Wintrust Financial Corp Q2 FY2022 Earnings Call

Welcome to Wintrust Financial Corporation's Second Quarter 2022 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 reference to both the earnings press release and the earnings release presentation. Following their presentations, there will be a formal Q&A 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 press on 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 will now turn the conference over to Mr. Edward Wehmer.

Thank you very much. Hello, everybody. Welcome to our second quarter earnings call. Joining me are Dave Dykstra, Dave Stoehr, Kate Boege, our General Counsel, Tim Crane, and Rich Murphy. We will follow the usual format today. I will start with some general comments on our results, and then I will hand it over to Tim Crane for more details on the balance sheet in the second quarter. Dave Dykstra will cover other income and expenses, and Rich Murphy will discuss credit. We should refer to Murphy as Captain Murphy, as he is preparing for Wintrust's first entry into the Mackinac Race, which we sponsor between Chicago and Mackinac. So, he's got a side project there. After that, I will make some comments about the future, and we will have time for questions. Overall, it was a strong quarter for us, although we view it as a transitional quarter for WTFC. This transition involves relying less on mortgage income and focusing more on margin income for growth in the coming quarters, which has been our strategy. We aim to remain optimistic so that in a higher rate environment, we can increase margins that cover inflation-related expenses. This quarter was defined by substantial loan growth of $1.9 billion, with period-end loans surpassing the average for the second quarter by about $1.2 billion, setting a positive tone for upcoming quarters. Our interest rate-sensitive position allowed the margin to rise to $2.93, up 32 basis points from the first quarter. It’s worth noting that in June, the margin was closer to 3.10%. We anticipate that margins will further increase as previous rate hikes take effect and with any future rate increases. Net interest income rose by $39 million quarter-over-quarter, with earning asset rates increasing by 36 basis points, while the cost of funds went up by 7 basis points and pre-fund contributions rose by 3 basis points. However, the quarter did face challenges from security losses totaling around $8 million, including a $2.5 million loss related to excess real estate and the old data center, as well as property earmarked for expansion. We decided to divest these assets and move on. Additionally, the provision increase to support our loan growth was approximately $9 million to $10 million. These two factors impacted our net overhead ratio, which was about 1.5%. Excluding these amounts, we would be closer to our target of 135. This was somewhat offset by our hedging strategies, which Dave will discuss later. Our credit metrics remain extremely healthy. Wealth management revenue has shown resilience despite market conditions, and our mortgage business has also performed well. We recently completed a capital offering of $286 million, which was very successful and positions us for further growth. For the earnings, we reported $94.5 million, or $1.49 per share. The pretax pre-provision income was $152 million, a solid figure given our trajectory. Our balance sheet shows an increase in assets, supported by a significant rise in deposits and the capital offering. Now, I will turn it over to Mr. Crane to discuss the balance sheet.

