Wintrust Financial Corporation (NASDAQ:WTFC) Q4 2021 Earnings Conference Call January 20, 2022 12:00 PM ET
Company Participants
Edward Wehmer – Founder, Chief Executive Officer
Timothy Crane – President
David Dykstra – Vice Chairman & Chief Operating Officer
Richard Murphy – Vice Chairman & Chief Lending Officer
Conference Call Participants
Jon Arfstrom – RBC Capital Markets
David Long – Raymond James
Terry McEvoy – Stephens Inc.
Ben Gerlinger – Hovde Group
Brock Vandervliet – UBS
Chris McGratty – KBW
Nathan Race – Piper Sandler
Michael Young – Truist Securities
Russell Gunther – D A. Davidson
Operator
0:05 Good morning. Welcome to Wintrust Financial Corporation’s Fourth Quarter and Full Year 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 their reviews, the presenters may make references to both the earnings press release and earnings release presentation.
00:40 Following their presentations, 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 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.
1:40 I would now turn the conference call over to Edward Wehmer.
Edward Wehmer
1:45 Good morning, everybody and welcome to our fourth quarter ’21 earnings call. With me always are Dave Dykstra, Dave Stoehr, Kate Boege, Tim Crane and Rich Murphy. We have the same format as we usually as we have opted it earlier in the year, seems to go pretty well. I will give some general comments regarding our results. Turn over to Tim for more detail on the balance sheet, turn over to Dave Dykstra top other income expense and Murphy then follow up with discussion on credit. And back to me for some summary comments about the future and then time for questions.
2:26 I think we already know, 12/27/21, marks the thirtieth anniversary of us opening our first bank. Little more than $6 million in capital raised from friends, neighbours, and family, [Indiscernible] and embarked down the journey, but absolutely no diligence will grand here. Our lower simple revenue type of community bank marketed by high touch banking, the technology, high tech, high touch, covered people in businesses with credit reserves. All along at the center of our home loan – along the center of the home loan culture [Indiscernible] four pillars. Our shareholders, employees, customers and communities we serve. We now waiver from that commitment and the 30 years we’ve been existent. Of course, this anniversary have been asked many times, we were a most proud by Wintrust.
03:15 The 5,400 employees to makeup Wintrust, I’m pretty proud of that. So $50 billion in banking assets and $35 billion dollars about management, assets we were missed over the years and pretty proud that too. So the record range we have delivered over the years, yes. In fact, our stock price built, to the fact that our stock price called center of art, we were pretty good at that too. [Indiscernible] I’m very proud, however the one of most drivers effect, our culture has endured over that period. Culture dedicated doing the right thing for our constituents all the time. Take the blame share the favor and avoid that shame and enjoy the game, our culture and nutshell have endured even though we have grown beyond our wild streams.
04:00 So, now for the lockdown memory lane, let’s talk about the quarter, year-to-date results. All another very successful quarter, previous calls are referred to around is $1 billion quarters so it’s different it’s a $2 billion dollars quarter. Assets were $2.3 billion to $50.14 billion, and 22% growth or $5.1 billion versus 12/31/20.
04:26 Core loans and PPP and loans held for sale went to $34.2 billion, $2 billion for the quarter, 16.6% growth for about $5.0 — $4.9 billion. Deposits are $42 billion and $2.1 billion, growth for the quarter, 13.5% or $5.2 billion up to 12/31/20. Loan growth was enhanced by the [Indiscernible] approximately $550 million. Tim will talk about this a little bit more.
04:59 On the balance sheet front, our strategy, which we adopted to serve the pandemic in April 2020, of growing to the period and enhancing our interest rates in today’s position is paid off in speeds. Mortgage and PPP loans took us through the depth of the pandemic. Our growth in core loans is more than replaced earnings power, these assets are extremely well positioned for higher rates that appear to be here finally.
05:27 And the earnings, we recorded record year $466 million or 750 per diluted common share, full quarter recorded income $99 million or $1.58 per diluted common share, [Indiscernible] from the third quarter may because of the positive provision, $9.3 million as opposed to negative provision of almost $8 million. Positive provision was brought about by the acquisition to double kind of we have to do there and the fact that our growth loans have grown so nicely.
06:04 Net interest income was up $8.5 million compared to the Q3. Core net interest income was $15.5 million as the PPP contribution was down $7 million bucks. Earning assets, basically loan levels, the five basis decline deposit vessel measured quality change. Loan pipelines remain consistently strong, also we start 2020 to 2022, the nice hit start as ending loan balances see December [Indiscernible] $1.36 billion.
06:37 Slide utilization was up Schmidt, that’s kind of Schmidt as a technical term we use around here, but that closest to our [Indiscernible] discuss this, Murphy will talk about this in detail. Remains over $1 billion loan growth and loan utilization return to normal.
06:52 NIM was down slightly 4 basis points to additional liquidity trade choice, how you can expect us begin addressing our excess liquidity. Countries our liquidity portfolio over three years, closer almost six plus years. We’ll be prudent to our investment timing though. Credit quality got even better, believe or not. Murphy will also cover this in his renewal of credit, however I’ll note that we did conduct an asset sell noted in the release.
07:17 We will continue to call the portfolio given to bad assets, potentially bad assets as soon as possible. PPP pre-tax pre-provision income was up approximately $5 million to $146.3 million. We expect to some of the key [Indiscernible] nicely in 2022, especially rates rise and anticipated on this in my closing remarks. [Indiscernible] management business. Assets under administration up almost billion dollars in the quarter, approximately $5.5 billion year-over-year to $35.5 billion dollars or 18% growth rate. Obviously, the market out these numbers with core growth that account – our account was impressive.
