Q2 2021 Associated Banc-Corp Earnings Call
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Good afternoon everyone and welcome to Associated banc-corp. Second quarter 2021 earnings conference. Call my name is Hector and I will be your operator today. At this time, all participants are in a listen-only mode. Will be conducting a question-and-answer session at the end of this conference copies of the slides that will be referenced off during today's call are available on the company's website at investor Associated Bank. As a reminder, this conference call is being recorded as outlined on 5001 during the course of the discussion today. Management may make statements that constitute projections expectations beliefs or similar forward-looking statements Associated to actual results. Could differ materially from the results anticipated or projected and any such forward-looking statements additional detailed information. Concerning the important factors that could Club.
Associated actual.
Results to differ materially from the information discussed today is readily available on the SEC website and the risk factors section of associated. Most recent form, 10-K and subsequent SEC filings. These factors are Incorporated herein by reference.
Barry reconciliation of the non-gaap financial measures to the gaap financial measures mentioned. In this conference call, please refer to Pages twenty and Twenty-One of the slide presentation and the page, 10 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 phone number to Andy harmoney president and CEO for opening remarks, please go ahead sir.
Wall, good afternoon, everyone and Welcome to our second quarter earnings call. Joining me today are Chris Miles, our Chief Financial Officer and Pat Ahern. Our chief credit officer. Now, we're going to get to our financial results in a moment. But with this be, my very first official earnings presentation since taking over as Associated president and CEO back in late April. I'd like to start by taking a moment to reflect on what I've learned in my last few months on the job and why I think the future is bright for Associated.
Under Phil Flynn's, guidance Associated, build a strong reputation based on discipline approach to credit Capital, operational risk and expense management job as an outsider looking in. I saw a clean balance sheet, the strong Capital position, and a franchise known for great customer satisfaction. These are all very attractive, foundational, qualities and qualities. I've been able to validate since my arrival.
Upon joining Associated..1 of my first priorities was to listen and learn as much as I could both from internal and external stakeholders. What's working well for our company, what our growth opportunities, what we must do to win more customers and deepen Community engagement. We started with a hundred days of listening and a listening tour and we upheld over 175. Largely in-person sessions with hundreds of colleagues participating in thousands of ideas, shared
Throughout this process, I have personally spoken with over 300 colleagues across our footprint.
I've also spoken directly with some of our largest customers and many of our key investors and with this feedback in mind, we've already taken several actions to drive performance across the organization. Dead.
First knowing that competing, digitally is more important than ever. We promoted Doug peacock, who was previously, our director of strategic channels to lead our digital strategies going forward and build a comprehensive. Digital roadmap across our entire consumer and Business Bank. Secondly, we have refocused. Our wealth management teams under the leadership of John Thayer thousand bag. Previously, our chief investment officer and a season wealth management. Professional professional who will lead are integrated strategic vision for a business that already has many strengths month.
and finally,
For centralizing RFP and a team to bring additional discipline to the execution of our line of business activities are cross group activities, and importantly, the growth initiatives, we invite to formally announce later this quarter.
We are actively working on these strategies and initiatives and we expect to lead to additional growth and positive operating leverage. We will communicate those strategies to you no later than September 13th.
Now, let me touch on the business environment, our markets and our second quarter highlights is outlined on slide 3.
The first half of 2021 has been marked by encouraging transition to a new normal. We continue to see many signs of strengthening the strengthening economy in our markets with many businesses in Midwest are running at full capacity. In fact, we are seeing really large Gatherings, Gatherings such as those of our newly-minted world championship hockey bucks, which we just got to see outside our door today during their Championship parade encouraged by these Trends, are front-line teams, have been back in front of clients and working directly with our customers for much of the Year. We're optimistic about growth and feel associate is well-positioned to participate in the ongoing recovery.
In fact, we start to see signs of increasing lending activity in line utilization in our commercial portfolios which is reflected in our. And Loan balances commercial business. Loans, excluding PPP grew by nearly 3% quarter-over-quarter, while the cre segment of our loan book grew by nearly 1% and further RPP and further our ptpp. Portfolio continue to pay down as expected with. And Loan balances and PPP down over 50% from the first quarter found all of these Trends, encouraging
We also began to see signs of increasing customer confidence and spending activities with depositing card. Fees up 2 million from the first quarter and credit card spend 19% quarter-over-quarter off and 40% year-over-year.
