Q4 2020 Associated Banc-Corp Earnings Call
[music].
Good afternoon, everyone and welcome to associated Banc Corp's fourth quarter.
2020 earnings Conference call. My name is Diego and I will be your operator today.
At this time all participants are in a listen only mode.
We will be conducting a question and answer session at the end of this conference.
Copies of the slides that will be referenced during today's call are available on the company's web site at Investor day associated back Dot com.
As a reminder, this conference call is being recorded.
As outlined on slide one during the course of the discussion today management may make statements that constitute projections expectations beliefs or similar forward looking statements.
Associated actual results could differ materially from the results anticipated or projected in any such forward looking statements.
Additional detailed information concerning the important factors that could cause associated actual results to differ materially from the information discussed today is readily available on the SEC website in the risk factors section of associated its most recent form 10-K and subsequent SEC filings.
These factors are incorporated herein by reference for.
For a reconciliation of the non-GAAP financial measures to the GAAP financial measures mentioned in this conference call. Please refer to pages 22, and 23 of the slide presentation and to pages 10, and 11 of the press release financial tables.
Following today's presentation instructions will be given for the question and answer session.
At this time I would like to turn the conference over to Philip Flynn, President and CEO for opening remarks. Please go ahead Sir.
Thanks, Diego and welcome to our fourth quarter 'twenty 'twenty earnings call. Joining me today are Chris Niles, our CFO and Pat a her on our Chief credit Officer.
Before discussing our results for the fourth quarter and full year I'd like to say a few words about the CEO transition. We also just announced.
After 11 years with associated.
Now it's my plans today to retire at the end of 'twenty 'twenty one.
When thinking about this for some time and in consultation with the board. We agreed this is the right time to initiate our succession process.
As noted in the press release I will continue as president and CEO until my successor is in place at which time all stepped down from both of those roles and from the board I'll be available to the new CEO in an advisory capacity thereafter to assure a smooth transition for our customers and colleagues.
The board has commenced a search for a permanent successor and will consider our internal as well as external candidates.
You can appreciate.
We cannot speculate on the timeline for that search, but the board and I are highly confident that we will name a strong successor, who will take associated to its next phase of success continue our profitable growth trajectory I look forward to working with my successor to ensure a smooth and seamless transition.
But now let me turn to our fourth quarter and full year results.
This was a year. Unlike any of US has experienced in the midst of incredible challenges and uncertainty the commitment of our colleagues shone through.
COVID-19 changed every aspect of life, including how people and businesses Bank.
In navigating the unknown it was essential that our customers were able to connect to count on us and that our teams were safe and well positioned to provide their support.
As businesses and schools shut down we found new ways to support book, the health and financial well being of our customers and communities through.
Through the efforts of our colleagues, we were able to support our customers with over $1 billion on P. P. P loans and adapt our branch services as our customers shifted to remote banking.
It goes without saying that 'twenty 'twenty, one we'll have many challenges. However, the arrival of the COVID-19 vaccines promise a return to normality for.
<unk>, it's only fitting this year, we will celebrate our 160 at the year as a company and our rich history of supporting our customers and communities in their times of need.
As we have through the decades, we stand eager to help build a stronger economy and better society.
During 2020, we took several actions to prepare for the recovery, we expect to see in 'twenty and 'twenty one.
On slide two you can see the improving trends for a number of key items.
With the sudden decline in interest rates for this past year, we quickly moved to reduce funding costs and implement strategies to stabilize.
And increase our asset yields together these actions helped drive margins higher during the fourth quarter.
In addition, beginning in the second quarter, we took several steps to increase the efficiency of our organization included was the sale of associated benefits and risk consulting.
The third quarter efficiency initiatives, reducing branches and personnel costs and the recently announced sale of Whitney All our family office subsidiary taken together. These actions will help drive further improvement on our efficiency and expense run rate as we move into 'twenty and 'twenty one.
We adopted C sold on January 1st.
As the pandemic began to unfold, we moved swiftly to increase our allowance in contemplation of the economy, we saw through the middle of the year.
