Earnings Call Transcript - WTFC Q1 2021

Operator, Operator

Welcome to Wintrust Financial Corporation's First Quarter 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 reference to both the earnings press release and the earnings release presentation. Following their presentation, there'll be a formal question-and-answer session.

Edward Wehmer, Founder & Chief Executive Officer

Thank you. Good morning everybody. Welcome to our first quarter earnings call. With me as always are Dave Dykstra; Dave Stoehr, our Chief Financial Officer; Kate Boege, our General Counsel; Tim Crane, President; Rich Murphy, who runs Credit. A new year means a newer, different format than we had in the past. I will give you some general comments regarding our results, go to Tim Crane, who's going to discuss the balance sheet. He will then turn it over to Dave Dykstra for more analysis of our income statement and Rich Murphy is going to give us an overview on credit. Then back to me for some summary comments or thoughts about the future. We'll have time for questions. For the quarter overview, assisted by a strong mortgage quarter, good quarter loan growth in line with previous guidance, the PPP loan production, and leveraging excess liquidity utilization and sizable reserves, we were able to put up a record quarter, $153.1 million or $2.54 per common diluted share and ROA of 1.38% and ROE of 15.8%, which exceeded the previous quarter. Our net interest margin was constant at 2.54%. Our net interest income was up $2.5 million from Q4 despite the fact that we had two fewer days in Q1 from Q4. And by now each day is worth approximately $3 million of earnings. Our wealth investment activity was done late in the quarter, so this bodes well for Q2 of this year. Our loan growth was excellent. PPP Round 3 totaled $1.4 billion and helped us pay out and receive forgiveness on PPP Round 1 and 2 of $667 million. We said previously the strategy was to grow in this low-rate environment relying on margin management to enhance earnings until net interest income protection could catch up. We've been successful on both fronts with asset growth in the quarter of just over $600 million and $7 billion year-over-year. There still remains our strategy compass to organic growth.

Tim Crane, President

Thanks Ed. With respect to the quarter-end balance sheet, several items worth highlighting. Ed mentioned the asset growth of just over $600 million. Loans were up $1.1 billion, roughly half related to PPP loan balances. More importantly, the other half or just over $0.5 billion represents core loan growth. Excluding PPP volumes, this represents approximately 7.1% annualized loan growth in line with the consistent loan growth target of mid- to high-single-digits on a percentage basis. It's important to note that the loan growth was strongest at the end of the quarter and that the period-end loan balances were over $500 million higher than the quarterly average loan balance, indicating strong momentum into the second quarter. Some of this detail is on page eight of the earnings release presentation. The growth was spread nicely across all loan categories and pipelines remain strong for all of our major businesses. We continue to benefit from the addition of clients from the halo effect of our PPP efforts and we're starting to see more client activity as the pandemic impacts begin to recede. Deposit growth for the quarter was $780 million, a majority of the increase in non-interest bearing deposits. Deposit costs continue to fall primarily as we re-priced term deposits. For the quarter, the rate paid on interest-bearing deposits fell six basis points to 45 basis points. This is a trend we expect will continue in the coming quarters. Like many institutions, we've seen very significant deposit growth and are managing the flows carefully. However, we've used stable low-cost deposits as a strength of our company and will continue to grow those deposits related to client relationships. Finally, on deposits, we've been opportunistic about securing some low-cost longer-term funding for the bank. With respect to the securities portfolio, we remain very liquid. We did deploy some liquidity in the first quarter as investment securities increased by approximately $1 billion. As discussed on prior calls, we have done this on a measured basis mindful of the possibility of rising rates and wary of locking in low long-term yields. Approximately half the securities were purchased toward the end of the quarter at a rate above 2% as yields moved up in March from lower levels earlier in the quarter. To get a sense of the timing and the impact of the securities addition, the period-end securities were $743 million higher than the average balance for the quarter and had the securities been on the balance sheet for the entire quarter, the margin would have been approximately three basis points higher.

