Q3 2021 Associated Banc-Corp Earnings Call
Good afternoon, everyone and welcome to associated Banc Corp's third quarter 2021 earnings Conference call. My name is Molly 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 at associated Banc Dotcom.
As a reminder, this conference call is being recorded I 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.
Painted 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 and the risk factors section of.
Associate is most recent Form 10-K and subsequent SEC.
Filings. These factors are incorporated herein herein by reference or a reconciliation of the non-GAAP financial measures to the GAAP financial measures mentioned in this conference call. Please refer to pages 20, and 21 of the slide presentation and to page 10 of the press release financial tables.
Following today's presentation instructions will.
And just before the question and answer session. At this time I would like to turn the conference over to Andy Harmening, President and CEO for opening remarks. Please go ahead Sir.
Well. Thank you sure Molly good afternoon, everyone and welcome to our third quarter 2021 earnings call I'm, Andy Harmony and I'm joined today by Chris.
Chris Niles, our Chief Financial Officer, and Patty earn our Chief Credit Officer.
I wanted to kick things off by covering the macro highlights for the quarter and give you an update on the strategic initiatives that we presented both internally and externally last month then.
And then Chris will walk you through where we are margin fees and expenses and then finally paddle clauses.
I'll be giving an update on credit.
On a macro level, we continue to see signs of a strengthening economy in our markets unemployment rates in Wisconsin, and Minnesota have remained at or below 4% and manufacturing has been consistently expanding which is reflected in the positive momentum we're seeing in the Midwestern.
Stern footprint.
While the third quarter, new cycle has dominated about over concerns of surging Delta variant and supply chain challenges. We do remain optimistic about growth in the latter part of this year and into next.
Our customers are doing well sound credit performance continues to be foundational and.
The salad is well positioned to participate in the coming expansion.
Now, let me touch on third quarter highlights as outlined on slide two.
On the top line, we saw revenue expansion across all key areas of our business interest income grew our fee businesses grew and we realized additional.
The social gains during the quarter.
We also see signs of increasing customer confidence with spending activity deposit levels and capital market transactions all up from the second quarter.
On the liability side rising deposit levels have also allowed us to further moderate.
Our funding costs.
Now shifting to credit we continue to benefit from improving credit backdrop, as we work our way through 2021.
Our customers have proven to be resilient end markets have continued to recover throughout the year.
After posting reserve releases in each of quarter, one and quarter two.
Two we posted another negative provision in the third quarter and further net reserve release.
Our seasonal reserves are now below our seasonal day one levels.
From an operating expense perspective, we continue to be disciplined even as we embark on our multiple initiatives and aside from the $2 million.
Facility exit costs, we incurred in Q3 expenses were fairly flat.
Taken together these factors have helped us drive our year to date returns on average tangible common equity to over 13%.
Moving to slide three I want to dive a little deeper into loans.
Okay.
We shared back in Q2 that we're starting to see signs of increased lending activity in line utilization in our commercial portfolios and I am pleased to announce that this trend has carried over into the third quarter.
Average commercial and business lending loans, excluding PPP grew by over 3% quarter over quarter led by general commercial.
Additionally, we continue to see growth in several specialized lending categories and CRE construction.
While certain aspects of the economy faced unexpected headwinds during the quarter due the resurgence of Covid. We continue to be encouraged by the conversations we're having on the frontline and the numbers that are starting to emerge in our pipelines.
<unk>.
We're also encouraged by customer activity consumer activity.
We officially launched our auto finance vertical in September 30th and have already funded loans across 13 states we.
We are excited about the early returns in our auto business.
This addition to our product set allows us to further diversify our concerns.
<unk> select consumer lending portfolio and earn slightly better spreads in our traditional mortgage origination activities.
Consumer card spending activity was room was also remarkably strong during the quarter.
Outstanding credit card balances increased 6% quarter over quarter are greater than 24% annual.
Concerned mystery, suggesting a significant uptick in the confidence of our retail customers.
And finally, our PPP and oil and gas portfolios continue to run off as expected.
We expect the majority of our remaining PPP to be paid down in Q4.
And we expect the oil and gas portfolio to be largely.
<unk> over the coming year.
Yes.
Additional loan trends for the third quarter are highlighted on slide four.