As we move further through the back half of the year, we were encouraged by the positive emerging trajectory of the economy and as we closed out the year. We were very pleased with the low levels of deferrals and new problem loans, which allowed us to bring down our provisioning over the back half of 'twenty 'twenty.
Notably we posted a net reserve release of $11 million during the fourth quarter.
Collectively these positive trends drove the EPS improvement we saw on the fourth quarter.
We recorded a $1 86 of GAAP earnings per share for the full year 2020, or $1 19, when adjusted for the gain on sale of associated benefits and risk consulting.
Turning to slide three let's drill further into some of these positive trends for the quarter on.
Our fourth quarter EPS was <unk> 40 up more than 50 per cent from the third quarter we.
We saw our net interest margin expand 18 basis points to two point for 9% driven by expanding commercial and industrial loan yields and P. P. P accretion from forgiveness.
We ended the year with fourth quarter 2020 over fourth quarter, 2019 average loan growth of $1 9 billion or 8%.
Mortgage warehouse and CRE lending continued to be strong performers during the quarter.
We continue to grow our lowest cost deposits.
Which accounted for 64 per cent of total deposits at the end of 2020.
The cost of interest bearing deposits declined significantly.
Throughout the year during.
During the fourth quarter the cost of interest bearing deposits. Excluding time deposits was just seven basis points.
The provision for credit losses was $17 million during the quarter down from $43 million in the third quarter loan deferrals fell to less than $80 million and both non accruals and potential problem loans declined.
Our allowance reserve covered $1 76 per cent of loans at the end of the year.
We finished the year on a strong capital note tangible book value per share increased to $16.67 and on.
All our regulatory capital ratios were higher year over year.
On slide four we've provided a summary of our 2020 pretax pre provision income.
We've also highlighted several significant initiatives, which we executed over the year and their impact on P. T. P. P. Adjusted for these significant items P. T. P. P was $393 million for the year.
On slide five we provide a similar view for the fourth quarter, excluding the gain on sale of branches fourth quarter P. T. P. P was $94 million.
Average annual loan balance trends are shown on slide six.
Total average loans came in at $24 5 billion up $1 4 billion or 6% for the year PPP lending and CRE activity accounted for most of the year's growth.
Commercial and business lending increased $983 million or 12%.
From 2019, this was driven by PPP lending and mortgage warehouse financing. We also continued to reduce our oil and gas exposure to only 296 million at the end of the year oil and gas Outstandings now represent just a little more than one per cent of our total loans.
Average commercial real estate loans grew over 660 million as customers continue to build projects, particularly industrial and distribution center projects across our footprint construction lending has been particularly resilient in the upper Midwest and our unfunded commercial real estate commitments stood at $1 9 billion at year end rift.
<unk> a healthy amount of expected further growth as we move into 'twenty one.
We originated a record for 5 billion of mortgages during the year driven by the lower mortgage rate environment.
Despite this average consumer loans finished the year at $9 3 billion down $230 million.
The low rate environment encouraged refinancing activity across our markets and contributed to the further run down in our home equity book.
We've been reluctant to add low rate mortgages to our balance sheet, but we have benefited from the sale of originated mortgage loans in the form of mortgage banking fees.
Turning to slide seven we highlight changes in the quarterly loan trend.
Compared to Q4 of 2019 average fourth quarter loans increased $1 9 billion commercial real estate loans increased $963 million in commercial and business lending increased $1 2 billion, including P. P. P loans.
On a sequential quarter basis fourth quarter average loans fell $281 million from the third quarter. This decline was mostly attributable both to PPP forgiveness, which we began to see.
In the fourth quarter through year end about 25% of our PPP loans have been repaid or forgiven.
Looking out to 'twenty, one outstanding 2020 P. P. P round, one and two loans should be largely paid off our forgiven during the first half.
We are currently originating new 2021 round three P. P. P loans and expect these to peak in Q2, and then decline toward year end.
With respect to residential mortgages, we protect balances to be flattish throughout the year as new mortgage portfolio production and increasing home equity production and utilization are more or less offset by the negative impacts of the ongoing refi market on these categories.