07:58 Fee run rates went from annualized $107 million of fourth quarter 2021 or $30 million of the fourth quarter of 2021. So in 2020, 2020, yeah. You got, I feel Joe Biden there. I’m not going to talk for two hours. Verify the progress being you look forward to a continued growth in this area, a lot of momentum there. I’ll turn over to Tim will take us through the balance sheet.
Timothy Crane
08:27 Great. Thanks Ed. I’d like 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 reference 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.
09:04 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%, the third straight quarter at or above 15% and Ed mentioned that the period and loan balances were well above the quarter average balances.
09:31 Obviously, PPP loans continue to run off down a little over $0.5 billion in the quarter and now total $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.
10:05 The $2 billion of deposit growth just under half of that was non-interest 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 that changes will be smaller going forward as the majority of deposits have repriced during the low rate cycle.
10:29 On the investment front, we remained very liquid with approximately $6.1 billion in liquidity at year end and securities balance was 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.
10:55 On that topic, anticipating a question or two of about rising rates, we 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 its earlier comments, approximately eighty percent of our loans reprice within a year. You can see this on page 12 of the supplemental presentation.
11:27 Our spreads simply our loan yields versus our deposit cost, improved for the third straight quarter. Securities yields for many instruments are twenty to fifty basis 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 competitive actions. We believe each 25 basis point change in rates is worth about $40 million to $50 million in pre-tax net interest income on an annualized basis. And you’ll see this in a paragraph on the second page of our press release.
12:04 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.
12:36 Going forward, each 25 basis point increase in rates equates to approximately a 10 basis point improvement in margin and if, and that’s a big if, the current consensus rate forecast plays out, it’s consumable 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.
13:06 Lastly, we continue to be very pleased by our market momentum. Last quarter, we highlighted the favorable [Indiscernible] ratings and the satisfaction of our commercial clients. I would add that Wintrust ended 2021 is the top SBA lender in Illinois.
13:21 In terms of customer behavior, we continue to see digital usage increase 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.
13:35 In addition to our high-tech improvements, we will also enhance our high-touch activities with the addition of locations in Oak Park, Illinois and Rockford, Illinois, both attractive markets where Wintrust 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.
David Dykstra
13:58 Great. Thanks, Tim. I’ll cover the noteworthy income statement categories, now starting with the net interest income. Some redundancy with Ed and Tim’s comments here, but we’ll just go through it quickly for the fourth quarter of 2021 and 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 as compared to the fourth quarter of 2020. The $8.5 million increase in net interest income in the fourth quarter compared to the prior quarter was primarily due to average earning asset growth, which was up 17.4% percent on an annualized basis over the prior quarter. Net interest margin declined the 4 basis points to 255, beneficial decline of 6 basis points for the rates paid on liabilities was offset by 7 basis point decline on the yield on earning assets and a 3 basis point decline in the Net free funds contribution, resulting in the decline in the reported net interest margin.
15:00 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 the decline in the interest bearing liability rate was primarily associated with a 5 basis point decline in our interest bearing deposits, mostly due to the repricing of time deposits.
15:26 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 points.
15:48 As Tim Crane mentioned, the margin was affected by this excess liquidity in our balance sheet and that the rates are higher than they were a month ago. So we’ve – as we begin to deploy some of that liquidity into the market, we expect the net interest income and net interest margin benefit from that, although we’ll continue to be cautious on deploying the liquidity.
16:13 Turning to the provision for credit losses Wintrust recorded a provision for credit losses of $9.3 million compared to a negative provision of $7.9 million in 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 $2.0 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. Offsets to 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 and additional detail in just a couple minutes.
17:07 Turning to the other non-interest income and non-interest expense sections. In the non-interest 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 reasonable 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 and combined with slight compression in the related production margin.
18:03 The lower production revenue was partially offset by a favorable fair value adjustment of mortgage servicing rights. The company recorded a positive $6.7 million valuation adjustment in the fourth quarter of ‘21 related to mortgage servicing rights compared to a decrease of $888,000 in the prior quarter.
18:22 Looking forward based on current market conditions, we anticipate mortgage revenue excluding any MSR valuation adjustments to be fairly similar to the first quarter of – 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 what those may be at the end of the first quarter of 2022, but based on current market rate conditions, it would point to a higher valuation, but obviously lots of time to go yet in the quarter.
19:05 Other non-interest 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. The 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.
19:36 And the non-interest expense categories, non-interest expense stayed relatively stable with the past five quarters and total $283.4 million in the fourth quarter, up approximately $1.3 million from the $282.1 million recorded in the prior quarter. There are 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 put the expense growth in the context of the company growing, its balance sheet by $2.3 billion during the quarter.
20:08 Salaries and employee benefits expense decreased by $3.8 million in the fourth quarter of ’21 compared to the third quarter of the year. The decline is primarily related to a $7.1 million dollars 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 classes as the company continues to grow.
20:38 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 is primarily due to accelerated depreciation related to the reduction in the useful life of certain software and that is being – that is planned to be replaced so we continue to upgrade our digital customer experience as well as increased expenses associated with upgrading our data centers and other software enhancements to support our growth ongoing digital enhancements and cybersecurity efforts.
21:13 OREO expenses were actually negative by approximately $641,000 in the fourth quarter as the company recorded gains of approximately $843,000 dollars on sales of OREO properties. These gains were in amounts 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 $890,000 less negative than the third quarter, which also had gains on the sale of OREO properties.
21:45 I think it’s important to note that we’ve been aggressive in liquidate in OREO assets in the amount 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.
