I think we have really good communication between the lines and our credit people just to make sure that we're all on the same page. And I think we've done a pretty good job so far in that regard.

One maybe note to that is just [Indecipherable] as we continue to grow, we look at different niches all the time and we want to be able to continue to broaden out our product suite. So that would probably be the only sort of thing that we would maybe look to as we grow forward is just different areas. We've talked about leasing -- part of our leasing group to be in aviation finance and we've talked about the money Services group. And those are the things that we want to continue to evolve as the opportunities start to present themselves.

David Long -- Raymond James -- Analyst

Got it. And then just a final follow-up. With the PPP and the additional relationships that you talked about maybe you're seeing on the deposit side, are you seeing that in your low numbers today, are your former PPP customers -- are the PPP borrowing yet, are you seeing any loan growth attributed to these new relationships yet?

Tim Crane -- President

David, it's Tim. We are. I mean there's sort of two sides to that. It's obviously been a little bit of a substitution and part of the reason you're seeing the utilization down, but we've also added new relationships and we track the larger ones. And it was over $0.5 billion in commitments that are already on the books with more to come and the utilization there is better than our utilization overall. So we still feel good about that. We've got more activity, but we're probably half the three quarters away through the PPP prospect pipeline.

Rich Murphy -- Vice Chairman & Chief Lending Officer

Unfortunately, it just takes longer to bring the lending side of the relationship over. There's just a lot of work that needs to get done in terms of getting that loan structure, getting it approved and getting it documented, working through the pay off. So -- but it's definitely common. We see it on a weekly basis, we see new opportunities that are coming as a result of our work with PPP.

Tim Crane -- President

The market disruptions were very helpful. Still with MB there is still some hangover from that of this benefit to us. With private, same thing. Now we're starting to see more of that now as Canada gets more involved down there and they're changing some of the things that they do. We're seeing opportunities we never saw there and obviously First Midwest move is you have to see what happens. Well [Indecipherable] sort of market disruption is good for us and it comes to a decision point we want to be there. We want to have a seat at the table if we were going to change. And we've been very successful at that.

David Long -- Raymond James -- Analyst

Got it. Thanks for the color, guys. Appreciate it.

Operator

Our next question coming from the line of Terry McEvoy with Stephens. Your line is open.

Terry McEvoy -- Stephens -- Analyst

Hi, good morning everyone.

Tim Crane -- President

Good morning.

Terry McEvoy -- Stephens -- Analyst

Maybe, David, a question for you on your mortgage outlook. What type of production margins are you thinking about over the near term, that top left graph on Page 10 shows a pretty steep decline down to 2.2% last quarter.

David Dykstra -- Vice Chairman & Chief Operating Officer

Yeah, it's impacted a little bit the way we presented by the decline in pipe inventory in the pipeline and we also had a little bit of -- there is some volatility in the secondary market. In last quarter we had gains, in this quarter we had some small losses, but I think we're thinking about it more in the sort of 3% plus or minus range excluding any changes in the pipeline.

Terry McEvoy -- Stephens -- Analyst

Thanks. And then as a follow-up question, I'm not sure Ed, maybe you're just not as creative as you typically are each quarter or maybe you're trying to tell us something, but the last two press releases, your final quote has been the exact same something along the lines of evaluate expenses on an ongoing basis to enhance profitability. So -- or should we read into that same statement two quarters in a row and is there some sort of expense plan coming or is it more of a kind of a big picture view that you're consciously are always aware of expenses.

Edward Wehmer -- Founder & Chief Executive Officer

Well, latter. We're always looking at expenses and working them through. At the same time, we still are a growth company and we're going to invest in the company. We have a number of branches opening up in markets we haven't been in yet, both Parc being one that's coming on board. We should -- that's a great market for us. We've never been there, and do very well, but it costs money to get them up and running. We -- contrary to maybe what so many believe, we watch our expenses very closely. With the net overhead ratio in the mid 130s this quarter, that's about where we think will normalize. But I think it could be up or down depending on some of the other things that we do, but I think that mortgages just kind of skews everything up for you guys and we wish we could find a better way to show you how it all works. Dave explained there are so many moving parts in the time we so screwed up. We record the income in one quarter, our expenses in the next quarter so those will look great. But all in all, with the 135 their overhead ratio, and our goal is to be in the mid 130s right now, in a normalized basis we're comfortable but doesn't mean we don't always look at expenses and try to run down. So...

