Wintrust Financial Corp (WTFC) Q4 2021 Earnings Call Transcript

Wintrust Financial Corp (NASDAQ:WTFC) Q4 2021 Earnings Call dated Jan. 20, 2022.

Corporate Participants:

Edward Joseph Wehmer — Founder and Chief Executive Officer

Timothy S. Crane — President

David Alan Dykstra — Vice Chairman & Chief Operating Officer

Richard B. Murphy — Vice Chairman & Chief Lending Officer

David L. Stoehr — Executive Vice President and Chief Financial Officer

Analysts:

Jon Arfstrom — RBC Capital Markets — Analyst

David Long — Raymond James — Analyst

Terry McEvoy — Stephens Inc. — Analyst

Ben Gerlinger — Hovde Group — Analyst

Brock Vandervliet — UBS — Analyst

Chris McGratty — KBW — Analyst

Nathan Race — Piper Sandler — Analyst

Michael Young — Truist Securities — Analyst

Russell Gunther — D.A. Davidson — Analyst

Presentation:

Operator

Welcome to Wintrust Financial Corporation’s 4th 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 review presentation.

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.

I would now turn the conference call over to Edward Wehmer.

Edward Joseph Wehmer — Founder and Chief Executive Officer

Good morning, everybody and welcome to our 4th 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 adapted earlier in the year, seemed to work pretty well. I’m going to give some general comments regarding our results, turn over to Tim for more detail on the balance sheet, turn over to Dave Dykstra who is going to cover other income and expense, and Murphy will then follow up with discussion on credit, and back to me for some summary comments about the future and then time for questions.

As you have already know, 12/27/21 marked 30th anniversary of us opening our first bank, little more than $6 billion in capital raised from friends, neighbors, and family, 11 hard souls embarked on the journey but absolutely no dilutions of grandeur. Although it’s simple to create a new type of community bank on a combined high-touch banking with technology, a high-tech, high touch to cover people and businesses in the communities we serve. All along the server homegrown server culture has been 4 pillars. Our shareholders, employees, customers and communities we serve.

We now waivered from that commitment in the 30 years we’ve been in existence. Of course, this anniversary have been asked many times what I am most proud of Wintrust. 5400 employees will make up Wintrust. I’m pretty proud of that. So $50 billion of banking assets with $35 billion about management assets we amassed over the years, have prepared that too. So the record earnings, we have delivered over the years. Yes. In fact, our stock price booked — so the fact of its stock price growth the century mark, so pretty good at that too. Management attributes I’m very proud of. However, we’re most proud of this effect. Our culture has endured over that period. Culture delegate doing the right thing for our constituents, all the time.

Take the blame, share the fame, avoid the shame and enjoy the game. Our culture in a nutshell. They’ve endured even though we have grown beyond our wildest dreams. So now for the walk down memory lane, let’s talk about the quarter and year-to-date results. All in all, another very successful quarter. Previous calls I referred to around is $1 billion quarters, so it’s different, it’s a $2 billion quarter. Assets were $2.3 billion to $50.14 billion, 7.2% growth or $5.1 billion on 12/31/2020. Core loans and PPP and loans held for sale went from $34.2 billion, $2 billion for the quarter, 16.6% growth for about $4.9 billion plus the $2 billion or $2.1 billion growth for the quarter, 13.5% or $5.2 billion up since 12/31/2020. Overall growth was enhanced by the purchase of portfolio leases we own from Allstate $550 million. Tim will talk about this a little bit more.

On the balance sheet front, our strategy which we adopted to serve the pandemic in April 2020 of growing through the period enhancing our interest rate sensitivity position is paid off in spades. Mortgage and PPP loans took us through the depth of the pandemic. Our growth in core loans is more than replaced the earnings power. These assets are extremely well positioned for higher rates. They appear to be here finally. As the earnings front, we recorded record year $466 million or $7.58 per diluted common share recorded $99 million or $1.58 per diluted common share dollar percent for the 3rd quarter, mainly because of the positive provision of $9.3 million as opposed to negative provision of almost $8 million.

Positive provision was brought about by the acquisition, the double-count, we have to do there and the fact that our grow loans have grown so — so nicely that income was up $8.5 million compared to Q3. Core net interest income was up $15.5 million. It appears the PPP transmission was down $7 million. Earning answer well basically loan levels, the 5 basis point decline in deposit CASA major largest change. Loan pipeline remained consistently strong [Indecipherable] 2022. But as I said, start as ending loan balances [Indecipherable] $1.36 billion.

Slide utilization was up a smidge, that’s kind of smidge is a technical term we use around here but not close to historical averages, but will discuss — Murphy will talk about this in detail. Over $1 billion loan growth if and when utilization return to normal. NIM was down slightly 4 basis points to additional liquidity rates rise, you can expect we can [Indecipherable] excess liquidity penetration. Our liquidity portfolio lower 3 years post normal 6 plus years. It will be prudent in our investment timing though.

Credit quality got even better believe it or not. Murphy will also cover this in his review of credit. I will note that we did conduct an asset sale noted in the release. [Indecipherable] call the portfolio, given a bad assets potentially bad assets as soon as possible. PPP pre-tax pre-provision income was up approximately [Indecipherable] million. We expect to some of the [Indecipherable] to grow nicely in 2022 especially rates rise anticipated on this in my closing remarks.

One last point I want to make wealth management business, assets under administration were almost $1 billion in the quarter, approximately $0.5 billion year-over-year, $35.5 billion or 18% growth rate. Obviously, the market out these numbers core growth of account was impressive. Fee run rates went from an annualized $107 million in the 4th quarter of 2021, $30 million in the 4th quarter of 2020. [Indecipherable] going to talk for 2 hours.

Very proud of the progress made this you look forward to continued growth in this area, a lot of momentum there. I’ll turn over to Tim will take you through the balance sheet.