David Dykstra, Vice Chairman & Chief Operating Officer

All right, thanks, Tim. As Ed mentioned, I will cover the notable changes throughout the entire income statement and I'll start with net interest income. For the first quarter of 2021, our net interest income totaled $261.9 million; that was an increase of $2.5 million compared to the fourth quarter of last year and a slight increase of $452,000 as compared to the first quarter of 2020. The $2.5 million increase in net interest income compared to the prior quarter was primarily due to the earning asset growth and increased PPP fee accretion, and as Ed mentioned, that's despite two fewer days in the first quarter, which are worth about $3 million per day, so good NII growth. As far as margin goes, it was unchanged from the prior quarter as the rate on interest-bearing liabilities declined seven basis points in the first quarter as compared to the prior quarter, which was effectively offsetting a six-basis-point decline in the yield on total earning assets. The six-basis-point decline on the yield on earning assets was primarily due to an eight-basis-point decline in loan yields which were partially offset by a three-basis-point increase on the yield on liquidity management assets. The decrease in the rates paid on interest-bearing liabilities in the first quarter as compared to the prior quarter was primarily due to a six-basis-point decline in interest-bearing deposits due to lower re-pricing of our time deposits as Tim mentioned; we expect that to continue. PPP loan fee accretion increased as the company recognized $19.2 million of PPP loan fee accretion in the first quarter and that compared to $16.8 million in the fourth quarter of 2020. Additionally, as Tim Crane mentioned, the late-quarter deployment of liquidity into investment securities and the back-end-loaded loan growth during the quarter resulted in over $1.2 billion of period-end investment and loan balances exceeding the aggregate average balances of those categories, which we expect again to favorably impact net interest income in the second quarter.

Rich Murphy, Vice Chairman & Chief Lending Officer

Thanks Dave. Tim and Dave noted earlier, the first quarter was very solid from a number of perspectives. First, from a loan growth perspective, net of PPP, we saw core loan growth of $515 million or 7.1% on an annualized basis. This growth was seen across the portfolio, but we saw very solid performances from Wintrust Life Finance which grew by $250 million or 18% annualized and commercial loans which grew by $175 million or 8% annualized, most of which closed as Tim pointed out at the very end of the quarter. A couple of additional notes on loan growth. Pipelines continue to look very strong. Total core pipeline of C&I and CRE loans was $1.4 billion, the highest level we've seen in five months. The core loan momentum that we have seen has been positively affected by our execution of our PPP program, which has been very strong, including this most recent round, which I'll address in a moment. Secondly, the granularity of the portfolio. One of our hallmarks in the credit portfolio has been the diversification across a number of products. Conceptually, we have always focused on a composition of one-third core commercial and industrial loans, one-third commercial real estate, one-third from our non-bank niche products. The largest niche category we have is also our oldest, which is premium finance. This includes first insurance funding, which funds commercial insurance premiums, and currently totals $4 billion including our Canadian operations. Wintrust Life Finance, which funds life insurance premiums currently totals $6 billion. Both of these portfolios have performed very well during the pandemic. Wintrust Life Finance has grown 17% year-over-year, and first insurance funding is up 14% year-over-year. We have also seen solid growth from our leasing, mortgage warehouse, and franchise teams. Finally, we added a new slide, page 15 of the presentation, which deals with the geographic diversification in our portfolio. We will always have a Chicago-Milwaukee nexus; however, as this slide illustrates, our various business lines provide us with a meaningful amount of credit outside of our primary markets. From a credit quality perspective, improvement was evidenced across the portfolio as the economy continues its post-pandemic growth. This can be seen in a number of ways. First, non-performing loans were reduced from $127 million at year-end to $99 million at quarter-end. Even more striking is a 50% reduction in modified performing loans from nearly $200 million at June 30, 2020. We recorded $13 million of net charge-offs during the quarter or 17 basis points, which is up slightly from the fourth quarter, but in line with the previous four quarters. We also saw a 26% reduction in COVID-19 modified loans from $345 million to $254 million during the quarter as outlined on slide 16 of the presentation. A majority of these remaining modified loans are primarily in our select high impact industries, which is detailed on slide 17. Finally, credit risk ratings continue to show material positive migration, a trend which has accelerated since the third quarter of last year. Finally, on PPP, as outlined on page 12, we have now funded over 20,000 PPP loans to over 14,000 different borrowers totaling $4.8 billion. This includes over 7,700 PPP loans totaling over $1.3 billion during the first quarter. Our median loan size through the PPP process was around $60,000 and we continue to focus our efforts on our existing customers, low- to moderate-income areas, non-profits, and identified prospects. During this most recent round of PPP, we heard from a number of customers that they could use additional help in the submission process. As a result, we established nine PPP resource centers in LMI areas to assist customers with the PPP process. This effort has been very successful and the feedback from the community has been overwhelmingly positive. Regarding the PPP forgiveness process, we continue to make good progress as we have now processed forgiveness applications on over 60% of our 2020 PPP loans, compared to 46% for the rest of the industry. That concludes my comments and I'll turn it back to Ed for a wrap-up.