We are optimistic about commercial loan demand in 'twenty, one specifically, we expect commercial real estate growth to continue at a strong pace.
And to increase average CRE balances by 4% to 6% during the year were also anticipating commercial line utilization expansion that should add 1% to 2% to outstandings, particularly as we move into the back half of this year taken together, we expect full year commercial loan growth that is commercial real estate and commercial and industrial combined.
Of 2% to 4%.
On slide eight we've summarized our COVID-19 relief efforts for the year during the second quarter deferrals peaked at approximately $1 $6 billion at year end deferrals were just $79 million.
We saw very positive trends throughout the year.
Pleased with where we ended <unk>.
Customers, who received deferrals have not needed additional assistance and have been able to resume making normal payments total deferrals makeup just 32 basis points of our total loans at year end.
The remaining deferrals are primarily residential mortgage borrowers that are still in their initial six month deferral period, we expect substantially all of these consumer deferrals to be cured or expire without any credit implications in the coming quarter.
Our allowance update as shown on slide nine.
We utilized Moody's December 2020 baseline forecast for our seasonal forward looking assumptions.
The baseline forecast assumes additional stimulus continuing low rates through 2023, and a COVID-19 vaccine that becomes widely available late in this quarter.
We had previously indicated that we expected to taper our reserving as we move through the year and in fact, our fourth quarter reflects a net reserve release of $11 million.
We set aside $17 million of provision for the quarter. We also charged off $28 million, resulting in a net lower quarter over quarter total allowance. This net release was driven by a $27 million gross reduction in our allowance related to our general commercial and business lending portfolios.
Gross release was partially offset by $15 million of additional reserves set aside for commercial real estate loans.
The commercial real estate reserves are driven by the fact that our construction loan portfolio has grown by over 30% year to date and that we reserve for the full committed amount on a construction loans at inception.
As of December 31.
Our total allowance was $431 million down from $442 million at the end of the third quarter. Similarly, our ratio of reserves to loans was about flat, 176% to $1 77%.
Our credit metrics are presented on slide 10 potential.
Potential problem loans, non accrual loans and net charge offs all declined during the quarter our.
Our key Covid commercial exposures also continued to decline and notably our oil and gas retail and restaurant exposure all declined during the quarter.
We'd also note that we had no oil and gas net charge offs this quarter and we're comforted that with oil prices currently holding above $50 a barrel, we are well reserved going into 2021.
Assuming the positive credit dynamics continue we expect our full year 2021 provision to be no more than $70 million with some quarterly variability.
Turning to slide 11.
Annual average deposits were 26 billion up nearly $1 3 billion or 5% over 2019.
At the end of 2020 low cost deposits grew approximately $3 6 billion compared to the end of 2019 at the same time, we reduced high cost time deposits and network deposits by over $1 billion.
These are all time record deposit levels for associated customers and are a testament to the resiliency of our systems and our ability to continue to attract and retain core customers.
Low rate and largely remote banking environment.
We're also happy to report our customer satisfaction ratings have never been higher our customer interaction and call Center survey data suggest our customers have been well served despite many of our branch lobbies being closed for part of this year.
Further our mobile applications continue to be refreshed and have been very well received by our customers who have given us a four eight star rating out of five on the most popular mobile platform.
Turning to slide 12 fourth quarter average deposits were $26 7 billion low costs noninterest bearing and savings were up from the third quarter, while network and time deposits declined yet again low cost deposits accounted for nearly 64% of our balances at the end of the year.
Turning to slide 13.
Fourth quarter net interest income was $188 million up $6 million from the third quarter and net interest margin of two point for 9%.
Was up 18 basis points from the third quarter we.
We had previously guided that net interest margin would bottom out during the third quarter and pick up in Q4 as expected margin hit bottom in July and August and then rebounded to two 5% 6% in December asset yields benefited from our implementation of LIBOR floors reduced investment activity and generally widening.
Spreads on new loans.
On the liability side, we benefited from lower levels of borrowings driven by the influx of customer deposits, which drove our funding costs down.
This persistent customer liquidity encouraged us to repay $1 billion of PPP loans fund funding in November.