Timothy S. Crane — President

Great. Thanks, Ed. I’d like to highlight a couple of balance sheet items, as well as comments on a couple of items, likely to be of interest. The $2 billion in loan growth that Ed referenced was spread nicely across all categories. Rich will add some color to that, but it includes the $578 million of loans from the previously announced November purchase of The Allstate agency loans. This portfolio is a very nice add to our existing agency lending business. Importantly, unlike some loan portfolio purchases that run off over time, this is a business that we believe we can continue to sustain and grow. It’s also important to note that the overall loan growth does not yet include much benefit from increased line utilization where we only saw a modest improvement in the quarter. On an annualized basis, the loan growth for the quarter excluding the portfolio purchase and PPP was 18%, the 3rd straight quarter at or above 15% and Ed mentioned at the period end loan balances were well above the quarter average balances.

Obviously, PPP loans continue to run-off down a little over $0.5 billion in the quarter and now totaled $558 million a number we expect to decline relatively quickly with continued forgiveness activity. Into 2022, we expect continued strong loan growth. While our guidance remains our historical mid to high single-digit loan growth on a percentage basis, net of PPP, our short-term performance should continue to be at or above the high end of that range and likely better than peers. The $2 billion of deposit growth, just under half of that was 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, the changes will be smaller going forward as the majority of deposits have repriced during the low rate cycle. On the investment front, we remained very liquid with approximately $6.1 billion in liquidity at year-end and securities balances essentially flat. While I expect, we will begin to deploy some of the liquidity in the first part of 2002 at somewhat higher rates than we saw in the 4th quarter, we remain cautious about locking in low long-term yields and remain very well positioned for rates at higher levels.

On that topic, anticipating a question or 2 about rising rates, we reported for several quarters that we had focused on remaining interest rate sensitive expecting the possibility of higher rates that continues to be the case and we will benefit from upward changes that the market is starting to price into the consensus forward curves. Just a couple of highlights reinforcing Ed’s earlier comments, approximately 80% of our loans reprice within a year. You can see this on Page 12 of the supplemental presentation. Our spreads simply our loan yields versus our deposit cost improved for the 3rd straight quarter.

Securities yields for many instruments are 20 to 50 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 on competitor actions, we believe each 25 basis point change in rates is worth about $40 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.

The only thing that I would add is that early in the cycle deposit cost 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 4 basis points attributed solely to the continued impact of more liquidity. Asset that excess liquidity, our margin would have actually expanded by 2 basis points. Without large continued inflows, we expect the margin has bottomed and will certainly improve as rates begin the trend up.

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 conceivable margin will be around 3% at year-end. On the capital front, the bank’s capital levels are down slightly as a result of the strong growth in the quarter but remain well within our targeted levels and appropriate on a risk adjusted basis.

Lastly, we continue to be very pleased by our market momentum. Last quarter we highlighted the favorable Greenwich ratings and the satisfaction of our commercial clients. I would add that Wintrust ended 2021 as the top SBA lender in Illinois. In terms of customer behavior, we continue to see digital usage increased nicely. In 2022, we will continue to improve on our digital offerings with a near total revamp of our consumer and small business digital services. In addition to our high-tech improvements, we will also enhance our high-touch activities with the addition of locations in Oak Park, Illinois 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 Alan Dykstra — Vice Chairman & Chief Operating Officer

Great. Thanks, Tim. I’ll cover the noteworthy income statement categories. Starting with the net interest income. Some redundancy with Ed and Tim’s comments here, but we’ll just go through quickly. For the 4th quarter of 2021, net interest income totaled $296 million, an increase of $8.5 million as compared to the 3rd quarter of 2021 and an increase of $36.6 million as compared to the 4th quarter of 2020. The $8.5 million increase and net interest income in the 4th quarter compared to the prior quarter was primarily due to average earning asset growth, which was up 17.4% on an annualized basis over the prior quarter. Net interest margin decline of 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.

The yield on earning asset decline in the 4th quarter compared to the 3rd quarter 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.

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 4th quarter and the net interest margin would have stayed relatively stable. Excluding the impact of the PPP portfolio and would be down only 1 basis points. As Tim Crane mentioned, the margin was affected by this excess liquidity on our balance sheet and that the rates are higher than they were a month ago, so as we begin to deploy some of that liquidity into the market, we expect the net interest income and net interest margin to benefit from that, although we will continue to be cautious on deploying the liquidity.

Turning to the provision for credit losses, 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 a $1.2 million provision expense recorded in the year ago quarter. The provision expense in the 4th 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 were 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 of minutes.

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 4th quarter, compared to $31.5 million in the 3rd quarter and up 21% from the $26.8 million recorded in the year ago quarter. Mortgage banking revenue saw a reasonably solid loan origination volume during the 4th 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 4th quarter. Revenue was lower in the current quarter, primarily due to lower lock adjusted origination volume and combined with slight compression in the related production margin.

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 4th quarter of ’21 related to mortgage servicing rights compared to a decrease of $888,000 in the prior quarter. Looking forward, based on current market conditions, we anticipate mortgage revenue excluding any MSR valuation adjustments to be fairly similar in the first quarter of 2022 as we experienced in the 4th quarter of 2021.

Obviously, the mortgage servicing rights valuation is tied closely to interest rates and we’re not going to speculate on what those may be at the end of the first quarter of 2022. But based on current market rent conditions, it would point to a higher valuation but obviously a lots of time to go yet in the quarter. Other non-interest income totaled $18.9 million in the 4th quarter of 2021, down approximately $4.5 million from the $23.4 million recorded in the prior quarter. The 2 primary reasons for the lower revenue in this category include $1.3 million of lower swap fee revenue and $3.7 million of lower income from investments and partnerships, which are primarily related to investments that we have to support our CRA purposes.

In the non-interest expense categories. Non-interest expense stayed relatively stable with the past 5 quarters and totaled $283.4 million in the 4th quarter, up approximately $1.3 million from the $282.1 million recorded in the prior quarter. There are a handful of categories that accounted for the majority of the change from the prior quarter. That I’ll focus on, but I think it’s important to put the expense growth in the context of the company growing its balance sheet by $2.3 billion during the quarter.