22:03 Other than the expense categories, I just discussed, no other expense category had a change of more than $900,000 and all those other expense of categories in the aggregate were up less than $2.5 million compared to the third quarter of 2021. The net overhead ratio measure of operational efficiency remained relatively stable in the fourth quarter relative to the third quarter. The net overhead ratio stood at 1.21%, which is down one basis point from the 1.22% recorded in the third quarter 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% from both the third and the fourth quarters of the year.
22:48 So in summary, the core fundamentals are strong with growth in pre-tax, pre-provision net income, robust loan and deposit growth, increase 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 of strong pipelines and fantastic credit metrics. So with that, I’ll turn it over to Rich.
Richard Murphy
23:16 Thanks, Dave. As noted earlier, credit performance for the fourth quarter was very solid from a number of perspectives. As detailed on Slide 5 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 as important and similar to the third quarter was the nature of this growth, which was spread across our loan portfolio.
23:45 Specifically, Wintrust 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 closed out a very productive year for Wintrust where we saw net loan growth, excluding PPP of $4.9 billion, $4.3 billion dollars if you net out the Allstate Acquisition. An increase of 14.6% for the year.
24:17 As noted in prior earnings calls, we continue to see very solid momentum in our core C&I portfolio. Pipelines have been strong throughout the year, and we saw that materializing the increased outstanding during the past two quarters. We continue to believe that ongoing market disruption and our success during PPP are the primary driving factors.
24:38 We are optimistic about loan growth in 2022 for a number of reasons. Core 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 last year to $39,000 and over $40,000 in the fourth quarter. We believe these levels will continue into 2022.
25:12 And Wintrust Life 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. But 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 growth.
25:37 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. Non-performing loans decreased from $90 million or 27 basis points to $74 million or 21 basis points. A meaningful part of this reduction came from the sale of a $10 million portfolio of loans. The majority of these were non-performing.
26:01 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.
26:23 That concludes my comments on credit and I will turn it back Ed to wrap up.
Edward Wehmer
26:26 Thanks, Murphy. Good job. As I mentioned at the beginning of the call, our strategy has been to grow the balance sheet during this period of low rates, use our structural hedges like mortgages to both of loss and net-interest income until such time as balance sheet growth can offset the income loss due to lower rates. PPP loans were unexpected benefit to add on to this strategy. All of the above which should be accomplished by enhancing our interest rate sensitivity position, participation of higher rates, which appeared to be on the near-term horizon. We will more than cover the PPP loan run-off which was our goal with core loans. It’s fair to say that to date the strategy has been accomplished [Indiscernible], The excellent growth we have put up over this period and the Allstate provider purchase has been organic, other than the Allstate Portfolio purchased been organic.
27:19 Acquisition market appears to be getting more cell expectations and fairly high continue to evaluate opportunities in all areas of our business as they arise. As you know, we take what the market views as and right now it’s given great organic growth. We continue our historical approach of potential deals, but everyone makes sense. You all know definitely allergic earnings at book value dilution.
27:45 Extremely well position grow, and the market brings us. Credit metrics are lower, that are lowest levels in the years and pipelines remain consistently strong across the board. We expect this to continue doing the reputation of the market, the market disruption that is and we will continue to take place. The asset base continues to serve as well, and our line utilization should rise inflation should strong, should worth over billion dollars additional loan growth if utilization return to historical levels.
28:17 So we expect wealth management revenue and assets continued their current glide path, mortgages should continue to be meaningful, the lower contributions in 2021. As we mentioned in the previous comments, our assets in today’s business increases in position to advance in the rising rates. As Tim said, every quarter point should add $4 million to $50 million to [Indiscernible] annualized basis. Very much looking forward to seeing my beach volumes but underwater for long time.
28:46 They have the ability to put more of a liquidity use [Indiscernible], We’ve already been lagging into this strategy. We’re always and I’ve always been a growth company, and this has not changed. I dragged to you attention the charts on pages 4, 3 in the release, The CAGR was indicated on those charts on all of our vital statistics because stage shareholders last ten years of work.
29:10 Numbers would be similar if that better if you went to back an entire 30 years of our existence. I put this [Indiscernible] any other bank in the country, I’m very proud of our entire interest team. Hope you hard to make this happen, can always see thanks 30 years bring. Then, I’ll turn over to – for questions.
Question-and-Answer Session
Operator
29:45 [Operator Instructions] Our first question comes from the line of Jon Arfstrom of RBC Capital Markets. Your line is open.
Jon Arfstrom
29:56 Thanks. Good morning guys.
Edward Wehmer
29:59 Hi, John.
Timothy Crane
30:00 Good morning, how are you, Jon.
Jon Arfstrom
30:01 Good. Congrats on the 30 years and $50 billion. It’s notable.
Timothy Crane
30:07 Hard to believe in that.
Jon Arfstrom
30:09 Hard to believe. Maybe Tim or Murphy, can you talk a little bit about the kind of late growth in the quarter and what do you think drove that. It’s a pretty good jumping off point for Q1, but anything notable that you’d call out on that?
Richard Murphy
30:29 No, I don’t think so. I think if you look back at prior year end, 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 and there was just a big rush also in the life finance area deals closing before the end of the year. So, I don’t think it’s really atypical for a year end, but it was very pronounced this year. We were earlier in the quarter. We are commenting that the feedback we are 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 lines. So, and then the other thing is, I think everybody was dealing with a fair amount of capacity issues from attorneys and appraiser and everybody else. And there was definitely a push at the end here to get things through the pipelines.
31:41 So other than that, I don’t know, Tim, would you add anything?
Timothy Crane
31:46 No. I think that maybe 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 that to be the case.