Now shifting to credit, we can continue to be very pleased with the improving credit environment, over the first half of 2021, which speaks the resiliency of our customers and to the urgency of our core markets nonaccruals loans or down, 10% quarter-over-quarter, and net, charge-offs remain flat. It just 5 million dollars after posting a negative provision of twenty-three million dollars in the first quarter of 2021. We posted another negative provision of $35 for the second quarter taken together charge-offs and negative provisioned combined to drive a net Reserve release of $40 for the.
and finally, we read
Just Thirty million dollars of common stock for the quarter. And also added $0.40 to, our tangible, tangible book, value per share.
Now, turning to slide for let me highlight a few quarterly loan Trends compared to the first quarter of 2021, average. Second quarter loans decreased 1%. However, on a sequential quarter end. Basis, we saw a solid solid growth is several several of our commercial c, r e, and Specialty length, including greets, General commercial, and power and utilities. As our customers began to modestly drawn their lines as expected, PPP loan, balances continued to decrease, declining by $431, will more than 50%. As you've seen the SBA accelerate, their pay down and forgiveness processing.
We continue to enjoy Strong Mortgage originations during the during the second quarter of originate over 2 billion dollars a year to date. But we remain reluctant to add low-rate mortgages to our balance sheet off. After seeing significant refinance activity in q1, this activity carried over into Q2 driving our Residential Mortgage and HELOC balances modestly lower during the quarter, am looking forward, looking towards the back, half of the year we remain optimistic around loan growth. Specifically we are optimistic about commercial loan demand and still expect a commercial loan growth that is c r e, n c, i c and I combined excluding PPP of approximately 2 to 4%.
I would also like to provide an update on our our indirect Auto lending initiative. As mentioned back in April, we are expanding our consumer lending platform to add indirect Auto lending to our product set out to build out the infrastructure and expect to begin booking loans, during the fourth quarter 2021,
Well, adding Auto allows us to diversify and add to our Consumer Portfolio, slightly better spreads. We are also continued to evaluate other consumer and commercial vehicles with good line and characteristics.
5 provides a bit more color around the. And trends that are giving us confidence that we are on track to meet out for your guides for commercial loan growth at June thirtieth, our commercial and business lending segment, excluding, PPP grew by 2.8% for the for the quarter.
Well, it's CRA Drew by 6% during the quarter as well. Combine these 2 segments represented, roughly 2% on a. In basis, which is in line with our full-year expectations.
Moving to slide 6, we continue to see record deposit levels for Associated customers and second-quarter, average deposits were up 1.3 billion dollars or 5% year-over-year.
This.
Continued growth is reflected strong Trends in our lowest cost deposit category, averages which grew approximately 2 point 4 billion from the same. A year ago. From a. End took her over quarter standpoint. However we began to see signs of increasing business confidence combined, DDA balances from our corporate and Commercial specialty segments which includes trust. We're down by 12% for nearly 4 hundred fifty million dollars from their historic Highs. At the end of the first quarter we see this as a positive sign, the businesses are putting their money to work.
During the quarter, we also continue to work down, our average higher-cost Network and time deposit balances which decreased by approximately 1.6 billion from the second quarter of 2020. And on a Thursday note, our aggregate wholesale funding levels decrease to approximately 3 billion dollars at the end of the second quarter and have steadily decreased over the past 500 quarters in addition. Last week, we exercise in early Redemption option on 3 hundred million dollars of our 3.5% medium-term banknotes, which will also. Our margin going forward.
On slide 7. We provide a walk down of our quarterly pre-tax pre-provision income or ptpp first quarter to the second page, Jesse for the MSR write-ups and one-time gains, recognizing q1. You have, you can see our run rate has held steady and our net. Interest income is beginning to move higher.
With net interest income increasing. We believe we have reached an inflection point on ptpp. In addition, the growth initiatives and efficiency strategies. We will be rolling out later this month are intended to capitalize on our Market strings and position, not to drive positive, operating leverage and expand ptpp over the next several quarters.
We do believe the expansion and ptpp over the second half of 2021 will more than cover the incremental. Costs contemplated for the initiatives on Deck. So long, pause there and hand it over to Chris Niles, our Chief Financial Officer. To provide a little further detail in our margin and income statement transfer the quarter. Thanks Andy turning the slide 8 months. We had previously indicated that net interest income and net interest margin would gradually start to expand over the last 3 quarters of twenty Twenty-One based on Sloan not refinance activity, a steady decline. Liability costs and expected loan growth.