Salaries and employee benefits expense decreased by $3.8 million in the 4th quarter of ’21 compared to the 3rd quarter of the year. The decline is primarily related to a $7.1 million of lower compensation expense associated with the mortgage banking commissions and incentive compensation program expense in the 4th quarter relative to the 3rd quarter with those savings, partially offset by increased staffing costs as the company continues to grow.

Software and equipment expense totaled $23.7 million in the 4th quarter that was an increase of $1.7 million as compared to the prior quarter. The increase was primarily due to accelerated depreciation related to the reduction in the useful life of certain software that has been — that is planned to be replaced, as 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 cyber security efforts.

OREO expenses were actually negative by approximately $641,000 in the 4th quarter as the Company recorded gains of approximately $843,000 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 3rd quarter, which also had gains on the sale of OREO properties. I think it’s important to note that we’ve been aggressive in liquidating OREO assets and the amount of OREO on our balance sheet. At the end of the year, it was a mere $4.3 million compared to $13.8 million at the end of the prior quarter and $16.6 million at the end of 2020.

Other than the expense categories I just discussed, no other expense category had a change of more than $900,000 and all those other expense categories in the aggregates were up less than $2.5 million dollars compared to the 3rd quarter of 2021. The net overhead ratio, a measure of operational efficiency, remained relatively stable in the 4th quarter relative to the 3rd quarter. The net overhead ratio stood at 1.21% which is down 1 basis point from the 1.22% recorded in the 3rd 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% in both the 3rd and the 4th quarters of the year.

So in summary, the core fundamentals are strong with growth in pretax pre-provision net income, robust loan and deposit growth, increased net interest income despite sizable PPP loan reductions, another record wealth management revenue quarter, seasonally adjusted strong mortgage banking revenues relatively stable net overhead efficiency ratio strong pipelines and fantastic credit metrics.

So with that, I’ll turn it over to Rich.

Richard B. Murphy — Vice Chairman & Chief Lending Officer

Thanks, Dave. As noted earlier, credit performance for the 4th 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 3rd quarter was the nature of this growth, which was spread across our loan portfolio. 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 close out a very productive year for Wintrust where we saw net loan growth excluding PPP of $4.9 billion, $4.3 billion if you net out the Allstate acquisition, an increase of 14.6% for the year. As noted in prior earnings calls, we continue to see very solid momentum in our core C&I portfolio. Pipelines have been strong throughout the year and we saw that materialize into increased outstandings during the past 2 quarters. We continue to believe that ongoing market disruption and our success during PPP are the primary driving factors. We are optimistic about loan growth in 2022 for a number of reasons. 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 past year to 39,000 and over 40,000 in the 4th quarter. We believe these levels will continue into 2022. Wintrust Life Finance had a very strong year growing their portfolio by 20%, this momentum was maintained through the 4th 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 group.

From a credit quality perspective as detailed on Slide 17, we continue to see solid credit performance across the portfolio. This can be seen in a number of metrics. Nonperforming loans decreased from $90 million or 27 basis points to $74 million or 21 basis points. A meaningful part of this reduction came from the sale of a $10 million portfolio of loans. The majority of these were nonperforming. NPLs continue to be at record low levels and roughly half of where they were this time last year. Charge-offs for the quarter were $6.2 million approximately $2 million of which was a result of the loan sale that we just discussed and as Dave pointed out, we continue to see credit risk ratings show positive migration as our customers continue to recover from the pandemic.

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

Edward Joseph Wehmer — Founder and Chief Executive Officer

Thanks, Rich. Good job. As mentioned being on the call, our strategy has been the grow the balance sheet during the period of low rates [Indecipherable] our structural hedges mortgages i.e. mortgages to buffer the loss of net interest income, so sort of time as balance sheet growth and offset income loss due to lower rates. PPP loans were expected benefit add on to this strategy [Indecipherable] account as well, enhancing our interest rate sensitivity position participation of higher rates, which appear to be on the near-term horizon. We more than covered the PPP loan run-off, which was our goal with core loans. It’s is fair to say that to date the strategy been accomplished in speed. The excellent growth we have put up over this period and the Allstate purchase has been organic. Other than the Allstate, portfolio purchase been organic. Acquisition market appears to be getting more active but so our 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 gives us and right now it has given us great organic growth. We continue our historical approach to potential deals wherever it makes sense. As you all, I’m definitely [Indecipherable] earnings and book value dilution. Through our position wherever the market brings us, credit metrics are at their lowest levels in years and pipelines remained consistently strong across the board. We expect this to continue to our reputation in the market. The market disruption that is and will continue to take place. Reverse earning asset base continues to serve us well. Our line utilization should rise inflation see strong should worth over $1 billion additional loan growth if utilization return to historical levels.

So we expect wealth as revenue and assets to continue their current glide path. Mortgages should continue to be meaningful but with lower contributions in 2021. As we mentioned in previous comments, our assets and today business in places and position being managed with the rising rates. As Tim said, every quarter point to add $450 million [Indecipherable] annualized basis, very much looking forward to seeing my beachball, has been under water for a long time. We have the ability to put more of liquidity to use as rates rise, we’ve already been lagging into this strategy, we’re always and we’ve always been a growth company. And this is not changed. As a direct attention to the chart on pages 4 through in the release, the CAGR is indicated in those charts and all of our vital statistics because [Indecipherable] 10 years of work. Numbers would be similar if not better, if you went back the entire 30 years of our existence. I put this body work against any other bank in the country. I’m very proud of our entire Wintrust team works so hard to make this happen. [Indecipherable] what the next 30 years bring. That I’ll turn it over to — for questions.

Questions and Answers:

Operator

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

Jon Arfstrom — RBC Capital Markets — Analyst

Thanks. Good morning, guys.

Timothy S. Crane — President

Hi, Jon.

David Alan Dykstra — Vice Chairman & Chief Operating Officer

Good morning.

Edward Joseph Wehmer — Founder and Chief Executive Officer

Hello, Jon.