On a longer term trend, we're pleased to see commercial business lending rebound during the quarter, reflecting our first expansion and more than five quarters.
Line utilization was a contract.
We paid to the rebound commercial line utilization numbers continue to close the gap relative to our historical levels in April our commercial customers are funding about 12, five percentage points below our historic line utilization levels by September This gap has narrowed to eight five percentage points.
<unk>, we still remain well below our pre Covid monthly averages are September lying utilization was the highest we've seen since July of 2020, and our momentum coming out of the August lull we experienced.
Seems to be establishing a positive trend.
Construction.
<unk> lending was also a bright spot for the quarter as our program.
Proactive commercial real estate team continued to grow both outstandings and commitments on a year over year basis.
And given our substantial back book and construction commitments, we're confident outstandings will continue to grow well into late 2022.
As we look to the fourth quarter.
We remain optimistic around loan growth, but are adjusting our expectation in response to the economic headwinds that played out in the third quarter. Specifically, we now expect full year commercial growth that is CRE and CNI combined excluding PPP of approximately 2%.
On slide five we provided a walk forward of our quarterly pre tax pre provision income from the second quarter to the third quarter.
And while our pre tax income was essentially flat for the quarter. This masked the $9 million improvement in our pre tax pre provision results and our positive operating.
Rich.
Looking past the $11 million drop in provisioning, both interest income and fee income items were significant contributors to our quarter over quarter improvement.
I mentioned last quarter that we expected expansion in pretax pre provision income over the second half of 2021.
Learn more than cover the incremental cost contemplated for our newly announced initiatives.
We remain committed to these targets as we head into Q4.
Now turning to slide six I'd like to highlight that we announced our strategic vision back in September we said, we'd start executing on our strategies.
To Mediately and.
And we have.
Slide six shows some of the steps we've taken to make real progress against the four key pillars of our strategic plan.
We continue to expand our lending capabilities.
Our auto finance business is up and running with book loans, and nearly 750 dealer partners signed up.
<unk> on the originated loans in a pilot mode across 13 states and 60 dealers origination.
<unk> activity to date has been in line with our expectations and we'd be looking to ramp up our volumes as we move through Q4 and rollout our program to our broader dealer network.
In addition, we have rounded out the executive leadership.
Leadership team for both our equipment finance and our asset based lending initiatives.
We continued to add experienced relationship managers and lending specialists into our core markets to better serve the needs of our commercial and small business customers.
And we brought increased focus to our wealth.
Health management areas, while targeting new opportunities across our footprint.
On the digital front, we are on track to transform our consumer digital banking experience in the first quarter with the launch of a new platform.
Bringing increased customization and architecture that will more easily allow us to integrate fintech partners.
To improve the customer experience.
This is our first big step in our plan that will transition spending towards our digital channels and technology over the next several years.
And finally, we're always looking for ways to optimize our capital and balance sheet and in the third quarter alone, we redeemed $100 million of preferred.
<unk> re.
Purchased $60 million of common stock and increased our common dividend by 11%.
Simply put we are full steam ahead on our efforts and we look forward to building on this momentum as we head into 2022, So let me pause there and hand, it over to Chris Niles, Our Chief financial officer to provide.
Style detail on our margin and income statement trends for the quarter, Chris Thanks, Andy turning to slide seven our net interest income increased $4 million from the prior quarter or 2% driven by higher interest income across the board.
And lower finding and time deposit costs, our quarterly net interest margin increased slightly expanding one basis point.
Further during the quarter we.
We've seen slowing refinance activity, which has stabilized our mortgage yields.
And a steady decline in liability costs NIM.
NIM continued to be pressured by high liquidity levels and compressed commercial loan yields.
Moving to slide eight we continue to see record average deposit levels third quarter average deposits.
<unk> were up over $1 2 billion or 5% on a year over year basis. This growth continues to be concentrated in our low cost deposit categories low cost deposits have grown approximately two 2 billion from a year ago, and a quarter and accounted for 67% of our total deposits.
During the quarter, we continued to work down.
Our high cost network and time deposit balances.
These decreased by approximately $1 3 billion from the third quarter of 2020. Meanwhile, our aggregated wholesale funding levels have continued to steadily decrease over the past five quarters and have decreased by nearly $2 billion year over year looking forward the deposit.