Terry McEvoy -- Stephens -- Analyst

Great.

Edward Wehmer -- Founder & Chief Executive Officer

I'll change it next time for you. Appreciate that. Thanks. Thank you, guys.

Operator

Our next question coming from the line of Brock Vandervliet with UBS. Your line is open.

Brock Vandervliet -- UBS -- Analyst

Thanks, David. Just I wanted to follow up on your mortgage commentary. Was there anything to call out regarding a veteran's first that volume dropped by a third or so it seemed to drop harder than the rest of the business.

David Dykstra -- Vice Chairman & Chief Operating Officer

Yeah, I think their business is more heavily generally weighted toward refinance activity and that part of the market got hit harder. In our footprint where we've got customers just walking into the bank and have a relationship with the bank, the purchase activity tends to be a heavier piece of it. So I think it's just more the mix of purchase and refinance and the given marketplace.

Brock Vandervliet -- UBS -- Analyst

Okay. And just combining securities growth and what you may retain on -- from the mortgage bank. Yeah, I think you've given guidance around 10% of production you're going to shunt on balance sheet. How should we look at that versus how you may grow the investment securities book in this environment, or it sounds like you're pretty cautious in growing that securities book given the rate environment, if you could just kind of unpack that a little bit.

David Dykstra -- Vice Chairman & Chief Operating Officer

Yeah, we've been keeping -- the thought was to keep about $100 million of the first jumbo mortgage production on our books. But then we also generally have maybe 100 or so of other products that we originate in the bank, some non-standard or variable rate products that we typically keep on the books out of the bank. So, probably -- which is normal. But keep 100 million of the production that we would normally sell. So a couple of hundred million in total that we would add to the balance sheet. Per quarter I would say it would be a good rough number. And on the liquidity side, you're right. As we noted earlier, we were essentially flat quarter end-to-quarter end because we just -- the more mortgage backed rate sort of backed off a little bit and we're just being cautious on investing that liquidity as Ed and Tim noted taking 175 or 180 sort of rates for a long-term instrument just doesn't seem that appealing right now. And so we're going to be patient with that, hope to grow the loan portfolio, deal up some of that liquidity. And we look at that as an opportunity. It may suppress our earnings in the quarter a little bit by not investing but the long term we look at that as an opportunity to grow the NII, grow the margin. But we're just trying to be patient and not invest at really low rates right now.

Brock Vandervliet -- UBS -- Analyst

Got it, OK. Thank you.

Operator

[Operator Instructions] Our next question coming from the line of Nathan Race with Piper Sandler. Your line is open.

Nathan Race -- Piper Sandler -- Analyst

Hi guys, good morning.

Edward Wehmer -- Founder & Chief Executive Officer

Good morning.

Nathan Race -- Piper Sandler -- Analyst

Couple of questions on capital. The stocks come in a little bit along with the rest of the Group turnaround 1Q [Indecipherable] book these days, just curious to get some updated thoughts on the upside around returning to buyback.

Edward Wehmer -- Founder & Chief Executive Officer

We've got money left under our previous authorization, so if the time is right we will utilize that and go from there. So yeah, we looked at it all the time vis-a-vis where do -- just where that [Indecipherable] return out capital, where do we we want to invest some money, and at certain levels it makes sense to buy the stock back. Like yesterday would have been a good day but we were in a blackout period. We'll see, but...

David Dykstra -- Vice Chairman & Chief Operating Officer

And then we also compared to acquisition opportunities out there too, so just where you're going to invest your capita. So we look at it constantly but I think we have about $33 million plus or minus availability under the prior authorization and market conditions are there, we can look at what we do going forward. But as I said we evaluate it all the time.