Edward Wehmer, Founder & Chief Executive Officer

Thanks Murph. As I mentioned at the beginning of the call, our strategy has been to grow the balance sheet through non-interest income and these are structural hedges — such as our mortgage area — to offset lower interest rate-driven losses in net interest income as the balance sheet grows. PPP loans were expected to benefit the strategy. All the above was to be accomplished by enhancing our asset sensitivity position in anticipation of eventual higher rates. The net balance sheet growth was about $7 billion year-over-year, of which approximately $5.3 billion was organic and about $3.3 billion was PPP year-over-year — we've experienced this growth, as Tim laid out, totally on an organic basis. The acquisition market has been quiet, but appears to be opening up a bit lately. As always, we'll take what the market gives us. We dislike overpaying; it's not sensible. But it appears that other buyers are becoming more realistic again. Our pipelines, as mentioned, are strong in all categories; our asset sensitive position is close to where we'd like it to be. We continue to ladder into investment of excess liquidity, taking advantage of market blips — we're in no rush to be fully invested and lock into low long-term yields; that is not our plan. Credit is remarkably good as Rich said. Thanks to consistently conservative credit underwriting standards, the loan portfolio has held up well; NPL and past-due dollars are lower than they were at the start of the pandemic. Wealth management areas delivered strong results with assets under administration up $0.2 billion in the quarter to $32.1 billion and $2.5 million in revenue in the quarter. Asset administration was obviously helped by strong markets, and account totals increased across all distribution channels. Our treasury growth was $2 million, I think Tim, which shows that the halo effect from our PPP activity has worked very well for us. We probably have roughly half of the halo converting to deposits and loans, which is aiding our pipeline. So the deposit plan is working. We continue to grow; organic growth remains strong. We will take advantage of the opening acquisition market where it makes sense. In short, I'm proud of the group. I like where we stand. We'll maintain laser focus on credit. As always, we'll put forth our best efforts and we appreciate your support. Now, we'll answer some questions.

Operator, Operator

Thank you. Our first question comes from Jon Arfstrom from RBC Capital Markets. Your line is open.

Jon Arfstrom, Analyst (RBC Capital Markets)

Thanks. Good morning everyone.

Edward Wehmer, Founder & Chief Executive Officer

Hi Jon. How are you?

Jon Arfstrom, Analyst (RBC Capital Markets)

Good. Good. How are you?

Edward Wehmer, Founder & Chief Executive Officer

It snowed in Minneapolis, snowed in Chicago.

Jon Arfstrom, Analyst (RBC Capital Markets)

Snowed here yesterday. Question — Rich or Tim, on the loan growth pipeline, can you talk a little bit about why you think you were so strong at period end? And excluding PPP, could you touch on that core C&I and core commercial real estate — are you starting to see loan demand broaden out?

Rich Murphy, Vice Chairman & Chief Lending Officer

Yes, it's interesting. The timing is one that I don't have a perfect answer for. We've had a really strong end of quarter in the fourth quarter as well, as people closed on their financing right before year-end. And so I think there was a little bit of a hangover from that into the first part of the year. But clearly, we saw good pipelines building and we knew that it was coming, but through January and February we just kind of had a bit of a hangover. We did see the pipeline build and then close at quarter-end.

Edward Wehmer, Founder & Chief Executive Officer

Jon, that's been our modus operandi for probably the last eight quarters. We've always built it up at the end of the quarter and then started again. I think we see that phenomenon repeatedly.

Jon Arfstrom, Analyst (RBC Capital Markets)

And just really curious if this is all pulling through? I guess that's the question, because you guys seem a little bit ahead of your peers in terms of the growth that you put up. So that's the genesis of the question.