Jon Arfstrom — RBC Capital Markets — Analyst

Good, good. Congrats on the 30 years Ed and $50 billion notable.

Edward Joseph Wehmer — Founder and Chief Executive Officer

Hard to believe in that.

Jon Arfstrom — RBC Capital Markets — Analyst

Hard to believe. Maybe Tim or Murph, can you talk a little bit about the kind of late growth in the quarter and what you think drove that. It’s a pretty good jumping-off point for Q1, but anything notable that you call out on that?

Timothy S. Crane — President

No I don’t — 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 and 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 and the holidays and everybody just pushing things across the line. So the other thing is, I think everybody was dealing with a fair amount of capacity issues from attorneys and appraisers and everybody else and that there was definitely a push at the end here to get things through the pipeline. So other than that, I don’t know. Tim, would you add anything? No, I think that may be a handful of people that thinking that they were going to complete some sort of transaction trying to get it in before some tax related activity might have come up, but that’s turned out not to be the case. [Speech Overlap]

Jon Arfstrom — RBC Capital Markets — Analyst

But you’re still seeing no real change in the pipeline despite that strength.

Timothy S. Crane — President

Yes pipeline looks pretty strong.

Jon Arfstrom — RBC Capital Markets — Analyst

Okay. Can you comment on deposit cost, not rising early in a rate hike cycle what point do you start to think about that or maybe said another way, how much runway do you think you have in terms of your deposit betas?

Richard B. Murphy — Vice Chairman & Chief Lending Officer

Yes. 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 of have to see. We’ve seen very little deposit competition so far, and given the very low levels we start at the betas will obviously work themselves up over the cycle.

David Alan Dykstra — Vice Chairman & Chief Operating Officer

Jon, this is Dave. I think if you look at the prior cycle, we didn’t see any rates in the first 2 rates by the 3rd and you really only starting to the see pressure on the 3rd rate hike of 25, so have to see the size and the timing of and what competition does, but as Tim said, with all the liquidity in the market, we wouldn’t expect it to happen any faster than that. We think it could potentially does a betas could lag a little bit more than that given all the deposits in the system.

Jon Arfstrom — RBC Capital Markets — Analyst

It seems that way. Just a quick one for you, Dave, on mortgage and 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 that the right way to look at it?

David Alan Dykstra — Vice Chairman & Chief Operating Officer

Yes. The other way is just take the $53 million in total mortgage banking revenue and back off the $6.7 million of MSRs and say that your — that your base.

Jon Arfstrom — RBC Capital Markets — Analyst

Okay. Okay. Good. Thanks guys.

David Alan Dykstra — Vice Chairman & Chief Operating Officer

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

Jon Arfstrom — RBC Capital Markets — Analyst

Okay.

Operator

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

David Long — Raymond James — Analyst

Good morning, everyone.

Edward Joseph Wehmer — Founder and Chief Executive Officer

How are you doing, David?

David Long — Raymond James — Analyst

Good, good. You guys talked a little bit about the strong loan growth in the quarter, but just curious, if I can get a little bit more color on are these new relationships is utilization upticking where — where are — where are these new loans coming from?

Richard B. Murphy — Vice Chairman & Chief Lending Officer

Yes, I think utilizations 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. I think you had seen number is closer to 50%, we’re at 40%. So I think there is still lots of headroom there, but I think in general, thinking about the different loan products, most of this is really coming as a result of market disruption in the C&I space because we, as we’ve talked about in prior calls, I think we have really kind of become the bank in Chicago to go to and you look at what’s going on with CIBC and some of the changes there, you look at what’s happened with [Indecipherable] 3rd and a lot of the changes there. 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 are the — we have always been the local alternative to the big banks. We continue to be that. And people do like that, they like being able to walk in and meet with the people who are making the credit decisions, making the people who are running the company. It is a key differentiator and most of that is resulting in these new relationships coming over. But then if you look at like the life portfolio that is — that’s all new relationships. I mean that is just people that really like the product to 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 — Raymond James — Analyst

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 these sticky deposits, do you expect these to stay I talked about the deposit beta but will be deposit stay on the balance sheet, do you expect a run-off at any point once — once rates start moving higher?

Edward Joseph Wehmer — Founder and Chief Executive Officer

I think of a mix issue in rates, we would hire but I’ll add just sits in demand right now, but I believe we don’t know basically will people pull lot of money out, they all had a lot of cash pull it out — put out, will come back to us probably but that’s why we’re being a little bit slow on our — we take this into consideration as we look at the investing the our excess liquidity terminal comment. Tim, would you like to comment?

Timothy S. Crane — President

Yes, I think that’s all right. There’s probably a little bit of tax related activity that will 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’ll react appropriately. It was a lot of growth.

David Long — Raymond James — Analyst

Yes, definitely. [Speech Overlap] Yes. I may have missed this with Dave’s question but were there any merger in — merger charges associated with the Allstate portfolio that was purchased that were baked into the operating expense number in the quarter?

David Alan Dykstra — Vice Chairman & Chief Operating Officer

Yes, it was a various one we have legal fees associated with that. David. So I mean it’s a very small amount less than $0.5 million, so nothing significant.

David Long — Raymond James — Analyst

Great. Thanks, guys. Appreciate it.

Operator

Thank you. Our next question comes from Terry McEvoy of Stephens. Your question please.

Terry McEvoy — Stephens Inc. — Analyst

Hi, good morning, how are you?

Edward Joseph Wehmer — Founder and Chief Executive Officer

Pretty good, Terry. How have you been?

Terry McEvoy — Stephens Inc. — Analyst

Good. Thanks. I went back — it took a decade to grow your deposits $2 billion you cross that mark in 2001 whereas you did that just in the last quarter. So congrats on the 4th quarter. I guess a couple of questions, Tim maybe how are you thinking about expense growth in 2020 to a lot of talk of wage inflation, but then on the flip side maybe a softer mortgage market will impact some of your salaries and benefits.