In the second quarter, we started to realize the benefits of these factors with net interest income Rising. Similarly while quarterly Nim continue to be pressured. We saw an encouraging uptick from month to month with the June Nim. Finishing at 2.45% up, nicely from March.
5..9 provides a breakdown for the specific factors that lifted net interest income in Q2 on the mortgage side. Margins and investment income would bring Higher by declining refinance activity which contributed the slower prepayment rates on mortgages and mortgage-backed securities we expect mortgage deals to continue to rise over the back half of the month and the refinance. Wave continues the paper on the commercial side. We saw an uptick in TTT in recognition relative to q1. We have like only fifteen million of unrecognized. The Furbies remain at the end of the quarter, and expect that most of that will be realized over the back half of the year.
On the liability side, we continue to see downward momentum and overall the profit off of work order. This is especially true for time deposits. Where average yields has continued its decline. Over. Average time deposit yield finish the second quarter at just 51 basis points and we still have about fifty million and consumer CDs with rates above 2%. Set the mature by the end of the third quarter.
Given the second quarters margin current CD rates. And market trends, we continue to expect our full year. Net interest margin to finish between $245 and 2.55%.
turning to slide 10 second quarter non-interest income came in at 73 million up from $68 million in the same period last year, excluding abrc related income but down from the $95 million in the first quarter,
The quarter-over-quarter decrease was driven primarily by a decline in Mortgage Banking and come amid the tapering refinance. Wave, partially offsetting this page news. Continue to expand led by service charges deposit, account fees and card-based fee-based. Revenues overall increase by 4% quarter-over-quarter and 60% year-over-year were down for a reporter. Do the sale margin compression
Despite the sales of withnail, which close in the 1st of March, this year, we've continued to see strength in our wealth management. Business wealth management. Fees saw a slight increase in Q2 off a strong first-quarter and we're pleased have ended the quarter with over $13 billion of assets. Under management up, 12% year-over-year, given we are halfway through the year. We are time in a range of our full-year. Be insurmountable to 3:15 to 3:25.
Turning to expenses on flight eleven. The first quarter came in at $174 million. In total expenses, a slight decrease from the first order and a 5% decrease from the same period last year.
Personal.
Expenses Rose for the porter. However, other car expenses including oxygen, see continued to Trend lower more than offsetting additional Personnel. Expenses box.
Turning the capital on slide twelve are tangible value per share continues to grow quarter-over-quarter and has increased 7% year-over-year. The $17.35 charge Associated. Regulatory Capital levels. Also remain strong are common Equity. Tier 1 ratio has around 45 basis points in the second quarter of 2020, as we conserve capital and light bulb economic uncertainty, we saw over the last year, we continue to Target a tce level at or above 7.5% and act, 1 level or above 9.5% with that. Let me turn it over to Pat Ahern, arti, Spencer officer.
Thanks, Chris wanted to start out by providing an update on our allowance is shown. It's like thirteen utilize the movies, June 20-21 Baseline forecast for Cecil Palmer at some options. The movies, Baseline forecast assumes, additional fiscal support continuing low interest rate environment, the recent acceleration and consumer prices to be true. Life story in a relatively localized coupla cases following a net Reserve release of twenty 8 million in the first quarter of 2021 and posted a further net Reserve an additional forty million in the second quarter. This net release was driven by gross reductions in our allowance. For all of our Core Business units with our twelve million dollar groceries in our loans related to our General commercial and business lending portfolio, a $13 reduction in our CRV allowance and $11 reduction of an oil gas.
And a 3 million dollar reduction in retail Lending.
Is it June 30th or total acll was? 364 million down from 404 million in the prior quarter similar to, that are ratio of reserves to log on to climb to 1.52% from 1.67% during the quarter, we had previously guided that we expected acll 2 loans to drop back down to see, Samsung J1 Levels by the end of 2021 and half way through the year. We're in line with those expectations.
Turning to our quarterly. Credit Trends presented on slide, fourteen potential problem, loans, and nonaccruals Loans. Both declined during the quarter with net charge-offs last on the first choice.