Great. Thank you, Ed. I'd like to highlight a few balance sheet items as well as expand on a couple of the numbers that you mentioned. You'll note that this will be the last quarter we referenced PPP loans as in most cases, the balances and related financial impact are reaching levels that are relatively insignificant to our results on a quarter-over-quarter basis. Obviously, the year-over-year impacts are documented in the financials. The $1.9 billion of loan growth, excluding PPP, that Ed referenced represents 22% loan growth on an annualized basis and importantly was spread across all categories. And also, as Ed mentioned, the end-of-period loans were substantially higher than the quarter average, which will help us going into the third quarter. Going forward, while encouraged by stable pipelines, we believe that loan growth in the mid to high single digits on an annualized basis may represent a more reasonable expectation given the current uncertainty around the macroeconomic outlook. Deposit growth for the quarter was about $375 million, influenced by both seasonal tax-related outflows and a very disciplined approach to pricing in the rising rate environment. Interest bearing deposit costs of 28 basis points for the quarter were up 6 basis points from the end of the first quarter and will begin to trend up with the rising rates. While the competitor deposit pricing remains very muted, we are starting to see increases in the more rate-sensitive of the deposit categories. As an example, municipal deposits often track some of the state indices. In addition, we believe a large Fed increase at the meeting next week would also accelerate deposit pricing discussions in the market. For the quarter, our securities book remained essentially unchanged. We used excess liquidity to fund the strong loan growth, essentially replacing maturing securities, obviously, at a rate that's trending up. And at quarter end, liquidity remained strong with about $4 billion of interest-bearing cash on the balance sheet. As discussed last quarter, our securities book of $6.5 billion, about 47% available for sale, 53% held to maturity. During the quarter, the continued rise in rates resulted in an additional tax-adjusted unrealized loss of $122 million on the AFS securities. Despite this reduction, tangible book value for the quarter increased to a record level. As rising rates and rate sensitivity remain a topic of interest, I want to reiterate some of what was discussed on last quarter's call. First, although our GAAP position is down slightly, we remain asset sensitive and well-positioned to benefit from continued rising interest rates. As a reminder, and this is outlined in our presentation materials, approximately 80% of our loans reprice or mature within a year. Second, as we experience increasing rates, we continue to believe each 25 basis point increase in rates will generate in excess of $40 million of pretax net interest income on an annualized basis, which equates to approximately a 10 basis point improvement in margin. To be more specific on the margin, Ed mentioned $2.93 for the quarter, up 32 basis points. On our last call, we suggested that the consensus rate forecast could result in a margin approaching by year-end. With the more current consensus projections, it's likely we'll meet that target earlier than anticipated and may approach by year-end. On the capital front, despite very strong loan growth, as a result of the common stock offering, capital ratios improved with the higher rates and more typical loan growth; the company's earnings are projected to result in further organic improvement to capital levels in the coming quarters. Lastly, on a nonfinancial note, the pandemic has accelerated the use of and really the importance of digital services at all banks, and we show some statistics in the presentation portion of our documents. This past weekend, we successfully completed the full replacement of the digital banking system used by our consumer and certain small business clients. This was a 15-month effort, a significant investment on the part of the company. This resulted in a very material upgrade to best-in-class feature functionality available to our clients. It should differentiate us relative to all but our largest competitors and will only enhance the top-tier service that Wintrust banks are recognized for providing our clients. And you'll recall, and also documented in our presentation, some of the recognition we've received by J.D. Power as the best bank for customer service in our area. With that, I'll turn it over to Dave.