Nathan Race -- Piper Sandler -- Analyst

And along those lines in terms of acquisitions, other, Dave just curious I think in the past that you've spoken to an appetite to do a larger acquisition. I'm not sure in terms of the ESI range that you guys would be willing to go up to, but just curious kind of how that appetite stands today with the currency where it's at. Obviously your capital levels are stable sequentially in a comfortable level, I would imagine. So, along those lines just curious, can I get your updated thoughts on what you're seeing from a acquisition standpoint how large a deal potentially you'd want to do. Historically, you guys have been strong stewards of defending and growing tangible book value, and I imagine that will continue to be the case going forward as you guys entertain potential acquisition opportunities. So just curious to get some updated thoughts on all those dynamics.

Edward Wehmer -- Founder & Chief Executive Officer

Yeah. [Indecipherable] said with the market gives us. For years that gave us was under $1 billion of reasonable prices. You know how much I don't like dilution. So we still have anywhere from under $1 billion to $2 billion or $3 billion are out there, but, well, I could do anything stupid. We don't like giving up two years' worth of earnings to grow where we can grow organically. Market Silvio [Indecipherable] good organic growth, we'll stick with that. I know it's a deal comes along to make strategic sense and what have you, but I think that as to size the market is kind of limited now when you think of that as the geography. So as I said earlier, I did a couple of earnings calls ago threw out the concept that we would be willing to look out of our traditional market area. I was chumming the water to see if I get everybody out. It was a bad fishing day I guess, but having [Indecipherable] But we will look at anything basically that enhances shareholder value, franchise value, earnings and and it doesn't -- do we don't give away the house to get it, but we'll always be very disciplined in that regard and we'll see where it goes. But right now they're across the board between $3 billion, $4 billion, down to $300 million. The inbound calls have been very -- have picked up a lot, however price expectations for the first one is we've kind of reviewed our -- don't fit that criteria I talked about earlier. So they -- if the local guys sell to somebody else that's good for us. The disruption is good. So [Indecipherable] they sell somebody out of state or -- So I think it's harder and harder for banks now $2 billion, $3 billion to stay competitive. Just the amount you have to spend technology with the additional regulatory things that are coming down the pipe from loan administration, people and loans, is all getting good loans, we all dig deeper all in there trying to get those deals, which is harder for those guys to compete. I think it's going to take some time for them to understand the magnitude of that where it's going to be their margins, their costs, and when it does open up their price expectations back in line.

Nathan Race -- Piper Sandler -- Analyst

Got it. And I suppose along those lines, just given the organic growth trajectory in front of you guys that's likely going to accelerate with some of the recent disruption that was announced in Chicago from an M&A perspective. I imagine acquisitions of net asset range that you described are probably less of a focus these days just given that organic growth runway that's in front of you guys today that's only gotten stronger within last couple of months here.

Edward Wehmer -- Founder & Chief Executive Officer

Yeah. But that doesn't mean that if we have a good deal came along we won't do it.

Rich Murphy -- Vice Chairman & Chief Lending Officer

I mean we can do. We can obviously do both but organic growth is really good [Indecipherable] as you said, but it does [Indecipherable] close out doing the acquisition market prices and strategically work.

Edward Wehmer -- Founder & Chief Executive Officer

Yeah, I mean we can -- I'm to say it will be 30 years old in December. We have a good chance hitting $50 billion just through organic growth. It's not bad from a card table to 50 in 30 years. So people always ask how big do you want to be and I say well we. I don't care. Where you'd be 5 years from now? I have no idea. We'll take what the market gives us and what makes sense. It makes sense, we'll continue to grow and grow profitably and and keep our shareholder returns up and we operate asset growth, profitability and growth in our tangible book value. So if anything fits those lines and advances those -- or reaching those goals is earnings available.

Nathan Race -- Piper Sandler -- Analyst

Got it. Not bad to say the least. I appreciate the color. Thanks guys.

Edward Wehmer -- Founder & Chief Executive Officer

You're welcome. Thank you.

Operator

Our next question coming from the line of Julien Brush [Phonetic] with [Indecipherable] Securities. Your line is open.