Our key coded commercial exposures also continue to decline notably oil and gas retail and restaurant. Exposures all declined during the quarter after peaking at 1 point, 6 billion in the second quarter of 2020. Our quarterly active loan, deferrals, have continued to decline, each quarter and fell to a total of just twenty million across 4 business units in the second quarter of 2021 total deferrals. Now make up just 8 basis points of total loans. At quarter-end most customers who received a Pearl's. Need additional assistance and haven't been able to resume making normal payments.
Going forward.
We expect to adjust our provision with changes to risk, grades other indications of credit quality, and low volume.
With that and will now pass it back to Indy to share some closing thoughts. As we look to the second half of 2021. Thanks, Matt. On, slide fifteen. We recap our updated guidance for 2021 month. We are tightening our non-interest income guidance and now expect the full year to come in between 315 million to 325 million dollars reflecting the Strong Mortgage activity. We see in the first month of the year and the continued strength in our wealth management business over the course of the year.
As a result of our ongoing planning for growth and efficiency initiatives, we are withdrawing our prior 2021 total expense guidance.
before the impact of such initiatives, we expected total expense for 2021 would be approximately $695 to $700, plan, reflecting incentive accruals additional Business Development expense,
Now, our total expenses for 2021 will also ultimately reflect the impact of the initiatives that we will announce later in Q3 but let me reiterate off even with the expenses we're contemplating to support our growth initiatives, we still expect to deliver ptpp above our second quarter Baseline in each of each of choice and Q4. Lastly as mentioned we continue to experience positive, credit Trends due to economic conditions, and as such, we expect provision to be adjusted at all inclusive, risk, grade and future loan volume.
With that. We'd be happy to take your questions.
Thank you. At this time will be conducting a question-and-answer session. If you'd like to ask a question please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the office. Thank you. You may press start to, if you would like to remove your question from the Q4, participants using speaker equipment, it may be necessary to pick up your handset before pressing the star Keys 1 moment, please while we pull for questions.
Your first question comes from the line of Scott ciphers with Piper Sandler. Please proceed with your question afternoon, guys. Thanks for taking the question.
Hey Chris maybe first 1 for you. So year-to-date the margins around 2:38 so it looks like you'll meet some good acceleration in the second half night. I imagine ptpp. Um, fees later this year are are big part of that, but maybe to the extent, you could, would you mind please, refreshing thoughts on sort of the x p p margin. I know you've got some of the CDs rolling offer that, that should give you a little bit of bit of Tailwind, but just maybe thoughts on sort of the x p. P p puts and takes please. Absolutely. So as I stated, we're anticipating the benefits, and you stated now of the CDs repricing, which will come to us. We're anticipating seeing the benefit of having paid off the medium-term bank notes which we fully paid off last week. We're anticipating to see a stabilization of Libor at. Hopefully what we expect to be slightly above today's levels, as they move towards the back, half of the year,
And we're expecting to see if.
Loan growth and those 4 factors together, we'll all drive a margin meaningfully higher from even where they were in June.
All right, perfect. And then similarly. So on the side, a little acceleration to get towards the middle or high end of the range. Just curious about the the main drivers. It sounds like wealth management wage is going to be sort of a key key growth area for you. But you know same kind of thing maybe put some takes you would see as we look into the second half of the year on fees, we certainly expect wealth management which typically sets its pyes for the subsequent quarter based on quarter and levels to have a good quarter, given that June 30th was a pretty good point to the market. We also expect to see the package continue to come in nicely. And based on what we've seen in card fees with that can also be a positive as a move to the back half of the year.
All right. Perfect. All right, good. Thank you guys very much. I appreciate it. Thanks.
Your next question comes from the line of Michael Young with truth Securities. Please proceed with your question.
Hey, thanks for taking the question this afternoon.
Afternoon Michael and congrats on the Milwaukee win. I know that the Hope was Green Bay but you take what you could get right? Maybe it's not many big step in the right direction. So just just wanted to follow up and and maybe put a bow kind of on the expense commentary. So you know, I think she said it would, the increased expenses would be kind of covered by the incremental PPP fees, you expect in the second half. So maybe if you could just kind of put a dollar amount on that and then you know on an ongoing basis or those kind of one-time expenses to put things in place and get people hired or is a lot of that going to be in sort of the longer-term expense run rate.