Thank you, Tim. As Ed mentioned, I will discuss some important categories from the income statement. Starting with net interest income for the second quarter of 2022, it amounted to $337.8 million, reflecting an increase of $38.5 million from the previous quarter and an increase of $58.2 million from the same quarter last year. The rise in net interest income compared to the prior quarter was mainly due to improvements in the net interest margin, as average earning assets remained relatively stable. The net interest margin improved by 32 basis points from the previous quarter, reaching 2.93%. This was a result of a 36 basis point increase in the yield on earning assets and a 3 basis point increase in contribution from net free funds, offset by a 7 basis point increase in rates paid on liabilities. The higher yield on earning assets was primarily driven by a 26 basis point improvement in loan yields and increased rates on liquidity management assets from higher earnings on interest-bearing cash. The increase in the rates paid on interest-bearing liabilities in the second quarter was due to a 6 basis point rise in rates on interest-bearing deposits. Next, I would like to address the provision for credit losses. Wintrust recorded a provision of $20.4 million, compared to $4.1 million in the prior quarter and a negative provision of $15.3 million in the same quarter last year. While the provision expense was higher this quarter, it largely resulted from the exceptional loan growth of approximately $1.9 billion, excluding PPP loans, not from widespread deterioration in the credit portfolio, as credit metrics remained strong. Rich will elaborate on that shortly. In the noninterest income section, our wealth management revenue remained steady compared to the prior quarter at $31.4 million and increased slightly from $30.7 million year-over-year. Given market volatility, we are pleased with this stability. Consistent with industry trends, our mortgage banking operations saw a slight decline in loan origination volume due to higher home mortgage rates. However, production revenue rose as production margins rebounded to the previously guided range. Nonetheless, mortgage banking revenue decreased by $43.9 million from the first quarter, mainly due to valuation changes related to mortgage servicing rights and early buyout loans guaranteed by US government agencies, both held at fair value. This quarter, the net effect of these items was a $445,000 benefit, compared to a benefit of $43.4 million last quarter. We expect this portfolio of early buyout loans to continue serving as a partial economic hedge against the mortgage servicing rights in the future. Looking ahead, we anticipate lower mortgage origination volumes in the third quarter compared to the second quarter, but the decline's impact on net earnings is expected to be minimal compared to the anticipated growth in net interest income. In the second quarter, our production revenue was around $18 million, and servicing revenue was about $11 million, meaning the potential decline in mortgage revenue should only amount to a few million dollars after accounting for commissions and other expenses, excluding any MSR valuation impacts. We believe we are nearing the bottom of the mortgage revenue decline, with the impact insignificant compared to the strong growth we expect in net interest income. Moving on to other categories, we recorded investment losses of $7.8 million in the second quarter compared to net losses of $2.8 million in the prior quarter, mainly due to equity valuations being affected by market conditions. Other noninterest income was $13.9 million, down $4.6 million from the prior quarter, predominantly due to $2.5 million in losses related to properties previously mentioned by Ed. Additionally, we experienced a $1.2 million drop in swap fee revenue in the second quarter compared to the first quarter. Regarding noninterest expenses, they totaled $288.7 million, up just 2% or about $4.4 million compared to the prior quarter. This increase was primarily driven by a seasonal rise in marketing costs of $4.7 million along with various other increasing and decreasing expenses that offset each other. To highlight some major changes in noninterest expenses, salaries and employee benefits decreased by $5 million compared to the first quarter, largely due to lower accruals related to our long-term incentive compensation program. Advertising and marketing expenses rose by $4.7 million, driven by spend relating to major league and minor league baseball sponsorships and summer community events, including the Mackinac Race mentioned by Ed. Software and equipment expenses were $24.2 million, increasing by $1.4 million due to ongoing investments in IT and security infrastructure, as well as upgrades to digital products and services. We continue to focus on enhancing customer experience and supporting our growth through technology investments. OREO expenses increased by $1.3 million in this quarter as we recorded a gain of approximately $1 million from the sale of OREO property in the prior quarter. Lending-related expenses decreased by about $2.6 million due to lower mortgage banking-related costs, while travel and entertainment expenses rose by $1.2 million as we transitioned back to pre-pandemic business practices, which are crucial for maintaining strong loan growth trends. Other expense categories collectively increased by about $3.3 million, driven by a variety of operational fluctuations, including more than $1 million in costs linked to the digital banking platform conversion that Tim discussed, which went live this week. The net overhead ratio was 1.51% for the second quarter, impacted negatively by security losses and property charges. However, on a year-to-date basis, the net overhead ratio stands at 1.25%. To summarize, the quarter performed well from a core fundamentals standpoint but was negatively affected by losses from securities and properties, as well as a higher provision, which reflects the strong loan growth. Overall, the loan growth, expanding margin, robust pipelines, and favorable credit quality position us well for future quarters. We are asset sensitive by design, anticipating that rising rates will be accompanied by inflation. Therefore, while we expect noninterest expenses to increase slightly due to wage pressures, we believe the overall impact will be small relative to the expected increase in net income if the rate environment remains as projected. With that, I will hand it over to Captain Rich.

Thanks, Dave. As noted earlier, credit performance for the second quarter was very solid from a number of perspectives. As detailed on Slide 7 of the deck, loan growth for the quarter, net of PPP, was $1.9 billion or 22% annualized and just an outstanding result. Equally as important, and similar to the past few quarters, we continue to see loan growth across the portfolio. I'd like to highlight a few key elements of this growth. The second quarter is typically very strong for commercial premium finance, and this quarter was no exception with loans up $604 million, up slightly from the $563 million in the second quarter of 2021. Life insurance premium finance continued to grow nicely with loans of $254 million. C&I loans, excluding PPP loans, were up $635 million, driven by asset-based lending and leasing. In addition, residential real estate and core CRE loans showed solid growth. Year-over-year, we saw a total loan growth of $5.9 billion or 19% net of PPP loans. As noted on prior earnings calls, we continue to see very solid momentum in our core C&I and CRE portfolios. Pipelines have been very strong throughout this year, and we saw that materialize into increased outstandings during the past several quarters. Looking forward, we continue to be optimistic about loan growth for the remainder of 2022 for a number of reasons. Core pipelines continue to be very strong with solid momentum in Q2. Commercial line utilization, excluding leases and mortgage warehouse lines as detailed on Slide 19, continues to trend up from 37% to 41%, and we anticipate this trend will continue. Also on Slide 19, you will see that business expansion and inflation pressures have resulted in many customers requesting increases to their credit facilities to help finance these costs. As a result, we have seen the level of unused credit facilities increase. Both First Insurance funding and Wintrust Life Finance had another strong quarter, and this momentum has been strong for several quarters, and we believe it will continue through the remainder of the year. As a result, while macroeconomic conditions may cause a heightened level of uncertainty, as Tim noted, we're reaffirming our loan growth guidance of mid to high single-digit growth. From a credit quality perspective, as detailed on Slide 18, we continue to see solid credit performance across the portfolio. This can be seen in a couple of metrics. While nonperforming loans increased from $57 million or 16 basis points to $72 million or 20 basis points, this is still below the NPL totals at year-end or at June of 2021, which were 21 basis points and 27 basis points respectively. NPLs continue to be at very low levels, and we are still confident about the solid credit metrics of the portfolio. Charge offs for the quarter were $9.5 million or 11 basis points, up slightly from the previous quarter. Year-to-date charge offs totaled 7 basis points. And as detailed on Slide 18, we continue to see consistent levels in our special mention and substandard loans with no meaningful signs of economic stress at the customer level. That concludes my comments on credit, and I'll turn it back to Ed to wrap up.