Richard Murphy
31:56 Right.
Timothy Crane
31:58 We’ll see. [Indiscernible].
Jon Arfstrom
31:58 There’s really no change in the portfolio. We’re not having any, we are not seeing any…
Timothy Crane
32:02 Lot us things just been close in the first quarter so.
Richard Murphy
32:07 Sorry, John, we missed you there.
Jon Arfstrom
32:09 Yeah, just but you’re still saying no, no real change in the pipeline despite that strength at year end.
Richard Murphy
32:14 Yeah.
Timothy Crane
32:15 The pipeline looks pretty strong.
Jon Arfstrom
32:18 Okay. Tim, your comment on deposit costs not rising early in a rate hike cycle. What point you start to think about that? Or maybe said another way, how much runway do you think you have in terms of your deposit that is?
Timothy Crane
32:33 Yeah, Jon, it’s hard, 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 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.
David Dykstra
33:02 This is Dave. I think if you look at the prior cycle, we didn’t see any rates in the first two right raises by the fed and you really only started to see pressure on the third rate, hike of 25, so have to see that the size and the timing of them and what competition does. But as Tim said with all liquidity in the market, we wouldn’t expect it to happen any faster than that. We think it could potentially the betas could flag a little bit more than that given all the deposits in the system.
Jon Arfstrom
33:33 Yeah, it seems like that. Just a quick one for you, Dave on mortgage, on your mortgage guidance. You’re saying start with the $28 million production revenue number at servicing and then take our best shot at MSR valuations, Is that the right way to look at it?
David Dykstra
33:53 Yes, or the other way is just take the $53 million of total mortgage banking revenue and back up the $6.7 million of MSRs and say that your base, but…
Jon Arfstrom
34:05 Yeah. Okay. Okay. Good. Thanks guys.
Timothy Crane
34:09 Just a point on that. We think actual closed originations, they’ll 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 and the revenue should be fairly similar.
Jon Arfstrom
34:29 Okay.
Operator
34:32 Thank you. Our next question comes from David Long of Raymond James. Please go ahead.
David Long
34:39 Good morning, everyone.
Timothy Crane
34:42 Good morning, David.
David Long
34:43 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 is utilization up ticking, where are these new loans coming from?
Richard Murphy
34:58 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 I think you would see numbers closer 50%, we’re at 40% So, I think there’s 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 as we’ve talked about in prior calls, I think we have really kind of become the bank in Chicago to go to and you look at what’s going on with CIBC and some of the changes there. You look at what’s happened with [Indiscernible] and a lot of the changes there in the first Midwest acquisition. There’s just a lot of things that have gone on where decisions aren’t getting made locally anymore. And we’ve always positioned ourselves that opening remarks talked about. This is we 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 light portfolio, that’s all new relationships. I mean, that is just people that really like the product see how it fits into their estate planning and it 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.
David Long
36:46 Got it. And then on the deposit side, sort of the same direction here, but you had $2 billion in growth in the quarter. Is this – these sticky deposits, do you expect these to stay on? And are you talked about the deposit beta, but will these deposits stay on the balance sheet? Do you expect runoff at any point once rates start moving higher?
David Dykstra
37:07 Well, I think I have a mix issue and very similar higher bit but allowed to sits in demand right now. But I believe we don’t know basically, will people pull out of money out. They all had a lot of cash, they pull it out. Pull out, will come back to us probably but that’s why we’re being a little bit slow on our, we take this into a consideration as we look at the investing, our excess liquidity. Tammy, I’ll comment.
Timothy Crane
37:43 Yes, I think that’s all right. There’s probably a little bit of tax related activity that all occur in April, there’s obviously people have sold some businesses that have parked money for their tax obligations, but we watch it very carefully, David and we will react appropriately. It was a lot of, okay…
David Dykstra
38:03 Got it.
Timothy Crane
38:04 Lot of growth, yes, so.
David Dykstra
38:05 Yeah, definitely.
Timothy Crane
38:07 And then just be [Indiscernible] so far this quarter.
David Dykstra
38:11 What was that?
Timothy Crane
38:12 Please be hanging in there so far.
David Dykstra
38:14 Right.
David Long
38:16 Good. Yeah, 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 in the operating expense number in the quarter?
Richard Murphy
38:30 Yeah. It was a very small and we had legal fees associated with David. So, I mean, a very small amount was less than $0.5 million so nothing significant.
David Long
38:42 Great. Thanks guys. Appreciate it.
Operator
38:47 Thank you. Our next question comes from Terry McEvoy of Stephens. Your question please.
Terry McEvoy
38:55 Hi. Good morning. How are you?
Timothy Crane
38:57 Very good, Terry. How you have been?
Terry McEvoy
38:58 Good. Thanks. I went back it took a decade to grow your deposits $2 billion, you cross that market in 2001 whereas you did that just in the last quarter. So congrats on the fourth quarter. I guess a couple of questions, can you maybe, how are you thinking about expense growth in 2022? A lot of talk wage inflation, but then on the flip side, maybe a softer mortgage market will impact some of your salaries and benefits.
Edward Wehmer
39:29 Dave.
David Dykstra
39:30 Yeah, well I think that context is probably correct, Terry and I think the way we look at it and 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 was in the low one ’20, so 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 130 range. So I think our target for net overhead ratio is still sort of in the one hundred and thirty basis point range. What we expect to get leverage, but there clearly some pressure on wages out there. But as you said, if mortgage volumes are down then that those commissions will be down and related expenses.