Yeah, this is Andy. Let me just clarify. That it is ptpp that we believe will cover that as opposed to PPP. We we clearly are seeing an increase in net interest income and so that increase in net interest income, We Believe gets void even additionally by margin increases that we expect in the third quarter. So right now, we're fine, final boss in our growth initiatives, we do anticipate making investment or a company and recognizing the current environment that we're in as we come through the pandemic. But even after any new Investments that are made in the third quarter or the fourth quarter, we do expect to exceed the queue to ptpp in each of individually, the third quarter and the fourth quarter.
Okay, that's helpful and thanks for the clarification. Sorry, I didn't hear that correctly. And then, you know, my I guess my my other question was sort of more on the the capital front page. You guys are looking at sort of deploying Capital, you've been active with a share buyback, um you know, but there's also a lot of these, you know, kind of growth initiatives that that you're investing in as well. So just I kind of think about or understand how you guys are kind of weighing the, the payback period of the various Investments, kind of across the platform and how that will pertain to Future Capital allocation dead.
I'll start that 1 out.
And maybe have Chris piggyback on this 1. So as we look at our growth initiatives, of course growth and funding growth is our number 1 priority. So, when we think of operating leverage, obviously in a, in a, in a prudent risk fashion, we don't believe we have to step out of our credit box. We will finalize the initiatives and we expect, they'll probably be a shift in the use of capital, A little away from maybe not quite as much on these share repurchase as much on the growth. So as you have positive operating, leverage, you invest in businesses that drive your margin. You do that in a. Uh-huh. Asked framework. Um, we think between the the growth will be number 1 and then we'll also of course, look at what dividend strategy and share buyback strategy is off line. So as we finalize, those numbers will pull that through to the capital plan as well.
That was well setting.
Yeah. I was going to ask, maybe maybe Chris could could kind of add a little bit more on the financial metrics side. So are you looking at, you know, certain like tangible Book value earned back periods or anything like that or recoup of investment, time lines, as your, you know, hiring teams, or adding new, um, you know, new origination platforms Etc.
We are and we look at those internal rate of return metrics on a variety of measures. The good news is typically the addition of incremental adjacent lines don't have significant other costs other than people and people tend to pay for themselves very quickly. So we are encouraged by the early measures that we have and we look forward to taking more of that used later this work.
Okay, thank you.
Thanks Michael.
Your next question comes from line of Terry. McEvoy with Stephens Inc. Please proceed with your question. Good afternoon, everyone question phone number and e, as you are out on the road, the last hundred days listening, to, to your colleagues. I'm just curious the ideas that they were presenting. Would you, could you put them into called the expense bought it, and then, the revenue bucket, kind of where you'd kind of lined those up and, and maybe just a technology bucket as well, given the promotion to the individual to run the digital strategy. What were the comments? You heard internally on your page platform relative to to your competitors.
Well yeah, great questions. I guess what I would say is we have a serviceable digital strategy today but we'll be looking for a lot more and I'm encouraged by in fact, when I talked to Doug peacock, you know, maybe the reason I promoted him is the first thing he said is, don't be afraid to be bold. And when we think about the world that we're living in, in the, the attack on Iraq in text, we have a legacy, trust advantage. And so, I believe this in my prior job, when I took on digital nominee Channel, I believe it firmly in this position. So we will look at a combination of or product. Strategy is what are digital delivery strategy is. And certainly we will have to spend money in digital. The exact amount of that is what we're finalizing. Right now, what I thought I heard from our our colleagues as well as we want to we want to grow. We want to participate in the market cetera that we're in inherently small business and commercial or local businesses still dead.
We expect to compete very well.
In small business and Commercial. And those will be a focus has. We're trying to finalize our plans as well. So the things that I heard there and I I in fact, I heard it from the investment Community as well. And I think 1 time they said, um, we, we want a reason to follow you and for you to be bold and, um, that's what we expect to deliver on. Come September 13th, or before, when we have our plans. So, when we talk about evenly, listening to the investment Community, our customers, and our colleagues, that's exactly what we've done. And interestingly, um, the feedback wasn't that far, apart, the thing that I find couraging was you, when you start with listening and you get to as many folks as we have, and it wasn't just me as our entire executive leadership team, when you understand that, the, the Nuance of what is on people's minds and you bring strategies forward that deliver on that, you typically get by in an execution. So it's been a really good ninety days getting into our colleagues. Having a reason to wage
Fed them in person, getting to know them personally, but also to know what they want from our company.