Thanks, Captain Murphy. Overall, it was a strong quarter for us, setting a positive tone for the rest of the year. We experienced excellent loan growth and have consistent pipelines for future growth. As Murphy pointed out, credit conditions remain stable, with non-performing assets now at about 30% of our current size. We are actively monitoring the portfolio for any problematic deals and addressing them quickly. In the first and fourth quarters of last year, we executed some loan sales and plan to pursue more. Given the current loan demand, it makes sense to eliminate weaker loans and replace them with stronger ones. Market disruptions persist, and we intend to capitalize on these opportunities in both deposits and loans, particularly benefiting from the challenges faced by some of our competitors. We are strategically positioned to benefit from higher interest rates, projecting an increase in net interest income of $40 million to $50 million over the next year, which should more than offset any expenses linked to inflation. We expect the margin in the fourth quarter to continue growing as interest rates rise. Although we are considering potential acquisitions, we find seller pricing expectations to be unrealistic at this time. Continued interest rate hikes and inflation-related expense pressures may prompt a shift in seller expectations soon. Generally, we avoid dilutive deals and will maintain that strategy. Our customers are currently optimistic, with price increases being accepted, although supply chain issues persist and attracting qualified personnel is the main challenge. There's still substantial liquidity in the market, and we will remain vigilant. We’re ready to respond if conditions worsen, but we don’t see indications of that yet. While margins have been tightening, our wealth management efforts are progressing well, with an increase in net interest income significantly outweighing any losses in the mortgage segment. We will manage expense growth carefully to keep our numbers stable. We feel good about our current position and future prospects. We appreciate your support, and now we welcome your questions.

Our first question comes from the line of Chris McGratty of KBW.

This is Andrew Leischner on for Chris McGratty. So on the margin, you talked about hitting 350 by the end of the year. I'm just wondering why the fund rate and what your updated data assumptions going through that number and how much incremental expense that should we expect beyond that?

Well, there are a couple of parts to your question there, and I'm not even sure I heard all of it. But we're using the consensus forecast that has 75 basis points in July and then equal increases in September and December. Obviously, the July increase is the most impactful to the margin for the remainder of 2022. The two latter increases are meaningful for 2023. I think you had an expense question as well and Dave, I'll let you handle that one.

The deposit betas are currently lagging, as mentioned, and with the rate increase next week, there will likely be additional pressure. However, we are still targeting betas of 40% to 50% for the deposit portfolio. We'll need to observe the market's response to competitive rate increases to determine how quickly this will occur, but that remains our expectation.

And I just had one more on loan growth. You mentioned like you reiterated your mid to high single-digit loan growth guidance. You're currently at about 16% annualized growth for the year so far. Is that mid to high single digits, is that for the remainder of the year or for full year '22?

For the remainder of the year. I think if you look into next quarter and the fourth quarter, as much as we can see those are kind of the estimates we have for those quarters.

Are there any areas within the portfolio where you are anticipating pullbacks?