Rich Murphy, Vice Chairman & Chief Lending Officer

Yes. I think that's a broader answer to that. We have seen — and you've seen this really over the course of last year — that our aspirational positioning as Chicago's bank has strengthened. The last year, through PPP execution and some of the acquisitions that have occurred in the Chicago market, have really helped us become an emerging C&I mid-market bank. We have seen a lot of new opportunities where customers were frustrated by the inability of their existing bank to execute on their PPP or to get answers during the pandemic. Some companies were roughed up during the downturn and looked for a different bank that might view their company differently. There's a host of reasons. The net effect is that we've had an easier time getting a seat at the table when companies were going to the market, and our ability to execute on both the treasury side and credit side has allowed us to pull through many of these opportunities. Regarding whether funding usage will uptick, I do think as the economy opens up and people start to deploy liquidity, we are seeing people look for greater credit availability and expanded lines. So as we go through the balance of the year, you'll start to see greater usage. Generally speaking, it's pretty positive.

Edward Wehmer, Founder & Chief Executive Officer

We think we're going to roar out of this pandemic, economically. We're very well prepared for that, and I think it's somewhat reputationally driven for us — people are looking to us to help them grow.

Jon Arfstrom, Analyst (RBC Capital Markets)

Okay. And then the margin calculus — I think the message you're sending is that you have a little more room on funding costs and a bit of step-up because of the quarter-end securities purchases. With the growth that you're expecting, are you sending the message that the margin erosion is really over for you, and we should see some margin expansion as the loan growth comes in?

Edward Wehmer, Founder & Chief Executive Officer

Well, all things considered, yes.

Jon Arfstrom, Analyst (RBC Capital Markets)

Cost adjusted?

Edward Wehmer, Founder & Chief Executive Officer

All things considered, yes. But who knows where rates are going to go. If rates go up, we're ready; if rates go down, we have some vulnerabilities. But I think the large amount of government borrowing and cash floating around suggest rates will move higher over time. We're well positioned: the plan has always been to grow through this and use mortgages and other businesses as structural hedges to offset the income loss due to lower rates. PPP loans were a godsend in terms of additional revenue, but as that fades we have to make up the difference through growth. As long as we can continue to execute, price loans appropriately, and drive growth, we should be able to recover. It won't be perfect or immediate, but I think we'll get there as long as margin can remain stable. Do you agree Dave?

David Dykstra, Vice Chairman & Chief Operating Officer

Yes, I think that's right. We thought last time the margin would bottom out and that we could put some liquidity to work and grow through it. The key is to grow through it. Rich explained why loan growth is up. We have a diversified loan mix which helps — some areas work when others don't. I would expect the margin to be stable to slightly up in the next quarter, depending on how much liquidity we put to work. We did have over $1 billion of period-end balance above average, which should help. We also have some re-pricing assets on the life and premium finance side tied to one-year LIBORs, and our CD book is re-pricing now, so those offsets help. So I do think we've bottomed out and that the margin should pick up just a bit.

Jon Arfstrom, Analyst (RBC Capital Markets)

Okay, thanks for the help. I appreciate it.

Edward Wehmer, Founder & Chief Executive Officer

It's like a ping pong ball underwater. So far, we want to play the beach ball, Jon.

Jon Arfstrom, Analyst (RBC Capital Markets)

I'm waiting for it.

Edward Wehmer, Founder & Chief Executive Officer

Been very patient, waiting.

Operator, Operator

Thank you. Our next question comes from Terry McEvoy with Stephens, your line is open.

Terry McEvoy, Analyst (Stephens)

Hi, thanks. Good morning, everyone. Maybe first question as we build out our mortgage projections and loan growth, should we think about call it $200 million to $300 million of mortgages staying on the balance sheet? Is that the right way to think about that? Will that continue? And then what's the earnback on that, is it roughly a year as I remember from the last call that you sacrificed the revenue this quarter and it takes about a year to make that up?

Edward Wehmer, Founder & Chief Executive Officer

Yes, on the earnback, Terry, if you look at our margins being right now 3% to 3.5% and the loans are yielding in the low 3% for the jumbo mortgages that we've kept, you give up the upfront gain-on-sale and you earn back about that 3% over a year basically. So four or five quarters is the sort of earnback period for those loans. Then they stay on the books and continue paying dividends going forward. It's a sacrifice of current earnings for future earnings, which we think is prudent. We started by retaining around 10% or so of production on the balance sheet to get going and took a couple of $100 million pockets in recent quarters, probably a little less on average. If volumes go down, maybe $100 million or so going forward is a reasonable expectation. When we get up to maybe $700 million to $800 million, we'll probably pull it back a little bit from an interest rate sensitivity standpoint. I would imagine $100 million in mortgages staying on the balance sheet next quarter is the plan, and we'll judge after that based on market conditions.