Great, great color ND. And then as my follow-up question reading here, there's the a runoff now of of the oil and gas portfolio, which maybe I missed that last quarter. But that's not my question. I guess that the $31 Reserve against that portfolio and it was much higher on day, 1 as that goes down. Should we expect in the, the ACL ratio wage move below that. That day..1 level of 155, that 1 should take that 1. Yes, we do. We do expect acll to continue to decrease below. Cecil day 1, you know, specific oil and gas. You know, as we continue to wind that down, we're less than 1% of total balances in oil and gas right now. So we would expect that Trend to continue and that does have a big effect looking back to Cecil day 1 in terms of the acll
Great. Thanks for that.
Vince Terry.
Your next question comes from line of Chris mcgratty with KBW. Please, proceed with your question. Any great? And do you want to make sure I've got the the right starting point the, the ppnr guidance from here, I guess, is that like a mid eighty load of at-ats, like $83 run rate for Q2. Is that what you using?
Let me pull that up Chris. Where we're starting with the slide 7.
Which has the TTP on it.
I can look at that.
And maybe kind of a room.
Yeah.
Me while you're doing that up the maybe broader any appreciating the expense comment on the we have to wait for September. Do you envision laying out kind of medium to longer-term? Just high level profitability targets? Are we are away efficiency. I think that's, you know, 1 of the things that we would we would be looking for is wonder if that was going to be included in that.
Yeah.
Our our plan is to to show what the Investments are, what the payback period is and what that does to the the key drivers whether that's rotce whether that's our efficiency ratio wage, whether that's our operating leverage, those are all categories that we know that you're going to want to see. And we're walking through that right now to make sure that it's odd but we we need and expect for the company and externally. So we're very much trying to align with what we heard, what are strategies are and how the hits are key ratios.
Great. That's that'd be great. And lastly, can you please hold, they want you reference, I missed that that percentage that you're ultimately going to get to. Can you provide that again, please?
Yeah, we we're currently equal to where we started. Cecil day 1 at about 1:52. So we, you know, we can expect to see that Trend down, you know, given we're nonaccruals going potential problems have decreased, um, you know, where it'll float down to. It will get back to that, you know, without the oil and gas, it could get down to that, 125-130 range. But we continue to watch that.
They thank you.
Your next question comes from line of John arfstrom with RBC Capital markets. Please proceed with your question.
Thanks, good afternoon.
Afternoon.
A couple of follow-up, questions, bigger picture and can you talk about give us a little more detail on the centralized fp&a and off. You know what's behind that? Talk about that a little bit and how it aligns with you growth initiative, help us understand that.
Absolutely. Look. They're fun things to talk about. When you talk about driving revenue and you talk about changing culture and you think about all the good things you can do and product, but those things are only as good as you're disciplined approach to execution. And so, uh, as we come out with additional initiatives, all at once, we want to make sure that our tracking is in place Thursday, we want to make sure that we are clearly understanding the timing of each piece. We want to know how that rolls up to our key financial metrics. We want to make sure that that rolls into our monthly business reviews. We want to make sure that goes into our forecast. And so, having a team in my mind, I see it as a best practice. I've experienced that in my, my past stop and you really get down to the grass, is granular pieces of it and we know what to expect and we know how quickly what we need to correct or emphasize. And so when we bring that centrally under our CFO, it's still in Chrome.
Lead, tied into the line of business. However, when we're doing our performance forecasting, budgeting and tracking of initiatives to me, that was a really important thing that I want to have a view on all the time. And so, I'm getting that in line as we make promises to both our colleagues and to the investment Community. I don't want to let either side down and I think this is the best way to get to that point.
It's helpful on your listening to her and, and maybe, you know, Pat or Chris can add in on this. But what did you hear from commercial customers? Not necessarily birth reputation of associated, but in terms of their level of optimism, bullishness on the growth Outlook, and, and maybe to Pata Chris's much different than it was a quarter of. Let me start that 1 out and then I'll, I'll defer to Pat as well. I mean, I was with twenty of our customers last week. And what I'm hearing is, a general level of increased activity, whether that be thinking about a buyout of someone, whether that's m&a, whether that's thinking about equipment purchases, there is just, there is just, it seems to be the, the beginning of something. So, I believe that we see slight increases in our, we do see slight increases in our pipelines, we are seeing that slight draw down.