That's one in funding actions, we have taken are anticipated to help improve our margins in Q4 and into 2022.
Turning to slide nine given the high levels of liquidity, we began investing in securities late in Q3, we.
We anticipate deploying additional cash balances into investment.
Pricing over the next nine months.
Reinvestment yields are expected to be approximately 2% or better and accretive to our current portfolio earnings.
We continue to target investments to total assets ratio of between 17, and 19% for 2021 and expect to rebuild the investment portfolio.
Security somewhere north of 20% of assets by year end 2022.
Looking forward, we expect our full year margin to end this year at approximately $2 40 for the full year.
Now turning to slide 10, we will comment on noninterest income.
Fee income grew nicely during the quarter we.
<unk> growth across several key categories, including our mortgage banking unit.
Our net income grew 3 million from the prior quarter assisted by MSR recoveries. We also saw solid growth in our fee based revenues were service charges on deposits and account fees were up 9% for the quarter and up 19% year over year.
Card based fees were also.
We saw it up 9% taken together, we view these trends as encouraging indicators of growth growing consumer confidence as we emerge from the pandemic.
Our noninterest income for the quarter also included $5 million in asset gains type of private equity distributions, but even excluding this impact income grew by nearly 5% from the previous quarter.
Reflecting.
Also continued strength in our core fee businesses, we now expect to finish 2021 at the upper end of our most recent guidance range.
On slide 11, we highlight our expenses the third quarter came in at $178 million, a $3 million increase from the prior quarter.
Including.
Putting the $2 million of facilities exit costs. Excluding these extra costs expenses were up about $1 million.
As we continue to rollout our new strategic initiatives, we remain committed to maintaining our expense management discipline.
Taking into consideration all of opinion initiative actions, we continue to expect our total 2021 non.
Interest expense to come in consistent with our prior guidance range.
Lastly, let me comment on capital as shown on slide 12, our tangible book value per share continues to grow quarter over quarter and has increased 7% year over year to $17 58.
Associated with regulatory capital levels are all.
Non is wrong, our common equity tier one ratio has grown from the third quarter of 2020, even as we repurchase shares redeemed preferred and increase the dividend, we will continue to target TCE levels at or above seven 5% and CET, one at or above 95%.
With that let me turn it over to our Chief Fun Officer, Patty and her team.
All remain on our credit portfolio.
Thanks, Chris.
I wanted to start by providing an update on our allowance as shown on slide 13.
We utilized the Moody's September 2021 baseline forecast for our seasonal forward looking assumptions the Moody's baseline forecast assumes additional physical support continue.
To give you a feeling low interest rate environment. The recent acceleration in consumer prices to be transitory and relatively localized COVID-19 cases.
Following net reserve releases of $28 million and $40 million in the first and second quarters of 2021, respectively. We posted a further net release of 30.
Continued in the third quarter.
Net release was driven by gross reductions in our allowance for all of our core commercial and CRE business units with a $3 million gross reduction in our allowance related to our general and commercial and business lending portfolio.
<unk> million dollars reduction in our CRE.
Reallowance.
$14 million reduction in oil and gas and a $2 million reduction in our retail lending.
As of September 30th our total ACL was $332 million down from $364 million in the prior quarter.
Furthermore, our ratio of reserves to loans.
32 declined to 141% from $1 five 2% during the quarter.
We had previously guided that we expected ACL to loans to drop back down to <unk> levels by the end of 2021.
Three quarters of the way through the year, you've dropped comfortably below that mark.
<unk>.
Turning to our quarterly credit trends presented on slide 14, most of our key credit metrics continued to improve over the course of the quarter. Our key COVID-19 commercial exposures continued to decline for the quarter led by declines in our retailer and shopping center exposures non accrual loans also decreased in Q3.
We're down 42% year over year.
Net charge offs increased slightly from the quarter and were tied to only one credit.
Potential problem loans also increased with the increase is tied to continued pressure in some select COVID-19 related industries. We expect these trends to normalize as we get into 2022.
For the fourth quarter, we expect to adjust provision to reflect changes to risk ratings economic conditions other indications of credit quality and loan volume.
With that I will now pass it back to Andy to share some closing thoughts as we look to round out the final quarter of 2021.