40:34 We also – we also have those expenses supporting sprint business, right, loans and deposits. So as the spread business goes up, there’s a lot of built in growth already actually for next quarter with over billion dollars’ worth of ending – earning assets over average. And so those spread income will start getting them through and the growth in the balance sheet will offset it. So we do think there will be some pressure there, but we’re also investing in robotic process automation in some areas. So not that necessarily would 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 functions in the organization, which should also help, let us leverage those technological advancements for growth. So yes, there is pressure there, 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’s a rate increase then that way more than offset any pressure that you would have on those line items.
Terry McEvoy
42:06 Thanks for that Dave. And then just as a follow-up, your commentary on bank M&A, a few years ago, you’re looking and talking about larger deals. I guess is the message here you’re going to take what the market gives you if something pops up or is there bias towards a larger transaction and as you think about markets, would you be willing to expand into a newer market?
David Dykstra
42:32 I really don’t think we’ve changed or very opportunistic as it comes to acquisitions. I can’t, couple of quarters ago. I do that a big bank kind concept, there was just [Indiscernible] in the water, see if I get shark up or a whale or blowfish. I don’t know. But I can’t imagine us doing a bigger deal right now. It drives me crazy. You talked to people all, from $1 billion dollars on up. I’ll worried about themselves and not about their shareholders drives me nuts, said that before I’ll say it again. But we’re going to be opportunistic at, in terms of I can’t imagine is doing a very large deal. But I can imagine us doing a deal that either in market, expanding the market, to continue states, I think northwest Indiana is still in our bucket list we got to get there to expand in Wisconsin and in the rest of Illinois. But we only have either 9% market share here in Chicago. Play a room for us to grow here. As Tim mentioned, we’re opening up a couple of new branches. New areas were not in, there’s a number areas are still at, we are going to have to get to. So we would take what the market gives us, I can’t imagine 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 those things got to be Ten, and I think we do a big deal to through to crap out of us.
Terry McEvoy
44:21 Appreciate that. Thank you.
Timothy Crane
44:26 Been intriguing that I could use [Indiscernible] on that, but though we’ll wait for another day.
Terry McEvoy
44:33 Thanks.
Operator
44:35 Thank you. Our next question comes from Ben Gerlinger of Hovde Group. Your line is open.
Ben Gerlinger
44:41 Good morning, guys.
Timothy Crane
44:43 Ben, good morning.
Ben Gerlinger
44:45 I was curious, It’s in the opening remarks, that every rate hike equates to about ten basis points on margin. I was curious since you guys also asset sensitive, is there any part of that ten a delayed effect? I mean for example, the market pricing and hike in March, but do you believe to see that ten in this second quarter, or is it particularly like to seven immediately three you following on?
David Dykstra
45:14 Well, and I guess what we point to is just what we said in there, $40 million to $50 dollars over the next 12 months and so I think it’s going to depend on competition and other things how fast that builds in if it’s front end loaded or not. I think as Tim indicated and based upon an earlier question, that there’s probably a lag in the deposit cost rise because of all the liquidity in the market, which would maybe front end loaded a little bit more that you could get an increase on your earning assets a little quicker than your deposits are going to reprice. But there’s so many moving parts to the equation and what could happen with the slope of the yield curve, etcetera.
46:03 But I think that general guidance is good right now, and we’ll try to fine tune as rates go up. But I think we’ll just stick with what we gave you there.
Ben Gerlinger
46:13 Gotcha. Okay, That’s fair. And then when you think about hiring and the potential were talent, obviously expenses of increased industry wide in terms of a salary line and the guidance is very 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 or is there supporting back offices that essentially also increased the salary line items?
Timothy Crane
46:47 Well, I can take part of that, and Dave can I 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 drive that. Is there a little bit of pressure wage standpoint, yes? I don’t think that’s anything atypical from our standpoint at this point. We’re generally hiring in commercial bankers. So, we think the people are really important. They’ll 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.
Ben Gerlinger
47:33 I think we’re always generally in the market for revenue produced – producers.
Timothy Crane
47:38 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’s good people and we always have for the last 30 years. So no change in that approach.
Ben Gerlinger
47:59 Gotcha. Okay. I appreciate it Thanks.
Operator
48:03 Thank you. Our next question comes from Brock Vandervliet of UBS. Your line is open.
Brock Vandervliet
48:11 Good morning. Thanks for the for the question. I Guess going back to, I think as David Long’s question on deposit trends. [Indiscernible] in line with other banks in terms of having vacuumed up 25, increased to your deposit base, 25%, 30% since COVID started. Have you bankers started engaging with with large pools of deposits to try and get a sense of their stickiness or is that coming? How are you trying to view the player coaching, and this move into hiring environment?
Edward Wehmer
48:56 Well, Tim is in charge with stickness.
Timothy Crane
48:58 Yeah, I was thinking, right it’s a good question and Brock, we actually have our structure is kind of well positioned to do that because each of our banks can reach out to their largest clients and sort of determine what their intentions are and as we did that in the fourth quarter, we didn’t see people reporting the 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 the like, but we’re 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 to add point, as point earlier, we will watch some volatility, but we still think absent all of the noise we have and would have had very, very strong deposit growth.
Brock Vandervliet
49:58 Got it. Okay. And separately, I’ve been noticing this for a couple quarters just in terms of wealth management. It seems like many community even regional banks or even larger banks struggle with wealth management. It’s a product, it’s a line item, but it just doesn’t move clearly not the case here. And just if you were to kind of briefly summarize your go-to-market strategy there and why you think it’s distinctive versus maybe more traditional bank wealth offerings?