We also aggressively repriced, our consumer deposit book, yet still have $288 million, and 1% plus Cds, which will mature in the first half of 'twenty one.
We expect spreads to widen on our LIBOR based commercial loans as we continue to implement new LIBOR floors into our new and renewing loans. This will happen over time, where in conjunction with other repricing or credit actions, including the anticipated migration to sulfur and other indices away from LIBOR later in 'twenty one.
We continue to expect to see our margin expand as we move throughout the year, we expect our net interest margin to be relatively flat in the first quarter and to gradually expand over the course of the second through fourth quarters, we'd expect the full year's margin to be between 200 to five 5% and 265%.
Turning to slide 14 fourth quarter noninterest income came in at $86 million.
Mortgage banking service charges and wealth management fees all contributed to this quarter's growth. We also recorded $7 million of deposit premiums on our previously announced branch sales.
Our mortgage banking activity remains strong this quarter with nearly $340 million of mortgages sold to the agencies generating $14 million in net fee revenue.
We also picked up nearly $1 million of MSR recovery during the fourth quarter and still have over $17 million and temporarily impaired MSR at year end.
We expect mortgage banking activity remains somewhat elevated as we move into the year.
Service charges and deposit account fees came in at $15 million, an increase of $1 million quarter over quarter wealth fees also increased nearly 1 million, reflecting the strong equity market dynamics.
On January 5th we announced the sale of our Whitney <unk> family office subsidiary, which constitutes a little less than 10% of the wealth management revenues and is focused on the ultra high net worth market pro forma for the sale, we retain approximately $12 billion of assets under management.
As we look forward and net of the pending witness sale, we expect noninterest income of $280 million to $300 million in 2021.
On slide 15, we highlight our expenses for third quarter came in at 173 million inside of the $175 million level, we were targeting.
Core expenses continue to trend lower largely driven by the reduction of expense following the sale of a b or C and the branch sales, which mostly closed in December.
We expect the expense initiatives to provide further savings as we move into 2021.
As you can see from the charts on the right our efficiency trends continued to improve and our adjusted expenses to average assets ratio was already trending to 2%.
Given these positive dynamics and the pending sale of with now we're revising our full year 2021 expense guidance down to approximately $675 million.
As shown on slide 16, our regulatory capital levels remained strong on.
Common equity tier one ratio increased 23 basis points from the third quarter and has grown 109 basis points from the first quarter as we conserved capital in light of economic uncertainty.
Our TCE ratio grew 44 basis points from the third quarter benefiting from solid earnings and lower asset levels as we used excess cash to reduce higher cost deposits and our PPP loans began to be forgiven.
As we look forward into 'twenty, one we expect to resume opportunistic share repurchases this quarter.
We will continue to target TCE levels at or above seven 5%.
CET, one at or above nine 5%.
So to wrap up on slide 17, we're providing guidance for 2021, we expect for.
Full year net interest margin of $2 55 to 265 basis points.
We expect mortgage banking revenue to moderate but non interest income still to come in between $280 to 300 million.
We're revising our 2021 expense guidance down to approximately $675 million from the $685 million previously guided.
Our provision for credit losses has trended down since the second quarter to an annualized fourth quarter run rate of about $70 million with the positive credit trends, we're seeing and assuming the economy behaves positively as is generally expected. We believe our 2021 full year provision will be at or better than $70 million with some quarterly variability.
Our ability and we expect our annual tax rate to normalize in the 18% to 21% range.
And with that we'd be happy to take any of your questions.
Thank you.
At this time, we'll be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.
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One moment, please while we poll for questions.
Our first question comes from Jared Shaw with Wells Fargo Securities. Please state your question.
Hi, good afternoon everybody.
Yes.
Can you hear me yeah, Yeah, how are you.
Great. Thanks, Phil Congratulations I hope you get through really enjoy your last for winter up in Green Bay, and I guess I get the most out of it but congratulations on on the next step and we look forward to working with the rest of the team.
I guess.
Maybe starting with <unk>.
With the margin.
Your guidance is pretty good it's better than what we're seeing out of motion.