On business deposits. We see a slight increase in line utilization, but more than that anecdotally, I can tell you it is almost as if there's a pent-up demand that is starting to, um, starting to move. So anecdotally, those are the conversations that they had and that we've heard, there's of course, talk about some supply chain, but some of them are dead. Gosh, we we have as much going on right now as we, we can handle. Now, we want that to improve, but to me that will be additive and that will not stop, uh, the recovery. Yeah, I would, I would agree with that. I, I think the, you know, some of the overarching themes were hearing is, you know, demand is is outpacing Supply. There's a lot of catch-up going on from last year, but obviously, you know, many of our clients, still have a quiddity and they are. As Andy mentioned, they're starting to deploy that whether it be, you know, investment in new technology equipment, Etc, and Thursday.
I think like a lot of the the countries are dealing with supply chain and and labor, constraints that are really the only things holding holding them back.
Thanks for that. And then maybe 1 more for you handy, bigger picture here, but how do you think about the geography of the company? And I'm thinking about markets, like home in cities, Chicago and Saint Louis, which kind of, you know, ring the the perimeter of your franchise and it just their big markets where you have smaller Sharon, I'm just curious how you're thinking about those Mark. Yeah, absolutely. So look I'll just do a quick overview Northeast Wisconsin we have a stronghold that we have really deep roots and meeting those customers. You feel the presence of associated, the value of long-term relationships, we want to make sure we maintain those, I moved to Milwaukee and clearly a population concentration, that's why I'm splitting time between a walkie and Green Bay as off in office time, but we expect to do very well in Milwaukee, but with that you get discipline on the small business side and the commercial.
And to me, those are businesses. You can scale without
Having a massive footprint. So we would expect on the small business side and the commercial side to compete quite well in Chicago, uh, in Minneapolis, we haven't focused as much on Saint Louis, but what we intend to do is show that we can compete in the major markets. Then you look midterm and you build out your digital strategy and that makes you attractive and every market rural-urban large small and so that would be a point of emphasis for us on the midterm. So that's how we're thinking about it right now as we get into our growth initiatives and execute on those, I believe that will open up optionality for us, back from a marketing standpoint and then ultimately from a scale standpoint and potentially second step in the merger and acquisition Market.
Okay, thanks a lot.
As a reminder, if you'd like to ask a question, please press star 1 on your telephone keypad as a reminder, if you'd like to ask a question. Please press star 1 on your telephone keypad 1 moment please, while I get hold for more questions.
Your next question comes from line of a Daniel tomorrow. With Raymond James, please proceed with your question.
Hi. Good afternoon guys. Taking my question just wondering if if you're able to quantify the, the modest increase in in line, utilization that you prefer to a couple of times and maybe give us a sense for how far below, you know, pre, pandemic levels that that those lines are
I'll take that Daniel. This is Andy. We think we had a trough a bottom in April and it was in the very low 30s 30%, online utilization and we were up 2% off at quarter-end. Now, historically speaking, as we look at that, that's about 10% below what our store of numbers are. So we think there's room am not forecasting, a massive increase to that, but modest, increase to that. So we're seeing evidence that that will that we, we clearly have room. And we see capacity from our customers of over 7 billion dollars, uh, to draw down. So, so, um, we we believe that the the growth Will Be steady slower in the second half but that will be enough to meet those that 2, 2 to 4 percent commercial and cre growth Target that we have out there.
All right. Terrific and I guess on just also sticking on the commercial longer outside the if you have any commentary on what pay Downs look like in the second quarter relative orders,
Sure. We we certainly saw a fairly healthy activity but obviously, you know, core commercial books, we had a net increase right here.
Yeah, so for the overall Bank, obviously new new transactions.
Exceeded all net, pay downs, and we had a fairly nice duty of rollover of the short-term loans. So it was a net positive for it.
All right. Terrific. Well, that's all I had. Thanks, guys. Thanks Daniel.
Ladies and well there are no further questions at this time. I'd like to turn the call back over to Andy harmoney for closing remarks. Well, I'm closing, I just want to thank you for joining us today. We look forward to talking to you again later. This quarter. If you have any questions for us in the meantime, please don't hesitate to call and thank you for your interest in Associated Bank.
Ladies and gentleman, this does conclude today's conference. You may disconnect your lines at this time. Thank you all for your participation.
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