Pullbacks in terms of demand or pullbacks…

Yes, in terms of growth.

Yes, I believe that as interest rates rise, there will be increased pressure on commercial real estate growth since it becomes more challenging to underwrite in a higher interest rate setting. Additionally, I think that Wintrust Life will likely be more impacted by rising interest rates because that product performs better in a lower interest rate environment. We may also see some impact on our solid portfolio growth in residential mortgages. Those are the three areas I would point out. However, I don't believe this will significantly affect our guidance.

And next year, we'll be adding some products in the life insurance side. We're doing the system on the life insurance business, and we'll be able to offer lines of credit and things like that we can't offer right now. So we expect that business to continue to be vital. We continue to rework it, and we're excited about the future there.

Our next question comes from the line of Terry McEvoy of Stephens.

Hope you're doing well. Maybe let's start with, I guess, the outlook for fee income. I was a little bit surprised with the resiliency in Wealth Management kind of flat quarter-over-quarter and given market conditions. And maybe, Dave, if you could just talk about some of the puts and the takes for your outlook for fees to be stable in the third quarter.

Wealth management saw a slight decrease in assets under management, but we experienced strong performance from our 1031 Exchange business, specifically the Chicago Deferred Exchange, which helped mitigate some pressures in other areas. While there may still be some pressure on the wealth management segment, particularly related to mortgage application volumes, we do not anticipate experiencing an additional $7.8 million in securities losses or $2.5 million from property disposals. Overall, these factors should result in relative stability going forward, with minor fluctuations.

And then as a follow-up question, maybe if you could just talk about your hiring efforts given some of the market disruption. I'm not going to ask from what financial institution they may come from, but maybe what areas of the bank do you think you can add folks to, given that disruption?

Terry, it's been largely on the commercial side. As we've talked about in the past, when lenders get concerned about their ability to take care of their clients, they begin to explore their options. So we continue to see disruption, some of it by announced transactions and some of it by the integration efforts that occur over time. So that tends to be more active during the kind of first two-thirds of the year, slowing down as you get toward the end of the year. But we're excited both by some additions in the Chicago area as well as a couple in Wisconsin.

Our next question comes from the line of David Long of Raymond James.

Deposit balances overall, you were up a little bit in the quarter, period end to period end. Just curious how you're thinking about overall deposit balances through the second half of the year? Do you think there's still some stimulus related fluff out there that could leave the bank, or are you guys growing quick enough with new funds and new clients that you can offset that and grow deposits in the back half of the year?

We think consumers remain pretty healthy, which is part of the reason we think economically, things feel okay. But the market's been very disciplined and people haven't been moving rates much. I think the second half of the year will depend a little bit on how some of our competitors react but less to our own devices; we would plan to continue to grow deposits and continue to add relationships. We'll work hard to fund some of the loan growth that we think will come in the second half of the year.

David, it's similar to loans; they require deposits. We have managed to keep costs low so far, but we will need to offer higher rates to attract people to some of our newer branches. Unlike before, we are not experiencing cannibalization with our younger branches, so we are willing to pay a bit more to secure full relationships, which has been successful. We can implement this strategy again with higher rates and more flexibility. Therefore, we will continue to grow our deposits as quickly as possible.

Appreciate that. And then let me switch over to Captain Murphy. Reserves, still pretty healthy here. But as we're seeing some increasing risk of a potential recession, how are you thinking about the reserve level between now and the end of the year? Do you expect the reserve level as a percentage of loans to be much higher than where we are today?

Well, the reserving, as Dave pointed out, the reserve levels really are more a function of the growth as opposed to the Moody's and other external benchmarks. So as of this point, we're just not seeing risk rate migration in a negative way, not saying it wouldn't happen in the back half of the year if things were to change dramatically in terms of the economic environment. The provisioning levels really would be dictated by growth more than the economic environment, but that could change. Clearly, there's a lot of prognostication as it relates to what the recession might look like and when it might happen. But as of this moment in time, we're just not seeing a lot of effects within our portfolio.

As you know, the allowance is based upon a life-of-loan concept with CECL. So it is what it is right now unless you see degradation in economic conditions that we think impact our portfolio. Like Rich says, the provision should be based on growth.