Richard Murphy
50:42 Well, couple a lot of time together. That wealth management business is tough business and by that time, we thought we’d be there and need another piece. Finally about last year, they said all the pieces are here. Feel like Dave one, so we just talk about the bears at time. [Indiscernible] but they’ve been able to go and build and grow. Would say their approach to market as have the same as ours it’s high touch, high deck. Seems to be resonating well with the clients. Our name is out there a little bit more. Our size helps, our reputation is out there and do it a better job across selling. So, I don’t really do anything different. I know the fact that our products are good, our services is good. Our name is good and that’s how we’re doing it. So one break at the time.
Brock Vandervliet
51:42 Okay. Sounds good. Thank you. Our next question comes from Chris McGratty of KBW. Please go ahead.
Chris McGratty
51:53 Hey, morning. As you mentioned, you and Dave mentioned the 3% NIM by the end of the year. I’m interested if the future’s is right. I’m interested in what assumptions you may be making on just a mix of your balance sheet given the elevated cash in that assumption?
Timothy Crane
52:14 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 and the thing I think we just have to be careful is that there are bunch of deposit indices and there’s competitors in the mix and a number of other factors. So we just want to be a little bit cautious in terms of forecasting what that might look like, but it’s we’re clearly positioned to benefit from rates up and expect that we’ll get a nice lift.
Chris McGratty
52:58 Okay. But that doesn’t assume, liquidity levels go to pre pandemic levels. That’s just a flow gradual mix, right?
Timothy Crane
53:04 Yes.
David Dykstra
53:05 Yes. It’s not assuming my. If you’re wondering if it moves all, $6 billion of excess liquidity, most of work is not doing that. It’s a slow steady in investment.
Chris McGratty
53:16 Yes, That’s good. Thank you. Maybe another question, maybe for Ed. You guys have had a good history of having a pulls-on big changes in the market. I remember the financial crisis, you guys pulled back. Everything is going really well right. What’s the wall worry if there is one?
Edward Wehmer
53:38 I don’t worry about everything. We’re basic full time bankers. That’s why as the end of my initial comments and all. You have to look at how we responded to everything from the great recession to the pandemic that also 911 and during that period of time, we’ve been able to maneuver and move very very quickly to react to that. I think 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 like greedy. We’re diversified enough to know that something isn’t working, we don’t have to do that. We could do something else we’ll be working. So, I guess, what I worry about most is the deposit state, which I’m always worried about that. Loan quality can’t be this good for IQ saying that, but we’re going to continue to call the portfolio and might even do another seller so just to keep hours even lower. So, I don’t know what you guys say?
David Dykstra
54:52 Well, I think I think this – the worry when rates low for long. I think the bigger concern was, was there a race to the bottom on loan pricing because it’s better than Fed funds concept. I think with the perception now that rates are going up, I think people aren’t kind to want to lock walk in those low loan rates. But if for some reason, we went back to a low for a 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 – repricing matrix that we have as far as profitability. We’ve been able to do it. So you’re worried about it, but I think that worry is sort of goes away a little bit with rising rates because people block in the lower spreads. So just hope they increase the rates, but competition is something we would get with all the time, but as we saw in 06, 07 people raised to the bottom on spreads and I was concerned that might happen, But I think that concern is going away now.
Richard Murphy
56:04 Yeah, Chris, I maybe would add to what Dave said, I think that the old outage about the worse loans are made the best of times. It’s something that we, the credit team here is constantly thinking about, which is when there’s so much liquidity in the marketplace, you see banks doing irrational things and we just have to be constantly mindful that there’s 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’t stay as good forever and time will tell.
Chris McGratty
56:52 That’s great color. Thank you very much.
Operator
56:57 Thank you. Our next question comes from Nathan Race of Piper Sandler. Your line is open.
Timothy Crane
57:08 Nathan.
Operator
57:11 Please make sure your line is muted, or anything else speakerphone with the handset.
Nathan Race
57:14 Yeah. Apologies there. Appreciate you take – I appreciate you guys taking the questions. Just going back to the excess liquidity deployment question, just given the greater slope that we’ve seen in the yield curve of late, is there may be more of a willingness or sense of urgency to maybe put some liquidity to work and higher yielding securities in the first half of this year as opposed to maybe more of a ladder approach, particularly just give the potential for the long end of the curve of flatten out as a third grade the short-term rates and starts to unwind its balance sheet?
David Dykstra
57:48 As a great question, you are going to lay. We’ve begun lagging into it a little bit. We have plenty of liquidity do it with so where we are going to take our time. Make sure that as somebody said earlier make sure those deposits are going to stay. The growth is I worry about that a little bit but have so many good sources are deposits that’s just our retail side, but see that, our deferred exchange going produces a lot of deposits. Both management produces a lot of deposits. So, we have a very good diversifying deposit source, but anybody else?
Timothy Crane
58:27 No, I don’t think there’s a rush. I think we patient and we’ve been rewarded a little bit as rates have moved quite a bit in the last month or so and as we said, we’re going to deploy some, but I don’t think we’re going to hurry.
Nathan Race
58:42 Yeah.
Timothy Crane
58:43 I’d love to use it via a long growth. I mean and deploy it that way and see where it deposits take us, but that’s our first choice, yeah.
David Dykstra
58:49 But still like the deposits are inventory. We want to give more and more deposits. I mean, having no problem with getting our deposits [Indiscernible] liquidity just another the lever we can pull when a time is right. So we are very active in terms of getting more deposits for our customers and playing that out just because more inventory then.