Timothy S. Crane — President

Yes. Well, I think that context is probably correct and I think the way we look at it and all sound like a broken record compared to prior quarters as we try to focus on the net overhead ratio, because the mortgage business if it goes up and down the expenses go up and down and. And so we look at the operating leverage from that perspective, it was in the low 120 for the last 2 quarters, we expect to sort of hold that line a little bit if mortgages go down and 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 130 basis point range but we expect to get leverage but there clearly are 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. We also — we also have those expenses supporting spread business right loans and deposits. So if, as the spread business goes up, there’s a lot of built in growth already for — actually for next quarter with over $1 billion worth of ending on 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’ll be some pressure there. But we’re also investing in robotic process automation in some areas, so not that that necessarily would cut a bunch of positions, but it would eliminate the need to add positions as we grow and so we’re going to be able to leverage technology and the like. And so some of the digital enhancements we’re doing is 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 is leverage in the system and certainly if we don’t think that our net overhead ratio targets are going up. We think we can grow into any of those sort of increases and if there is a rate increase, then that way more than offsets any pressure that you would have on those line items.

Terry McEvoy — Stephens Inc. — Analyst

Thanks, Dave. And then just as a follow-up, your commentary on bank M&A, few years ago, you are 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 a bias towards a larger transaction? And as you think about markets, would you be willing to expand into a newer market?

Edward Joseph Wehmer — Founder and Chief Executive Officer

I really don’t think we’ve changed. We’re very opportunistic as it comes to acquisitions. I can’t — couple of quarters ago, I thought that the big bank kind of concept there was just chumming the water. See that if I get a shark up or whale or a blowfish, I don’t know. But I can’t imagine us doing a bigger deal right now. It drives me crazy. We’ve talked to people of all from a $1 billion on up, they are worried about themselves and not about their shareholders, drives me nuts, I said that before I’ll say it again. But we’re going to be opportunistic out, in terms of — I can’t imagine us doing a very large deal, but I can imagine us doing a deal with either end market, expanding the market to contiguous states, I think, Northwest Indiana is still on our bucket list, we got to get there, we have to expand in Wisconsin and in the rest of Illinois. But we only have 8% to 9% market share here in Chicago, play a role for us to grow here. As Tim mentioned, we’re opening up a couple of new branches. New areas we’re not in. There’s numbers we’re still adding, we’re going to have to get to. So we would take what the market gives us. I can’t imagine we will do a big deal. But we’re always looking, and we’ll be very opportunistic. But, as I said, I am allergic to dilution, and Dave is going to be EpiPen and I don’t think we do a big deal that would dilute the crap out of us.

Terry McEvoy — Stephens Inc. — Analyst

I appreciate that. Thank you.

David Alan Dykstra — Vice Chairman & Chief Operating Officer

With — it’s intriguing that I could use an EpiPen on that, but we’ll wait for another day.

Operator

Thank you. Our next question comes from Ben Gerlinger of Hovde Group. Your line is open.

Ben Gerlinger — Hovde Group — Analyst

Good morning, guys.

Edward Joseph Wehmer — Founder and Chief Executive Officer

Ben, good morning.

Ben Gerlinger — Hovde Group — Analyst

I was curious, you said in your opening remarks that every rate hike equates to about 10 basis points on margin. I was curious, since you guys are so asset sensitive, is there any part of that 10 that had a delayed effect. And then for example, if the markets pricing in a hike in March, would you believe to see that 10 in the second quarter, or is it particularly like seven, immediately and three following on?

David L. Stoehr — Executive Vice President and Chief Financial Officer

Well, I guess what we’d point to is just what we said in there, so $40 million to $50 million 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 have may be 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, etc. But I think that general guidance is good right now and we’ll try to fine-tune it as rates go up. But I think we’re — we’ll just stick with what we gave you there.

Ben Gerlinger — Hovde Group — Analyst

Got you. Okay. That’s fair. And then when you think about hiring and the potential for talent, obviously expenses have increased industry-wide in terms of a salary line, and the guidance is for even more. I was curious how you guys approach talent and the cost associated with that? Do you need to see revenue associated with the talent or is there supporting back offices that could potentially also increase the salary line items?

Richard B. Murphy — Vice Chairman & Chief Lending Officer

Well, I can take part of that and Dave can add. I mean, we continue to believe we are in 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 from a wage standpoint? Yes. I don’t think that’s anything atypical from our standpoint at this point. We’re generally hiring commercial bankers. So we think the people are really important, they will help us continue to grow the company, the back office side of things, we’re doing a lot to limit the number of people we would need and the ability to scale up. So there’ll be some impact, but I don’t think it will be outsized at this point.

David Alan Dykstra — Vice Chairman & Chief Operating Officer

I think we’re always generally in the market for revenue producers. And so maybe that adds a little bit until they bring their book over with them. But if we can hire good people that produce loans, I mean, we’re always investing in the business, right. So we would do that if there is good people and we always have for the last 30 years. So no change in that approach.

Ben Gerlinger — Hovde Group — Analyst

Got you. Okay. I appreciate it. Thanks, guys.

Operator

Thanks. Your next question comes from Brock Vandervliet of UBS. Your line is open.

Brock Vandervliet — UBS — Analyst

Hi, good morning. Thanks for the extra question. I guess going back to — I think it was David Long’s question on deposit trends. Have — you’re kind of in line with other banks in terms of having vacuumed up 25% — increased your deposit base 25%, 30% since COVID started. Have you — have your bankers started engaging with large pools of deposits to try and get a sense of their stickiness? Or is that coming? How are you trying to be the player coach in this and move into higher rate environment?

Edward Joseph Wehmer — Founder and Chief Executive Officer

Well, Tim is in charge of stickiness.

Timothy S. Crane — President

Yes, I was thinking right there. It’s a good question. And Brock, we actually have, we — 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 or 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 Ed’s point earlier, we will watch for some volatility, but we still think absent all of the noise, we have and would have had very, very strong deposit growth.

Brock Vandervliet — UBS — Analyst

Got it. Okay. And separately, I have been noticing this for a couple of quarters, just in terms of wealth management. It seems like many community, even regional banks or what — 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?