Would love to hear I guess, where are you seeing the new loan yields you talked about getting better spreads on and putting on some LIBOR floors, where are we seeing new loans coming on.
Right now on do you think that that's going to be sustainable for the for the next quarter or so.
Yeah.
Yeah. Thanks for the question Jared I'll, let Chris answer that but just.
To what you said, yes winter is cooperating on was eight degrees here yesterday, so I am still enjoying that Chris you want to take the NIM question.
Sharon we would point you to book the slides on the margin page in the deck page seven on the table that we can say that the core commercial and business lending.
Brad have widened and it's a combination.
Strategy to have floors inserted in loans, so years ago. It started with sort of phasing those out and we've been reinserted them through the course of the year and that started to basically lift our core yeah.
Yield on the loans the spread it and back doesn't change just the baseline gross wrong LIBOR on the teams.
Something like LIBOR at 50 basis points for 100, depending upon the type of loans.
And we're seeing a good.
Maintenance of the spreads in commercial real estate for funding, so not necessarily widening, but not compressing either and the new loans arent, resulting material shifts to that and so the combination of the new stuff comment on at reasonable spreads in commercial real estate.
A slightly better mix of construction the total real estate and the LIBOR floor strategy is really the contributing factors for the expansion we've seen in that commercial loan yields and then as we mentioned are as Phil mentioned on residential mortgages, we've really been holding the line and we're not terribly excited about putting to handle mortgages.
Into the portfolio and so we've been selling most of that production for the agencies and so on the book that we're left with isn't growing but at least it has something in the neighborhood of a 3% yield.
Okay, that's great and then I'm, assuming that that that margin guidance assumes the benefit from those.
This initial P. P P loans, but anything coming out of the newest round.
It was not included in that is that correct.
So we've given our full year guidance for the $2 55 to 265, that's sort of a good indicator for the entire year, but yeah. That's what I just walked you through on our spreads is all excluding PPP, we breakout commercial PPP is a balance on a meal and a spread independently for you on all of our cable growth.
Cereals.
What with the newest round, that's coming out I guess, what should we be thinking.
Volume could look like on that compared to compared to what we saw earlier.
Earlier, you know call it third quarter peak.
I'll take that Chris site as we sit right now we've already received.
More than a thousand applications for.
Yeah, 150 ish million dollars I don't know it.
It is hard to prognosticate, how much theres going to be you know we did 1 billion won in the first two rounds last year. The rules are a little bit more difficult. This time around so it'll certainly be certainly be something less than that but it's kind of hard to hazard a guess.
Okay, alright totally get that.
Just shifting to the core loan growth I'm looking at your guidance expecting a 1% to 2% increase in C&I. You also talked about utilization improving and giving that one did you benefit. So is that really you know you're not expecting a lot of necessarily core C&I growth other than an improvement in utilization is that the right way to look at it.
Yeah, I think youre going to see most of our growth from the big backlog of commercial real estate fundings that will come on we're sitting at the end of the year at almost $2 billion and there was additional new business. There commercial utilization is as you know from looking at other banks on across the industry is very low so we certainly.
As the economy picks up.
We'll get we'll get more utilization.
1% to 2%, maybe a little bit conservative. It's just it's hard to know what the general commercial borrower or when the general commercial borrowers going to feel comfortable.
Stepping up.
I think I think growth will be perhaps stronger.
In the second half.
Okay.
And I guess, just finally from me looking at the allowance and the seasonal impact looking at the allowance ex PPP of 182 is really strong I guess given the day.
The overall quality backdrop.
Did you have to rely on qualitative overlays this quarter Chi to get there and is that maybe.
Maybe a reduction on a qualitative overlay is going to be the driving factor behind the the the provision guidance or.
Does that not change.
Chris do you want to take that one for good.
Yes, Jerry and our modeling it's not so much the qualitative overlay that day, the qualitative overlays that kept the reserve bubble because we try to think about the reserve as being counter cyclical and so with it improves the forecast that's captured driven some of the numbers here in our modeling.
I think your question is as you think about that level of.