Thanks, Pat on slide.
<unk> 15, we recap our updated guidance for 2021 amid the economic headwinds we face in the back half of the year, we are expecting full year commercial loan growth, excluding PPP to come in at approximately 2% we.
We expect our full year net interest margin to land at approximately two 4% due to elevated.
Liquidity levels and compressed commercial loan yields and.
And we expect to finish 2021 at the upper end of the 315 million to $325 million range. We gave for noninterest income back in September reflecting continued strength in our core fee businesses over the remainder of the year.
And.
<unk> as I mentioned, we continue to experience positive credit trends due to economic conditions as we and as such we expect fourth quarter provision to be adjusted to reflect changes to risk grade economic conditions, and other indications of credit quality and loan volume.
And with that we'd be happy to take any of your questions.
And land.
And at this time, we'll be conducting a question and answer session.
With respect to ask a question. Please press star one on your telephone keypad.
Confirmation tone will indicate your line is in the question queue.
Maybe first start with like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset.
Before Christmas turkeys.
One moment, please while we poll for questions.
And our first question is from Scott Cyphers with.
Piper Sandler. Please proceed with your question.
Good afternoon, guys. Thanks for taking the questions.
Let's see Chris wanted to maybe start with you just on the plant.
So if you play the billion plus of excess liquidity over the next nine months or so can.
Can you talk a little bit about sort of your preference for.
What you'd like to buy relative to the current composition of the portfolio and sort of what the interest rate assumptions are or what kind of rate environment will be necessary to be able to hit those sort of targeted reinvestment rates.
Sure. So I think the mix overall, Scott will look a lot like what you see in our current portfolio and won't be a fundamental change from what we've been doing for the last couple of years.
Adding a little more volume in.
And from a yield perspective, we've called out that we think the reinvestment portfolio yields will be in the 2% plus range, which is consistent with what we purchased.
Purchased in September.
Okay. Thank you very much.
Excellent so that doesn't depend on you know further increases in the long end of the curve or anything.
Sort of static.
Gotta environment would be great.
Aesthetic environment, we can achieve and deliver on this investment plan and if rates move higher that will be even better.
Wonder.
Okay, and then can you.
Let us know what the remaining PPP.
Pardon me PPP fees are that'll flow through.
And the margin.
Sure. So I think we detailed on slide four in the material and so at the end of sorry.
Wonderful practically stable thats, what I meant sorry.
The $7 million and we again, we think the majority of that will come off.
That doesn't mean all of it but.
But just for clarity.
<unk>, probably more than half of it.
Okay, perfect, Yeah, sorry, I missed that but I think I missed that last quarter as well.
Okay.
Appreciate you humor me so good alright, thank you very much.
Sure.
Sure.
And our next question is from Michael Young which was securities. Please proceed with your question.
Yes.
Hey, good afternoon.
Good afternoon, Michael Michael.
Wanted to just touch base on the commercial loan growth.
I think you highlighted a lot of positives in terms of utilization rates.
Higher you know good demand in construction fundings, you know moving forward et cetera, but then.
On the flip side, you know, maybe moving down to kind of the lower end of the targeted.
Change from.
A month or two ago. So could you just talk about what's driving that is that.
Pay offs or competition in the market or demand and any color would be helpful.
Yes. This is Andy I'll take that one you know as we look at the fourth quarter. We have a few things we've had very modest increase.
Online utilization so far has not been a major driver.
When you look at the fourth quarter, you have to look at mortgage warehouse and what the impact of rates will be to that part of the portfolio and then we have oil and gas, which we expect to run down and is running down so.
So when you look at all of those pieces together.
And you see that a little bit of a lull in the third quarter.
We believe that drives us down to the lower end of the range.
At the same time, what I would say is our commercial pipelines remain strong. So we feel good about the fundamental business heading in the fourth quarter and we feel very good about the state of our initiatives heading into the first quarter.
We get new relationship managers up and running and they are already taken looks at deals folks we didn't have in the field before so that's the primary driver down for the for the fourth quarter.
Okay, Great. That's helpful. And then just as my follow up.
Yes.
Rates have started to.
And especially on the long end of the curve.