Edward Joseph Wehmer — Founder and Chief Executive Officer

Well, took all the time to get here, the wealth management business is a tough business. And this time we’d thought we’d be there and need another piece. Finally about last year, they said all the pieces are here. Well, like Dave wants me to just talk about the bears that time, scared the hell out of me, but they’ve been able to go and build and grow. Let’s say, their approach to market is kind of the same as ours, it’s high touch, high tech, seems to be resound — resonating well with the clients. Our name is out there a little bit more. Our size helps. Our reputation is out there, and you’ll do a better job of cross-selling. So, I don’t know they do anything different other than the fact that our products are good, our service is good, our name is good and that’s how we’re doing it. So one brick at a time.

Brock Vandervliet — UBS — Analyst

Okay, sounds good.

Operator

Thank you. Our next question comes from Chris McGratty of KBW. Please go ahead.

Chris McGratty — KBW — Analyst

Hey, good morning. Ed you mentioned that — you or Dave mentioned that the 3% NIM by the end of the year. I’m interested if the futures is right? I’m interested in what assumptions you may be making on just the mix of your balance sheet given the elevated cash in that assumption?

Timothy S. Crane — President

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 — KBW — Analyst

Okay. But that doesn’t assume liquidity levels go to pre-pandemic levels, that’s just a slow gradual remix, right?

Timothy S. Crane — President

Yes, yes. It’s not assuming like if you’re wondering if it assumes all $6 billion of excess liquidity, close to work is not doing that. It’s a slow steady investment.

Chris McGratty — KBW — Analyst

Yes. It sounds good. Thank you. Maybe another question, more — maybe for Ed. You guys have had a good history of having a pulse on big changes in the market. I remember the financial crisis, you guys pulled back. Everything is going really well right now. What’s the wallet worry, if there is one?

Edward Joseph Wehmer — Founder and Chief Executive Officer

I don’t know, we worry about everything. We’re basic bold time bankers. That’s why at the end of my initial comments about the outlook and how we responded to everything from the Great Recession to the pandemic to also 9/11 and during that period of time, we’ve been able to maneuver and do very, very quickly to react to that. I think that that’s the same situation here. We don’t know what the market is going to give us, but we are going to take what it gives us, not get greedy. We’re diversified enough to know that something isn’t working. We don’t have to do that, we can do something else will be working. So I guess what I worry about most is, will the deposit stay, which I am always worry about that. Loan quality can’t be this good for I keep saying that, but we’re going to continue to call the portfolio and might even do another sale or so just to keep the numbers even lower. So I don’t know. What do you guys think?

David Alan Dykstra — Vice Chairman & Chief Operating Officer

Well, I think — I think this — the worry when it’s 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 cost — with the perception now that rates are going up, I think people aren’t going to want to lock in those low loan rates. But if for some reason we went back to a low for long rate environment, you worry that people just continue to price down the loan products. But our pipelines and our ability to get loans on our pricing metric — pricing 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 do want to block in the lower spread. So let’s just hope they increase the rates. But the competition is something we will deal with all the time, but as we saw in ’06, ’07, people race to the bottom on spreads and I was concerned that might happen. But I think that concern is going away now.

Richard B. Murphy — Vice Chairman & Chief Lending Officer

Yes. Chris, I maybe would add to what Dave said, I think that the old adage about the worst loans are made in the best of times. It’s something that we, the credit team here is constantly thinking about, which is when there is so much liquidity in the marketplace, you see banks doing irrational things and we just have to be constantly mindful that there is no loan out there that we absolutely have to do. We have good loan growth, if you just can’t get there because somebody else is doing something stupid, you just got to step away 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 this good forever and time will tell.

Chris McGratty — KBW — Analyst

That’s great color. Thank you very much.

Operator

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

David Alan Dykstra — Vice Chairman & Chief Operating Officer

Nathan?

Operator

Please make sure your line is unmuted and if you are on a speaker phone, lift your handset.

Nathan Race — Piper Sandler — Analyst

Yes. Apologies there. I appreciate you guys taking the questions. Just going back to the excess liquidity deployment discussion. Just given the greater slope that we’ve seen in the yield curve of late, is it maybe more of a willingness or sense of urgency to maybe put some liquidity to work in higher yielding securities in the first half of this year as opposed to maybe a more of a laddered approach, particularly just given the potential for the long end of the curve to flatten out as the Fed raise the short-term rates and starts to unwind its balance sheet?

Edward Joseph Wehmer — Founder and Chief Executive Officer

That’s a great question. We are going to lag — we’ve begun lagging into a little bit. We have plenty of liquidity to do it with. So we’re going to take our time, make sure that — somebody said earlier, make sure those deposits are going to stay. The growth is there. I worry about that a little bit. But we have so many good sources that are positive, it’s not just on our retail side, but see that our Deferred Exchange produces a lot of deposits, Wealth Management produces a lot of deposits. So we have a very good diversified deposit source, but anybody else?

Timothy S. Crane — President

No, I don’t think there is a rush. I think we’re 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 in a hurry.

Nathan Race — Piper Sandler — Analyst

Yes.

Timothy S. Crane — President

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

Edward Joseph Wehmer — Founder and Chief Executive Officer

Yes. We still like them. Deposits are your inventory. We want to get more and more deposits. I mean, I have no problem with bringing on deposits and liquidity. Just another lever we can pull when the time is right. So we are very active in terms of getting more deposits for our customers and playing that out just because, you have more inventory there.

David Alan Dykstra — Vice Chairman & Chief Operating Officer

And I think, Nathan, I don’t think anybody can predict what that yield curve is going to do so. We’ve invested it all right now. I guarantee of a conventional Ginnie Mae’s that grow 50 basis points that — 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, long for the first choice and then we’ll ladder into this liquidity and see where it takes us.