Michael Young -- Truist Securities -- Analyst

Hey, this is Michael Young I'm on for True Securities. Thanks. Just wanted to ask as the loan growth kind of broadens out maybe out of some of the premium finance categories. Would you expect those loan yields to be accretive to the overall loan yield with that mix shift or kind of, what are you seeing in the pricing environment that would cause that to happen or not.

Rich Murphy -- Vice Chairman & Chief Lending Officer

Yeah, I mean again, as Ed pointed out before, and we have a very strict pricing model that we're just not going to go -- it's something not really accretive to where we want to be. We're just not going to do it. I mean, so I think overall, yes, we monitor that very closely and confident that we can do that.

Michael Young -- Truist Securities -- Analyst

Okay. And maybe just a follow-up on the expense commentary related to mortgage, obviously you guys are seeing quite strong loan production. So I would assume there is some natural inflation to the expense run rate, but with the offset of that $8 million potential reduction depending on production levels, is that kind of the right way to think about it, those 2 pieces?

David Dykstra -- Vice Chairman & Chief Operating Officer

I'm not sure if I follow, you're just saying that in the past, we think that expenses are inflated a little bit because of the extraordinarily high volume? Is that what you're trying to get to?

Michael Young -- Truist Securities -- Analyst

I guess, is it more of a net $8 million reduction that you kind of expect in expenses quarter over quarter assuming the production levels you discussed or are there some core expense inflation factors from in a strong loan production that would offset that?

David Dykstra -- Vice Chairman & Chief Operating Officer

No, what I was trying to get at is I think net net $8 million savings assuming that the level is in line -- revenue level is in line with the prior quarter. Now, let's say production revenues go up to $5 million, let's say $6 million, and they go up $5 million. I would expect the expenses to go up a little bit too. So -- but you should be able to maintain that delta of roughly $8 million profit improvement on the business.

Michael Young -- Truist Securities -- Analyst

Okay, perfect. Thanks.

Operator

Your next question coming from the line of Chris McGratty with KBW. Your line is open.

Chris McGratty -- KBW -- Analyst

Asset quality, you guys have historically been kind of quick to move any problems and it served you well over cycles. Given the amount of I guess there's for assets across the industry, are there any portfolios that you guys are effectively looking to reduce exposure to given the bid for assets is high today. Thanks.

Rich Murphy -- Vice Chairman & Chief Lending Officer

Chris, we've done asset sales in the past and we're always calling through the portfolio and to try to find where weak spots exist and just to go to see the market out there. So I would say we're open to that concept. We've done pretty well getting sort of a maximum value on the asset that we do work through. So when you -- in the past when we've looked at some of those prices, we just weren't willing to accept a discount. But if that gap starts to narrow even more going forward, we might take a look at some of the portfolios where maybe we see some distress. But generally speaking, I mean we just kind of take a deal at a time and work it through. So no plans as of this point.

Chris McGratty -- KBW -- Analyst

Great. Thanks, Rich.

Operator

I'm showing no further questions at this time. I would now like to turn the conference call back over to Mr. Edward Wehmer for closing remarks.

Edward Wehmer -- Founder & Chief Executive Officer

Thanks everybody for listening in. Our goal is to continue to increase all important things in the right way and not have a decreases. So with that, thanks very much. And we'll see you -- we'll talk to you again in a month or three months. And any further questions, follow-up questions, please feel free to call anybody who's on the call. Thank you.

Operator

[Operator Closing Remarks]

Duration: 57 minutes

Call participants:

Edward Wehmer -- Founder & Chief Executive Officer

Tim Crane -- President

David Dykstra -- Vice Chairman & Chief Operating Officer

Rich Murphy -- Vice Chairman & Chief Lending Officer

Jon Arfstrom -- RBC Capital Markets -- Analyst

David Long -- Raymond James -- Analyst

Terry McEvoy -- Stephens -- Analyst

Brock Vandervliet -- UBS -- Analyst

Nathan Race -- Piper Sandler -- Analyst

Michael Young -- Truist Securities -- Analyst

Chris McGratty -- KBW -- Analyst

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