Provision guidance that we've given you does that imply perhaps for the total reserve level is coming down over time that would you answer that yes.
Great. Thank you.
Thank you. Our next question comes from Terry Mcevoy with Stephens. Please go ahead.
Hi, Good evening, Phil Congratulations on the retirement news, it's I can't believe it's been live in years, but congratulations.
Thanks Terry.
I'll start on just on page two I'm looking at the the personnel expenses, which have come down all year and we've seen that in the expense line. On my question is how much of that kind of fell to the bottom line last year and how much of it was kind of reinvest it reinvested in the business and I know in the past and maybe I missed it there was kind of a tech.
<unk> spend slide and maybe a few others.
Yeah going forward much of this is falling to the bottom line.
We've been able to.
Maintain a fairly stable tech spend although we continue to spend significant dollars on that.
This change in personnel costs is really benefiting the bottom line.
And then as a follow up kind of your your Covid Watch list portfolio Slide 20 here wondering if you could provide some updated thoughts on some of the larger larger portfolios, particularly kind of retailers and in the retail REIT that you've discussed in the past.
Sure Pat do you want to take that.
Sure right now we're seeing.
Some stabilization there.
The issues, we had in the past have all been kind of circled in large part to put behind us. So I think we're seeing in our portfolio a lot of these retail centers are collecting more they're seeing an increase in rents. So that's been a positive.
The other one that stands out in terms of real estate as hotels, obviously, we have a pretty small.
Exposure, there relatively speaking and I would say, we've kind of again the circle all the issues and we've kind of.
But actions in place to continue to monitor those and get those hopefully through the next six to 12 months 18 months.
Thank you.
Yeah.
Our next question comes from Scott Cyphers with Piper Sandler. Please state your question.
Good afternoon, guys and so I wanted to add my congratulations as well I enjoyed working with you and look forward to the final year, but wish you the best in his well earned.
One would think he's gone I'm not done yet so you probably haven't done they're not done talk loans that.
Yeah, No fair enough.
It's a good point [laughter] I guess just on the the surgeon and just sort of the timing on announcement.
Was there any thought to wait to announce until you'd kind of gone through the search I mean, obviously, it's like kind of kind of dicey thing with disclosures and stuff but.
Any sense for for why now and then.
You know M&A has become a another topic in the industry has gotten a lot a lot more frothy more recently.
Does the search for.
Our new CEO does that sort of could you guys off from <unk>.
Looking at transactions yourself, and then I guess.
Conversely.
I guess, one way to find a new CEO would be to partner with someone else and sources that way just maybe any broader M&A thoughts you can offer.
Sure. So a bunch of questions in there first of all on timing.
Been discussing this with the board for some time and as you point out at some point.
This is material and should be disclosed which is why we're doing it now secondly.
I really think that we are very well positioned at this point with all the actions we took last year too.
Really participate in the economic recovery, so making this announcement now in the face of what we think.
It is a eight improving 21, an improvement results for us makes some sense.
As far as M&A.
As you've seen us.
<unk> been active over the last few years and in acquisitions, we will continue whether it's me sitting here or perhaps someone else to look at those kind of opportunities and if we think there on the interest of our shareholders pursue them and as always as far as doing something more strategic.
The board.
With their responsibility to look out for shareholders is always open to looking at something like that.
Okay.
Okay, Alright, perfect. Thank you and then maybe switching switching gears a bit I guess for Chris probably most appropriate for you, but as it relates to PPP would you mind sort of trying to embed that into.
What total loan growth will look like for the year inclusive of the PPP ebbs and flows between all of these.
You know myriad rounds that are in there and then same thing on the margin how much will PPP forgiveness contribute in your existing guidance.
Sure. So I think Scott if you take a look at the true.
Transfer of when you go back to what Phil articulated that we really expect the bulk of the PPP. That's there today that go away. So that's.
Part of the remaining portion and the large portion of round three so PPP on balance sheet will sort of Vietnam.
Non material number probably by the time, we get to the end of 'twenty one eye on.
The Grand scheme of things.
The fees that are remaining for 'twenty.