Edward Wehmer
59:13 And I think Nathan, I don’t think anybody can predict what that yield curve going to do. So if we invested at all right now, a guarantee of the conventional [Indiscernible] fifty basis points the next quarter. So we’re going to ladder it 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 don’t think anybody knows what it does. So we will take it over time, and we’ll be prudent and but as Tim says launch are the first choice and then we’ll ladder into this liquidity and see where Texas.
Richard Murphy
59:55 Of course, we believe and this inflation as we set along, it’s not transitory, it’s never was, you’re closer to a spiral, they wants to tell you are in quarter or halfway and going to cut it personally, are you going to full point going to stop, [Indiscernible] liquidity the government’s way to evolve. So, I actually believe that See even higher rates are coming down the pike, but we will acid it, but that’s my personal opinion, we got to just be very prudent how we lay the money out. You want to be or 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 we’re to leg into it and the timing will be somewhat the cattle, but we’ll see.
Timothy Crane
60:56 It’s a great lever to have to fall.
Richard Murphy
60:58 Yes.
Nathan Race
61:01 Yes. Definitely. I appreciate that color. On a separate topic, just thinking about mortgage related expenses and just kind of the outlook along lines this year. Perhaps Dave, mortgage volumes are maybe half the level that we saw in the first quarter of 2021. Is it as simple as kind of looking at incentive 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 see in the past from you guys as the volumes come down?
David Dykstra
61:39 Well, I don’t think it’s exactly one here. I mean, it’s the spreads in the first quarter of last year were a lot higher. So was there a spread compression that revenue goes away, but your commissions are based upon units, not based on revenue. So, I don’t think it’s linear because if you got into the higher production quarters margins were much wider and so it’s not quite linear, but if you sort of normalize the production margins and I think you get closer to your concept, but I think you have to take into account that under that 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 we have to normalize your revenue. Margins.
Nathan Race
62:28 Which is why we always push to the net overhead ratio. It’s hard to know where they’re going to be but in the overhead ratio at current levels are one expected, one thirty around?
David Dykstra
62:42 One twenty one this quarter, but our target is really sort of the 130 to 135 range.
Nathan Race
62:49 Yes. Mortgages pickup up. We – the number would out.
David Dykstra
62:54 But the other thing you can think of Nate, is MSR is going to play to this too. So rates go up and our volumes down. MSRs are going to valuation is going to go up and our service team portfolio continues to grow and so we’ll have additional revenues off of that too. But lots of lots of moving parts there.
Timothy Crane
63:22 I know you guys don’t like to count the MSRs nor that we, but fact it does add the earnings of capital and does help on the way up and hurts on the way down.
Nathan Race
63:36 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 million or so. And if you guys do a similar level of volume in the first quarter this year, is that kind of a good level it go off? Or has there been any kind of nuances within your mortgage structure that could cause those expenses to be more variable than what we see in the past?
Timothy Crane
64:03 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 bonus in long term incentive comp and commissions for wealth and mortgage and everything else is not just the mortgage line, so.
Nathan Race
64:21 Got it. I really appreciate all color. Thanks everyone.
David Dykstra
64:25 Thank you.
Operator
64:28 [Operator Instructions] Thank you Next question comes from the line of Michael Young of Truist Securities. Your line is open.
Michael Young
64:46 Hey thanks for taking the question. Happy thirty years. Ed, I want to call back a couple of your references and frame that into question. So, it’s been starting off the year that maybe pushing more of a beach fall up the hill, what areas do you want to sort of reinvest in as some of the higher rates kind of pull through and really benefit the earnings stream?
Edward Wehmer
65:12 Well, we never stopped investing in the business. I mean, for a growth company you have to invest in the business. We’ve always kept earnings growth tangible growth in mind. So we continue invest in the digital channels to share that about three years ago, they’ve have not done a very good job explain to how much we spend, but a lot of money we spent to get out there. It’s working because all the graduates we want as you can see in the earnings release. Come June, we’re going to roll out a major component of deep blow, which is full remake of the individual or that retail digital stuff or a great shape to do that, but stuff is expensive. So we do monitor we do we think we’ll be fine. We care we prioritize nicely. But robotics is something we’re looking into a lot of all different businesses in some take the take some wrote procedures we go through and make them nine people. Which should keep the people close down and add to productivity.
66:38 We always look for other businesses that we get into, added a couple of this year, smaller ones. We continue to do that, diversification still very important on both the deposit on the asset side. So, we will look for other deposit sources and loan products you get out there. And our people talking about people happy. So let’s say anything Dave.
David Dykstra
67:10 No, I think that’s good.
Edward Wehmer
67:12 That depends, depends well.
David Dykstra
67:12 That depends, many of depends [Indiscernible].
Michael Young
67:19 Perfect. And then my second question is just a follow-up on kind of the liquidity management asset if we look back to like twenty eighteen as rates for rising and reaching higher levels, it was more of a mid-teens kind of percentage of burning assets versus 23% today and was yielding somewhere around 2.7% versus 1.09% today. So, is there anything structurally changed either within the company or within the market that would prevent it from getting back to sort of those levels if we were back into that a great environment in a year or two years now?
David Dykstra
67:57 It really all depends on. We always ran 85% to 90% loans and deposits time we got overnight. We’re ninety two or ninety three and we talking with the other people happy. But they gets 85% to 90% loans on the deposits that would bring us back down to little bit lower levels in terms of the overall Liquidity portfolio. And as we about three years duration on all our liquidity, including that money. Including the overnight money we have. Usually closest to higher than 6.5 years. So that’s kind the basis of deployment is long to get the loans back to $85 to $90, which is our target range, but then invest after that. That make sense.
Michael Young
68:54 Yes. No, I think just real quick on the duration you were saying in six point five years now, is that?