Dave Stoehr, Chief Financial Officer

And there are some of those loans that are variable rate that we originate for the portfolio as normal course of business, so it may be slightly more than $100 million. But the extra $100 million Ed referred to is the jumbo loans we've kept on our books going forward.

Terry McEvoy, Analyst (Stephens)

Okay. And then as a follow-up, at last quarter at an industry event, you talked about M&A interest for potentially larger deals and maybe moving out of your core markets. Could you update us on your thoughts there and any feedback since making those comments?

Edward Wehmer, Founder & Chief Executive Officer

Well, it was an exercise. We always say the market gives us opportunities, and we felt some deals were available at attractive prices. We threw our hat in the ring basically to gauge interest; there were some conversations but nothing material. Markets moved away from that for now and the premiums being paid don't make sense to us. So that opportunity may have come and gone for the time being. We're still willing to do M&A if it makes sense, but we'll continue to fill in here in Chicago both organically and with smaller acquisitions that make sense. So my earlier 'chumming' exercise didn't find a fish, but we're still available if the right opportunity appears. We will continue to focus on growing our market share in Chicago and Milwaukee organically and opportunistically.

Terry McEvoy, Analyst (Stephens)

It does. I appreciate that. Thanks Ed and thanks, everyone.

Operator, Operator

Our next question comes from David Long with Raymond James. Your line is open.

David Long, Analyst (Raymond James)

Good morning, everyone. Looking at the expense side of the equation, revenue growth seems to be going pretty well and expenses are usually an issue for you guys. But looking at the expense side, what type of growth rate should we expect in your expenses, especially in a revenue environment where you have some headwinds on net interest margin? Any plans to rationalize expenses given some margin pressures — a little color on how you're thinking about operating expense growth?

Edward Wehmer, Founder & Chief Executive Officer

We always look at rationalizing expenses. That's constant. When you're a growth company you have to spend money to grow. Dave, you want to comment?

Dave Stoehr, Chief Financial Officer

Yeah. We had 10 branch closures and three branch sales last quarter, and another branch closure this quarter. So we're constantly looking for overlap or underutilization of facilities. It's an interesting question with the mortgage business: as revenues go up and down there, so go the expenses sometimes, so you almost have to look ex-mortgages. Ex-mortgages, we would expect expense growth to stay relatively contained, and we are looking at the branch network all the time to find savings. We had some contingent purchase price payments we had to expense; those should be less and not material going forward. We're watching headcount. I would expect expenses to stay relatively contained. If we have very strong growth, expenses will go up but not nearly as fast as revenue. We do expect a bit of a seasonal increase in the second quarter for sponsorships — Major League Baseball and outdoor community events — so expenses may tick up a bit in Q2 and Q3. Payroll taxes will be less in the second, third and fourth quarters than the first. Overall, maintain net overhead ratio levels we focus on. Sometimes you have to spend money to make money, but revenue growth should be faster than expense growth.

Edward Wehmer, Founder & Chief Executive Officer

One of the things on expense growth is our 'Deep Blue' digital initiative, which is enhancing our digital products. We have invested to take more control of the platform and reduce reliance on core processors. We've spent a lot to make the base solid so we can serve customers better. We have to be at the top of our game with digital products and payment systems. We have to invest for the future. Our goal is to get our efficiency ratio down into the 130s to 135 range on a regular basis. The overhead ratio dropped as much as the margin which helps. But expense patterns are not linear, so it's hard to predict quarter to quarter. You won't always see a perfect correlation between overhead and margin, particularly with mortgage volatility.

David Long, Analyst (Raymond James)

Right, I appreciate the color and understand as a growth company you do have to spend. As a follow-up, if production revenue falls by, say, $20 million in a given quarter in the mortgage business, how would that immediately impact expenses in that same quarter?

Dave Stoehr, Chief Financial Officer

I'm not going to give a single number because it depends on the pipeline. We have contract labor, overseas contracts and overtime that are variable and can be reduced immediately. It may take another month or two to see the full benefit as production works through the pipeline. In a high-volume mortgage environment your efficiency ratio may be in the 60% range; when volumes fall those efficiency ratios may move into the 75% to 80% range. So think of the mortgage business efficiency between 60% and 80% depending on volumes.