Edward Joseph Wehmer — Founder and Chief Executive Officer

I personally believe in the way — in this inflation as we said all along, is not a transitory, it never was. If you’re closer to a spiral where anybody wants to tell you who you are, on a quarter or half way and going to cut it personally or even a pull point isn’t going to stop anything. Where each wants liquidity, the government is way to involved. So I actually believe that you are going to see even higher rates and that are coming down the pike, but we will — they’re forecasted, but that’s my personal opinion. We got to just be very prudent in how we lay the money out, you want to be a 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. We’re in pretty good shape. So put a leg into it and the timing will be so much does the cattle but we’ll see.

David Alan Dykstra — Vice Chairman & Chief Operating Officer

It’s a great lever to have, to pull.

Edward Joseph Wehmer — Founder and Chief Executive Officer

Yes.

Nathan Race — Piper Sandler — Analyst

Yes, definitely. I appreciate that color. On a separate topic, just thinking about mortgage-related expenses and just kind of the outlook along those lines this year, perhaps for Dave, if 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 some comp line and assume that is also reduced by half or have there been other kinds of implementations within the mortgage cost structure that could lead that expense bucket to be maybe a little more variable than what we’ve seen in the past from you guys as the volumes come down?

David Alan Dykstra — Vice Chairman & Chief Operating Officer

I don’t think it’s exactly linear. I mean if the spreads in the first quarter of last year were a lot higher, so is there a spread compression, that revenue goes away. But their commissions are based upon units, not based on revenue. So I don’t think it’s linear because if you got into the higher production quarters, margins were much, much wider. And so it’s not quite linear. But if you sort of normalize the production margins, then I think you get closer to your concept. But I think you have to take into account that under Dodd-Frank, you can’t pay commissions based on the revenue you generate, you have to pay commissions based on the units. And so I think you have to normalize your revenues, margins.

Richard B. Murphy — Vice Chairman & Chief Lending Officer

Which is why we always push to the net overhead ratio. It’s hard to know where they’re going to be. But the net overhead ratio at current levels are one we’re expecting 130 around…

David Alan Dykstra — Vice Chairman & Chief Operating Officer

121 this quarter, but our target is really sort of a 130 to 135 range.

Edward Joseph Wehmer — Founder and Chief Executive Officer

Yes, mortgages pickup, we — the number will go down.

David Alan Dykstra — Vice Chairman & Chief Operating Officer

But the other thing you can think of Nate, it is — MSR is going to play into this too. So if rates go up and our volumes down, MSRs are going to up, valuation is going to go up, and our servicing portfolio continues to grow. And so we’ll have additional revenues off of that too. But — so lots of moving parts there.

Edward Joseph Wehmer — Founder and Chief Executive Officer

And I know you guys, don’t like to count the MSRs nor do we, but fact is it does add the earnings and capital and does add — it does help on the way up and that hurts on the way down. So…

Nathan Race — Piper Sandler — Analyst

I guess, I’m just going to 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 volumes in the first quarter of this year, is that kind of a good level to go off? Or has there been any kind of nuances within your mortgage structure that could cause those expenses have been more variable than what we’ve seen in the past?

David Alan Dykstra — Vice Chairman & Chief Operating Officer

No, I don’t think we’ve really changed our comp structure there. But you have to remember the incentive line in the press release, includes bonuses and long-term incentive comp and commissions for wealth and mortgage and everything else, it’s not just the mortgage line.

Nathan Race — Piper Sandler — Analyst

Got it. I really appreciate all the color. Thanks, everyone.

Edward Joseph Wehmer — Founder and Chief Executive Officer

Thank you.

Operator

Thank you. [Operator Instructions] Our next question comes from the line of Michael Young of Truist Securities. Your line is open.

Michael Young — Truist Securities — Analyst

Hey, thank you for taking the question. Happy 30 years. Ed, I want to call back a couple of your references and frame that into a question. So starting off the year, this year maybe pushing more of a beachball 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 earning stream?

Edward Joseph Wehmer — Founder and Chief Executive Officer

Well, we never stopped investing in the business, I mean, we’re a growth company, you have to invest in the business. We’ve always kept earnings growth, tangible book value growth in mind. So, we are continuing to invest in the digital channels. We started there about three years ago. We have not done a very good job to explain to you how much we spent, but been a lot of money we spent to get out of there. The — it’s working because all the Greenwich Awards we won, as you can see in the earnings release. Coming June, we’re going to roll out a major component of deep blue, which is full remake of the individual or the retail digital stuff. We’re in 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 the different businesses, it’s — you can take somebody has wrote procedure as we go through and make them non people, which should keep the people cost down, and we add to productivity. We always look for other businesses that we get into, added a couple of this year smaller ones. We clearly do that. Continue to do that. Diversification is still very important on both the deposit and the asset side. So we will look for other deposit sources and loan products to get out there. And our people, I keep our people happy. So, missed anything, Dave?

David Alan Dykstra — Vice Chairman & Chief Operating Officer

No, I think that’s good.

Edward Joseph Wehmer — Founder and Chief Executive Officer

EpiPens universal. EpiPens for me.

David Alan Dykstra — Vice Chairman & Chief Operating Officer

EpiPens. Many EpiPens. I like poking at.

Michael Young — Truist Securities — Analyst

Perfect. And then my second question is just a follow-up on kind of the liquidity management asset. If we look back to like 2018, as rates were rising and reaching higher levels, it was more of a mid-teens kind of percentage of earning assets versus 23% today, 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 sort of rate environment and a year or two years now?

Edward Joseph Wehmer — Founder and Chief Executive Officer

I really all depends on our loan growth, we always ran 85% to 90% loans to deposits, time we got overnight we’re 92% or 93%, and we are comfortable and people are happy. But we get 85% or 90% loans to deposits that would bring us back down to a little bit lower levels in terms of the overall liquidity portfolio. And as there were about three years duration on all our liquidity, including that money, including the overnight money we have, usually close to — higher than 6.5 years. So that’s kind of be the basis of deployment is, likely to get the loans back to 85% to 90%, which is our target range. But — and then invest after that. That makes sense?