21 from the 2020 round, we disclose is $12 million for this $12 million of unamortized fees that were largely assuming we're going to receive next year.
And again, Phil alluded to figure out how much the new is.
But it's not going to be on the same order of magnitude on the round, one and round two's right. So maybe a smaller number and it'll mostly run through the year. So it'll be a little over $12 million plus whatever happens for around three is what's basically assumed in the budget.
Okay.
Terrific all right well. Thank you both very much I appreciate it.
Thanks Scott.
Our next question comes from John Armstrong with RBC capital markets. Please state your question.
Afternoon.
Hey, Jonathan.
Phil I'm more interested on the Lambeau weather report for Sunday.
Mid twenties and likelihood of light snow.
Okay, Alright, somebody swaps care, but the rest of their team isn't going to like it was just going to say somewhere to foxboro.
Well good luck with that I'll congratulate you have true probably Q3 earnings but.
Just just a question back on the C&I piece of it you know that those balances have been coming down over the last several quarters in interest I'm curious if you're starting to see signs of life. There. It sounds like you're a little more bullish on that later in the year, but are you starting to see some of those balances trough.
You know, we've we've had some really good success, particularly in the fourth quarter with some new customers.
And some new closings and the pipelines are are encouraging.
I mean that said low utilization has kind of masked that so.
I I think it's still a little early yet but.
We believe that.
You know vaccines are going to become much more widely available here and as the population starts to be able to access that it's gonna have a pretty big impact on growth. So as I said, the 1% to 2% is is our forecast now, but I would think that there's a decent likelihood that that's conservative.
But you're probably going to see it more.
In later quarters after the first quarter.
Okay.
Good and then on the interest bearing demand.
Growth.
If you guys had to put your finger on what's really driving that is it.
Environmental is with you and you know how sticky do you think these balances on our longer term.
Chris you want to take that.
For I mean.
I would note that the rate on those is blending out at eight basis points. So they're not being attracted by range. So we're not it's not a rate opportunity.
But I think it is generally the liquidity broadly across our commercial customer base and across in particular for these accounts the municipalities.
Various government.
Government entity level.
Right that have balances that have just nowhere else to go with their money in the short run them they're on.
Our investment options that make too much sense, either and eight basis points is better than zero.
So I think that's generally that's the math that those customers are doing there and these types of accounts.
Okay. Okay.
And then.
Resuming our repurchase program I'm, just curious in your mind how attractive.
Is that for you on how aggressive would you like to be.
Okay.
Yeah. So all we can really say on that is we have what do we have about 100 plus million dollars of authorization right now.
And you know.
Even though the stock has somewhat recovered we're still.
Trading at.
What would to us seem on attractive level will be purchasing stock yet so.
Not going to signal too much about what we're going to do on the first quarter other than we're going to resume.
Okay. Okay, well you you issued stock when you showed up on all you're buying it back right for 11 years later, so that's good.
Well, we've been buying it back for a while so [laughter] alright.
Alright, thank you.
Thanks Seth.
Our next question comes from Michael Young with Truest. Please state your question.
Thanks for the question I'll follow up on on John's well wishing Phil with Packers.
Packers one on Super Bowl back close to when you started there so hopefully they'll bring on home for the gift for a weighted that way that would be a good back that would be a good book into this thing because I.
Got here at the end of nine and they won the 10 Super Bowl. So yeah that would be that would be perfect.
Yeah, [laughter] the timing could be could be a unique well anyways you know maybe just following up on that you know kind of starting with just a high level question. You know you've been been here for 10 going on on 11 years and just.
Just curious with what you've done in terms of credit clean up and then efficiency improvement technology at a patient on rollout you know for the for the company you know through your your career and I'm sure I've missed some things that you accomplished along the way, but what do you see as kind of the core needs for the franchise going forward from here.
Just anything that we should be expecting maybe.
On a go forward basis.
Yeah, It's a great question I appreciate that.
We've positioned ourselves well.
From a credit point of view as you point out we have a very disciplined credit culture I think.
Yeah.
If you look back to March of last year. It was very hard to forecast. How this was going to turn out but it appears at this point that this is going to be a very mild credit cycle.