David Dykstra
69:00 Yeah. Historically that’s what we could ask. Three, were a little over 3 or 3.1 now. So plenty of room to…
Michael Young
69:09 Okay.
David Dykstra
69:09 Well.
Michael Young
69:11 Okay, Perfect. 69:12 Thanks. Appreciate.
Operator
69:15 Thank you. Our next question comes from Russell Gunther of D A. Davidson Your line is open.
Russell Gunther
69:21 Hey, good afternoon guys. I just have one follow-up on the overhead ratio discussion. So, the commentary of the 120 moving towards $130 to $135 dollars that longer term target as mortgage normalizes. As we overlay the assets since activity discussion and that glide path to a 3% percent margin.
I mean in that scenario, do you think you can sustain around current levels or even improve upon or are the franchise investment in growth mode still likely to take us to that $130 range?
Timothy Crane
69:55 Yeah. Well, the $130 doesn’t really get impacted by margin, because the net overhead ratio is non-interest 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 margin, you manage your provision and costs and then you manage your net overhead sort ratio, which is non margin related. So, the increase in rates other than potentially reducing mortgage production. Doesn’t really have an impact on the net overhead ratio. So, we’ve been one twenty and more one and twenty this quarter with a relatively softer seasonally softer mortgage volume. So, but that included an MSR adjustment. If you take that MSR adjustment your closer to $130. So the $130 sort of is. Today’s is sort of environment without an MSR benefit and we think as we continue to grow, we should be able to hold that or improve upon it as we get operating leverage. But rise in rates doesn’t necessarily directly impact the net overhead ratio.
Russell Gunther
71:16 If you think that 1.5% was there a net overhead goal. We’ve been able to get more leverage into the system as we’ve able to grow and so down to $130 to $135 was not bad. That’s kind of leverage we picked up being able to handle more assets was under that expense base. So, I think as we continue to grow and next year we came in hypothetically, I don’t have it, but like $60 is not going to happen, but I expect them down even more as you get more and more leverage out of it. But we shall see.
Richard Murphy
71:56 Yeah. So I think the short. The only thing the rates impact on the net overhead ratio generally speaking is the mortgage rates go up and the mortgage servicing rights going to gain in value and you’re probably going put pressure on your originations and so you just have to take that into account?
Russell Gunther
72:21 I appreciate it, guys. I put a do great explanation and thank you for that. And this and then maybe asked a different way on the – in that three percent margin range, do you expect to be able to demonstrate overall positive operating leverage in twenty two? From perspective?
Timothy Crane
72:41 Yes.
Russell Gunther
72:42 Yeah. All right guys. Thank you again, that’s it for me.
Timothy Crane
72:46 You. Thank you.
David Dykstra
72:47 Thank you.
Operator
72:49 Thank you. We have a follow-up question from Brock Vandervliet of UBS. Your question please.
Brock Vandervliet
72:57 Thanks for taking follow-up. Just on mortgage, I was looking through the press release here and half the volume was refi. I’m assuming that should be falling pretty fast here given the moving rates. Are you trimming expenses in that segment preparing for heavier sailing or how you moved in that direction yet?
Richard Murphy
73:26 Oh, yeah. We’ve been able to reduced staff of the mortgage area. Well, they not show because we utilize them in a different area. Our premium finance life business is growing so fast we need against some else. But we get really good people, we’d like to keep involved, but we are monitoring mortgage – mortgage cause. We want to keep that fixed variable concept going. Edwards, lower fixed expense give more very low expenses and we’re accomplishing that, I believe and we’ll go from there, but Yes, we get all the time.
Timothy Crane
74:06 Yeah and I think Brock in the first quarter, we’re probably thinking 60% purchase, 60%, 65% purchase and refi has taken down, but even though some of the potential borrowers are in a position to do a refies just because of lower rates. We are seeing some cash out refies is a big part of the refi volume now. So people kind of use in the 30 year product as their home equity product of old and so that’s 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 it’s a thirty year am on the loan versus a home equity line with should be a lower am and they keep their payments down. So we’re seeing a lot of cash out refies.
Richard Murphy
75:02 Yeah. Finally you’re going to see obviously, home values has continue to go up and people will go back to pattern of and always – and the old thing, you look at the [Indiscernible]. We’re up old equity line pivotal equity line with a new mortgage, 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.
Brock Vandervliet
75:34 And I noticed the MSR markets better 112 basis points where we’re carrying that MSR asset. Just for context back in 18 or so before rates started coming down, where was that roughly? I’m just trying to gauge what kind of ceiling we could have on that mark?
Edward Wehmer
76:00 Well, Brock, I don’t have that in front of me. There was a time where those numbers were in the $130 range. So, I don’t hope if that was 2018 or not, but they certainly could go up higher than us.
Richard Murphy
76:13 Yes, $130 to $140 makes sense and we got to hell a lot more than we had back then, so…
Brock Vandervliet
76:21 Yes. Okay, great. I appreciate all the color guys.
Richard Murphy
76:25 Thank you.
Operator
76:27 Thank you. At this time, I’d like to turn the call back over to Edward Wehmer for closing remarks, Sir?
Edward Wehmer
76:33 Thank you everybody for listening and we’ll give you our best efforts going forward and continue to think that the market gives us [Indiscernible]. Don’t be stupid through the right thing like we’ve always done. Again, hats off to our staff, we have been through [Indiscernible] back to make this happen. They do a wonderful job and keep their customers happy and talk to you in the quarter if you have any questions, please don’t hesitate to call any of us on the call. Thank you very much. See you in the – see in April.
Operator
77:09 This concludes today’s conference call. Thank you for participating. You may now disconnect.
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