Unidentified Analyst, Analyst

Excellent. Thanks, Dave. Appreciate that color.

Operator, Operator

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

Nathan Race, Analyst (Piper Sandler)

Good morning.

Edward Wehmer, Founder & Chief Executive Officer

Hi, Nathan.

Nathan Race, Analyst (Piper Sandler)

Thinking about the overall balance sheet size going forward with PPP forgiveness ongoing, do you expect any downdraft with this excess liquidity that's been building over the last several quarters? Or do you expect these balances to stick for the foreseeable future?

Edward Wehmer, Founder & Chief Executive Officer

Well, that's a common question — what's going to happen to liquidity as PPP balances get forgiven? Tim?

Tim Crane, President

I think what clients are telling us, Nathan, is those balances will stick until they get clarity on forgiveness, which has been slow in coming at banks and industry-wide. We're getting good core growth from the halo effect with new clients. Some PPP money may move out of the bank as clients invest it, but that should be followed by loan opportunities for us as that liquidity gets deployed. So it's a bit of a bad-news, good-news story if it happens.

Nathan Race, Analyst (Piper Sandler)

Got it.

Edward Wehmer, Founder & Chief Executive Officer

I would add that the halo effect is evident in our treasury numbers. Tim?

Tim Crane, President

Yes. One way to see the halo effect is growth in Treasury revenues over the last four months, which were up about 15%-16%. Our teams are challenged to keep up with new installations and additions. We're encouraged that not only are we getting deposit balances, but we're getting treasury business that often leads to credit opportunities that will last. So we feel pretty good about it.

Nathan Race, Analyst (Piper Sandler)

Got it. Understood. Just changing gears to provisioning over the next quarter or two: I know it's difficult under CECL to predict, but given the loan growth outlook in the mid- to high-single-digit range, how should we think about provisioning for growth over the next quarter or two?

Dave Stoehr, Chief Financial Officer

Historically, in pre-CECL times when charge-offs were stable, our provision would usually be in the $10 million to $15 million range in normal times. If macroeconomic scenarios and credit quality stay stable, you'd probably be in that range. I can't predict macro scenarios. If they continue to improve, the allowance could decline and provisions could be lower. For growth, you can look at the allowance-to-loan ratio and apply it to expected net growth and that should get you close.

Edward Wehmer, Founder & Chief Executive Officer

The portfolio appears to be improving as of April; upgrades have continued. When the pandemic started there were downgrades baked into the CECL calculation; we've seen upgrades in Q1 and expect that trend to continue in Q2. With an improving macro environment, we might have another release, but nothing is certain. Credit overall looks good and the economy appears to be improving, which bodes well for provisioning expectations, but we can't guarantee a specific outcome.

Nathan Race, Analyst (Piper Sandler)

Got it. If I could ask one more on capital: any share repurchases in the quarter, and how are you thinking about buybacks over the next few quarters this year?

Edward Wehmer, Founder & Chief Executive Officer

We haven't been doing buybacks as the stock price has increased. If the stock price stays in this range, we would not anticipate repurchases; we'll use capital to support loan growth and similar initiatives.

Nathan Race, Analyst (Piper Sandler)

Okay. Great. I appreciate you guys taking questions. Thank you.

Operator, Operator

Thank you. Our next question comes from Chris McGratty with KBW. Your line is open.

Chris McGratty, Analyst (KBW)

Hi. Good morning. I think I know the answer to the question, but asking anyway. The pace of security buying — any sense in terms of magnitude whether a billion is the right purchase rate per quarter, or would you perhaps step it up?

Edward Wehmer, Founder & Chief Executive Officer

It really depends on rates. We don't want to lock into very low long-term rates. It's opportunistic: as rates move up, we'll take advantage. We think we've locked in an after-tax roughly 1.5% on the deals we've done to-date in that asset class. We don't want to lock in bad long-term yields when rates are low.

Dave Stoehr, Chief Financial Officer

When rates popped up earlier in the quarter, jumbo yields were north of 2%, and we thought that was a good time to add. We did a little earlier in the quarter to replace runoff and add a bit, but rates have fallen back some. We don't have a committed cadence; we'll be cautious. If jumbos go back above 2%, we may add more. We don't have a specific fixed target number; it depends on the rate environment.