Michael Young — Truist Securities — Analyst

Yes. No, I think it was just real quick on the duration, you were saying at 6.5 years now, is that…

Edward Joseph Wehmer — Founder and Chief Executive Officer

Yes. Historically, that’s what we’ve been asked. We’re 3 — we’re a little over — we’re 3.1 now. So plenty of room to grow.

Michael Young — Truist Securities — Analyst

Okay, perfect. Thanks. Appreciate it.

Operator

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

Russell Gunther — D.A. Davidson — Analyst

Hey, good afternoon, guys. I just have one follow-up on the overhead ratio discussion. So the commentary of a 120 and moving towards 130 to 135, that longer-term target as mortgage normalizes. As we overlay the asset sensitivity discussion, and that glide path to a 3% 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-ish range?

Richard B. Murphy — Vice Chairman & Chief Lending Officer

Yes, well, the 130 doesn’t really get impacted by margin, because the net overhead ratio was non-interest income minus non-interest expense, and that take that result divided by average assets. And so, we — that’s how we sort of break down as we look at managing the company and manage your margin, you manage your provision cost, and then you manage your net overhead 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 120 and we’re 120 this quarter, with a relatively softer more — rich seasonally softer mortgage volume, so — but that included an MSR adjustment. If you take that MSR adjustment out, you’re up closer to 130. So the 130 sort of is today’s sort of environment without an MSR benefit. And we think as we continue to grow, we should be able to pull that or improve upon it as we get operating leverage. But rising rates doesn’t necessarily directly impact net overhead ratio.

Edward Joseph Wehmer — Founder and Chief Executive Officer

If you think back, it was — 12.5% was their net overhead goal. We’ve been able to get more leverage into the system as we were able to grow. And so down to 130 to 135 is not bad. That’s kind of leverage we picked up by being able to handle more assets was under that — under that expense base. So maybe as we continue to grow and next year we came in it’s — hypothetically, I don’t have it but like $16 billion is not going to happen, but I would expect them to go down even more, as you get more and more leverage out of it. But we shall see.

Richard B. Murphy — Vice Chairman & Chief Lending Officer

Yeah. So I think the short answer is, the only — the only thing the rates impact on the net overhead ratio, generally speaking has, if the — if the mortgage rates go up and the mortgage servicing rate is going to gain in value and you’re probably going to put pressure on your originations and so you just have to take that into account.

Russell Gunther — D.A. Davidson — Analyst

No, I appreciate it guys. That’s two great explanation and thank you for that. And so then maybe asked a different way, on the — in that 3% margin range, do you expect to be able to demonstrate overall positive operating leverage in ’22, from a DSO perspective.

Edward Joseph Wehmer — Founder and Chief Executive Officer

Yes. Yes.

Russell Gunther — D.A. Davidson — Analyst

All right, guys. Thank you again. That’s it from me.

Edward Joseph Wehmer — Founder and Chief Executive Officer

Thank you.

David Alan Dykstra — Vice Chairman & Chief Operating Officer

Thank you.

Operator

Thank you. We have a follow-up question from Brock Vandervliet of UBS. Your question please.

Brock Vandervliet — UBS — Analyst

Thanks for taking the follow-up. Just on — just on mortgage. I was looking through the press release here and half the volume was refi. I’m assuming that should be following pretty fast here given the move in rates, are you trimming expenses in that segment preparing for heavier sailing or haven’t you moved in that direction yet?

Edward Joseph Wehmer — Founder and Chief Executive Officer

Oh yes. We’ve been able to reduce staff in the mortgage area. Well, they don’t show because we utilize them in a different area. Our premium finance life business is growing so fast, we needed to get some help. But we got really good people. We like to keep them involved, but we are monitoring mortgage costs. We want to keep that fixed variable concept going, outwards lower the fixed expense, get more variable expenses and we’re accomplishing that I believe and we’ll go from there. But yes, looking at all the time.

Timothy S. Crane — President

Yes. And I think, Brock, in the first quarter, we’re probably thinking 60% purchase, 60%, 65% purchase and refi is ticking down. But even though some of the potential borrowers are in a position to do a refi just because of lower rates, we are seeing some cash out refis is a big part of the refi volume now. So people kind of used 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 is 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 of — it’s a 30 year AM on the loan versus a home equity line, which should be a lower AM and they keep their payments down. So we’re seeing a lot of cash out refis.

Edward Joseph Wehmer — Founder and Chief Executive Officer

Yes. We are finally within a place that you’re going to see obviously home values continue to go up and people will go back to the pattern of — they always and in the old days, they look at the pattern, they get a mortgage from a home equity line. We are up in the home equity line, they have home equity line with a new mortgage and go from there. I would imagine, we’re kind of getting into that period of the time that’s going to be inflationary way to do it, I guess.

Brock Vandervliet — UBS — Analyst

Okay. And I noticed the MSR market is about 112 basis points where you’re carrying that MSR outset. 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 — on that mark?

Timothy S. Crane — President

Brock, I don’t have them in front of me. Although there was a time where those numbers were in the 130 range, so I don’t know if that was 2018 or not, but they certainly could go up higher than this.

Edward Joseph Wehmer — Founder and Chief Executive Officer

Yes. 130 to 140 makes sense and we’ve got a hell a lot more than we had back then, so.

Brock Vandervliet — UBS — Analyst

Yes. Okay. Great. I appreciate all the color, guys.

Edward Joseph Wehmer — Founder and Chief Executive Officer

Thank you.

Operator

Thank you. At this time, I’d like to turn the call back over to Edward Wehmer for closing remarks. Sir?

Edward Joseph Wehmer — Founder and Chief Executive Officer

Thank you everybody for listening in and we’ll give you our best efforts going forward. The team to take to the market gives us not get greedy, don’t be stupid, do the right thing like we’ve always done and again hats off to our staff who have been through hell and back to make this happen. They do a wonderful job at keeping the customers happy and talk to you in a quarter. If you have any questions, please don’t hesitate to call any of us on the call. Thank you very much. See you in April.

Operator

[Operator Closing Remarks]