And if I can sneak another one in here. Thinking about the net interest margin, talking 3.50% range, maybe 3.60% range. Is there a top on your net interest margin? And is there a point where maybe LIBOR is not moving as quickly as the rate hikes since LIBOR has gotten a head start here and your deposit beta catches up? So potentially, do you hit or so and then it starts to level off?

I don't believe that's the case. Also, LIBOR is no longer in use. I think the situation could worsen, but I don't expect rates to reach 16%. I would anticipate we might peak around 4.25% or 4.5%, influenced by mix and demand as well. We're content with the current rates and will need to consider when to start locking in to avoid potential downturns. For the first time since 9/11, we'll have the opportunity to hedge both sides of earnings for a while, so we won’t be significantly affected if rates decrease. We're actively working on this and would appreciate your assistance in identifying the peak. If we reach the peak, we'd like to be informed.

Just it may not matter that much, but I heard a couple of things on the margin guide. I heard 350 by the end of the year and then I heard 350 to 360 for the fourth quarter. It may not matter, but what are you guys really trying to say?

I think deposit costs are a bit uncertain, and we can't predict how things will go for the rest of the year. However, based on the consensus forecast, we believe approaching 350 is definitely possible. If deposit pricing stays relatively low, we might perform even better.

And I guess the message for the third quarter is a similar type step-up from what we just saw, especially if we get 75 next week?

Yes.

And then I want to push you guys a little on loan growth as well. Murphy, you answered this a little bit earlier, but you guys…

Captain Murphy, please…

Captain Murphy, you achieved 5% growth in the quarter, and your period end is over $1 billion higher than average. Should we interpret this as a sign that we shouldn't expect such growth in Q3 and that the rate will significantly slow, or does this suggest that you can maintain the current growth rate you just reported?

I would be surprised if we see the same results in the third quarter. We were pleasantly surprised in the second quarter. The increase in our property and casualty portfolio, which was up by $600 million, significantly contributed to that growth. Additionally, the life portfolio and mortgage portfolios performed better than we expected. I believe the growth in property and casualty during the third quarter last year will be similar to what we've observed this quarter, although it is notably lower than the second quarter's results. Therefore, I think we will be significantly down from the second quarter, but I believe we will still be within guidance, perhaps toward the upper end of that range.

About $1 billion, I would say…

Yes. I mean, I would say somewhere in that $1 billion number would be, but as we get two and a half months ago…

It sounds like it's clients plus the market share shift that’s driving all of this. That's fair…

I mean, I think that's right, Jon. I mean, one of the things that I kind of highlighted in my comments is that core C&I activity has been a real meaningful contributor to the growth, and we're seeing a lot of disruption in the marketplace and that's not going away. So that core growth is really an important part of the story.

And part of that, Jon, is our pipelines are pretty stable, but our unused commitments are up quite a bit. So as some of those commitments start to get drawn down, that's sort of a hidden growth thing outside of even our pipeline numbers. And as Rich said in his comments, we expect that unused line or that line usage to go up. So lots of good things out there. It's just sort of hard to gauge the customer activity; I don't know on a linear sort of basis.

I understand the comments regarding the strong growth in net interest income. It seems we are managing to outpace expense growth. Dave, do you have any additional insights on how significant you anticipate the expense pressures to be?

Well, I think the biggest area sort of is in the labor side of the equation. You may have saw that we just announced that effective August 1st, we'll take our minimum wage rate from $15 to $18 per share, and that will have some impact. We still are filling positions, open positions, and making progress there, but that will continue to add. If we really do step up earnings as we think based upon the growth and the margin expansions, we'll probably have some more incentive compensation out there, probably some offsets with some less mortgage expenses as we saw this quarter. As you saw on the lending side, those were down a couple of million dollars; that's probably a little bit more that comes out of there. But we were at 2.88%, I just don't think we'll be in the 2.80s anymore. I think that number has got to go up because of the wage inflation that's going on, but we certainly will try to control it as best as possible.

Thank you. And at this time, I'd like to turn the call back over to Ed Wehmer for closing remarks. Sir?

Thank you very much, everybody. Thanks for listening in. We appreciate your support. Any questions or follow-up you want to pose to us, call any of the four of us, or Dave, me, Captain Murph, and Tim. But thanks. We'll talk to you this quarter, if not before. Appreciate your support. Bye-bye.

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