We we charged off about 40 basis points of loans last year.
We expect something in a similar ZIP code for that and compared to what we were thinking in in March it's pretty mild now perhaps not every bank will have those results but.
We have relatively modest and broadly diversified exposure. So yes, I think we're in good shape on credit we've invested a lot in tech.
Thank goodness, we did that because one when we had to handle our customers remotely we've had on a mobile app. That's that works online works, we've invested a lot of money in this and importantly, we still have 3000 people working from home.
And we've been able to do things like <unk>.
Handled a record amount of mortgage volume and such.
Going forward the challenge for US is the same challenges the whole industry faces we've got a.
Basically zero interest rate environment stretching out for a couple of three years. So it behooves us to continue to work hard on finding efficiency.
So that we can grow our bottom line in that very difficult macro environment.
Fortunately the economy to us looks like it's going to improve and that'll give us some.
Some tailwind as we get into the year, but.
<unk> things well doing them efficiently as the biggest challenge we have in this rate environment.
Okay I appreciate that perspective, Phil and you know maybe just following up on kind of the loan growth outlook.
I think you mentioned you know still a ready is not super attractive at these yields although you know maybe better than securities, but you know it.
It seems like the swing factor in kind of growth for 2021 outside of just the macro lift in commercial is the ability to start you know.
Stabilizing or indoor growing kind of the residential book So at what point, you know with the long into the curve kind of ticking up would you would you be interested in putting that paper on the balance sheet.
Chris What do you think I mean.
Yes, I mean security security I think you had a little more attractive hopefully.
Right, we would hope so yeah and the resin mortgage book, we've been sort of focused and if you look at this quarter's yields for the.
Fourth quarter, the resi book had an effective yield of 3%.
And that's probably a reasonable level of that for us to be adding to that book and certainly a much better yield relative to other securities choices that might be available.
And it wouldn't require a much of a backup in some products to get back from those levels. So that would certainly be low level, we'd probably start to.
Setback for the balance sheet.
Okay. Thank you I appreciate it.
Thank you just for a minor to ask a question press star one on your telephone.
Our next question comes from Chris Mcgratty with VW. Please state your question.
Hi, This is actually Kelly motta on for Chris. Thanks, So much for on the questions.
On.
Most of what I had has been on asked and answered already but on maybe.
Maybe on on liquidity and liquidity management. He tried that there from a lot of things that they're still going to be a drag from an influx of P. P. P is for debit and.
It's actually we get more stimulus on.
How should we be thinking about.
That oh for the courses.
'twenty 'twenty, one and on the size of the balance sheet. Thank you.
Sure I'll take that Chris.
If you notice the quarterly trend.
Obviously, we and everyone had been awash in liquidity.
On.
But youll also notice that we've taken some some actions to reduce that liquidity. So.
We prepaid as you know in the third quarter. The <unk> advance that took a significant amount of cash off the balance sheet and this past quarter. We decided to go ahead and repay the fed PPP facility that took another $1 billion off so we've done some significant things to improve I E.
Reduce the amount of cash we've had.
Now as the next round of stimulus rolls out.
And.
Customers get PPP loans.
Liquidity, perhaps will build but we will continue to look for opportunities to to manage the cash on our balance sheet, you want anything to that Chris.
No I think you touched on it you know I think we've reduced as Phil alluded to not only the $950 million of <unk> advances that we repaid in the third quarter, but year over year over 1 billion on a half. So we've really put a lot of that when you look at the total year over year deposits are up $2 7 billion and.
And we repaid 1 billion and a half on federal home loan bank and still linked to another $1 billion of PPP Lf. So it really sort of put the money helps to offset other liabilities and an effective way.
Thanks, a lot of book and for those opportunities.
Thank you there are no further questions at this time I'll turn it back to management for closing remarks.
Great Hey, Thank you and thanks for the kind words I appreciate it but I do look forward to talking to you in April which is most likely if you have any questions in the meantime give us a call as always and thanks again for your interest in associated Banc in go pack on Sunday.
Thank you for this concludes today's conference all parties may disconnect have a great day. Thank you.