Chris McGratty, Analyst (KBW)

And longer-term, cash is roughly 10% of operating assets. Where does that need to be proportionally 12-24 months out?

Edward Wehmer, Founder & Chief Executive Officer

We've historically targeted an 85% to 90% loan-to-deposit ratio and liquidity levels fall out of that equation. If we can lend toward that 85%-90% level, normal liquidity might be in the 4%-6% range. Early in the pandemic we were at about 8% for safety; normal is lower.

Chris McGratty, Analyst (KBW)

Okay. Great. Thank you.

Operator, Operator

Our next question comes from Brock Vandervliet with UBS. Your line is open.

Brock Vandervliet, Analyst (UBS)

Just tactically on expenses: the last year didn't have the big seasonal ramp in ad spend. Should we expect a lot of that to return in Q2 and Q3?

Dave Stoehr, Chief Financial Officer

I think it may not return to the full extent depending on attendance and the scale of outdoor events, but we would expect second and third quarter ad and sponsorship spend to increase this year compared to last year.

Brock Vandervliet, Analyst (UBS)

On securities deployment, you suggested a cautious stance. If rates stay here, would you consider materially increasing jumbo purchases above several hundred million a quarter to use up liquidity, or are you happy where you are?

Edward Wehmer, Founder & Chief Executive Officer

We're considering our options. We might deploy a bit more into jumbos if rates improve, but we want to be cautious and monitor liquidity. We expect to be opportunistic rather than programmatic with investments. We are mindful of the potential for strong economic rebound which could push rates higher — if that happens we'll want to capture higher yields. The aim is to be smart and not just chase short-term earnings at the cost of long-term returns.

Brock Vandervliet, Analyst (UBS)

Lastly, on the C&I growth that came in at quarter-end, was that all organic or did some of it come from share shifts from competitors?

Dave Stoehr, Chief Financial Officer

It's both. We've won business and taken share from competitors as well as seeing existing customers grow.

Brock Vandervliet, Analyst (UBS)

Okay. Thanks for the color.

Operator, Operator

Our next question comes from Michael Young with Truist Securities. Your line is open.

Michael Young, Analyst (Truist Securities)

A lot of my questions have been asked and answered. But following up on coming out of the pandemic and reopening, is there a more specific focus on hiring lenders that we should expect as you ramp later this year? Any new business lines you have renewed focus on versus last year?

Dave Stoehr, Chief Financial Officer

I think there are still lenders in the marketplace. Last year we brought in a couple of lenders from acquired banks and we're looking at a couple of new niche opportunities. Part of our story is finding lenders who add value and help diversify the portfolio. So both continued hiring and niche growth are important as we go forward.

Michael Young, Analyst (Truist Securities)

Okay. And then bigger picture, any opportunities on the fee income side that could buffer mortgage revenue falling off — in trust or other business lines?

Edward Wehmer, Founder & Chief Executive Officer

We're always looking. We added a couple last year; Murph can address niches.

Rich Murphy, Vice Chairman & Chief Lending Officer

One that addresses your question is the Money Services Group, which was a meaningful business prior to a competitor's exit. It's a treasury-related business working with currency exchanges in Chicago and New York and offers nice fee income with limited credit risk. We've had success early on and a good line of potential clients. We also continue to look at niches in leasing which we find opportunistic.

Edward Wehmer, Founder & Chief Executive Officer

On wealth management: it's competitive but organic growth has been strong. We added close to 1,000 new accounts in the quarter across distribution channels, many originating in the branch network. We're hiring seasoned sales people around the country and expect continued organic growth.

Michael Young, Analyst (Truist Securities)

Okay, thanks, and congrats on the quarter.

Edward Wehmer, Founder & Chief Executive Officer

Thank you.

Operator, Operator

I'm showing no further questions in the queue. I'd like to turn the call back to Ed Wehmer for closing remarks.

Edward Wehmer, Founder & Chief Executive Officer

Thanks everybody for dialing in today. Have a great week and a great quarter; we'll talk to you next quarter. If you have any other questions, please call Dave or me or Tim or Murph, we're happy to help. Take care and we'll talk to you soon.

Operator, Operator

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