That change in how youre looking at any loan categories, mainly like longer duration residential real estate or anything like that that you're kind of looking at differently, especially as it pertains to kind of the capital allocation model that you're bringing to bear.
Yes.
Move I'll say I don't think it changes what we're looking at differently, we had already strategically begun to reposition ourselves and.
An expectation of rising rates generally over time away from mortgage which we've seen.
<unk> seen less volume unless applications on and which we've said we would hold the balances there static going forward.
And shifting towards more sort of duration, but still fixed rate assets such as the auto such as the equipment finance, which are going to come online and are poised to benefit from the repricing and we continue to expect to participate as our customers will in general C&I repricing in CRE repricing overtime.
Okay great.
Got it.
But thats not changed.
Right. Okay, Yeah, no. That's what I was curious I appreciate the color. Thanks.
Okay.
Okay.
So we have the next question in queue.
Schmuhl every last year.
Okay.
Please note that we just launched.
Yes.
Okay.
We lost National News Allen.
Okay.
I'm not sure. If my line is still open but I can still hear you guys if that helps.
That is helpful and your line is Phil This is Andy Harmening I have some skills as moderator as well.
Yeah.
And I'd be happy to take the next question if you've got another one for us happy to answer it.
I'll throw one out there nothing else to stall.
Just on the network deposits as a factor you know kind of moving forward into a higher rate environment. That's historically been kind of a nice.
This buffer for you guys to pull on when when you needed the funding.
But can you just talk about that again, maybe in the context of potentially rising rates going forward and I think we're a long way from from liquidity scarcity, but just as you think about that on a go forward basis.
Well, we've been able to very nicely.
Our core deposits as you can see that we've maintained a pretty low level, our customer satisfaction is coming off of last year's those satisfaction scores remained pretty strong which is also a key driver of retention. So we believe that the networks are a big positive for us whether that's in community markets that are very they play a very key.
Key factor or major metropolitan markets, Yes. So just so we're all on the same page.
The core funding levels are reflected very positive dynamics in the LOE cost as Andy has articulated.
The network deposits that come to us from the largest mutual fund complexes and the broker dealers those deposits.
We've been working directly with those providers to manage those balances down and you'll see that on slide eight and how we manage those balances down, but we have endeavored to keep relationships open with each of the large dealers. So that should the market come back in a way that would require us to access incremental funding we would still have good access there and we've tried to manage.
<unk> the largest providers.
To be the largest remaining components of our current outstanding so that we're active with them. We will remain active in their flow and win the market.
Necessitates that we make needed incremental funding, we hope will have ready and easy access to those same large providers to support us.
As we grow in say 2023 or 24, when liquidity, perhaps starts to take effect.
I was taking that from a different perspective, which is we have optionality.
But we also have the strength of.
Our branch network deposits outside of additional network deposits that are still available.
I'd be happy as Andy Harmony to take this next question.
This is a first for me.
Yes.
Let me know if you get the operator back, but I'll I guess I'll just continue.
Just on share buyback, obviously, good to see some strong utilization this quarter talk a little bit higher than where it has probably been.
<unk>.
So just.
Feel pretty strong appetite there at some point do you start to lean more heavily on escalating dividend or do you look at M&A kind of how are you walking through the capital allocation buckets.
Yes. This is Andy I'll take the first part of that and what I would say is our focus is on growth we think.
And throughout the best most profitable way to to advance the company and so as we head into 2022, we feel really good about the trajectory that we have of the initiatives and our core businesses, where we've been able to add commercial bankers and small business bankers. We felt like we had an opportunity in the short term as we're getting that ramped up towards year end.
That's my as our capital position and we're in a position to buyback stock.
Stock if there if there is a situation where there is some slowdown in will remain we will give ourselves that optionality, but our number one priority is growth Chris you said it well.
First organic growth second maintain a competitive dividend.
<unk> think what the accident took in the third quarter, we enhanced our competitive dividend positioning.
Third looking at inorganic opportunities, but the internal organic is the key focus there so their downplay for the moment and we will always look at share repurchase as use of incremental capital, but frankly with the plans we have organic growth we have a good.
Use case to deploy our capital in the near term towards those initiatives.
Thank you again.
If there is another question out there.
[laughter].
Other people connected are you guys able to open other lines or we just yes, I think that we have our moderator.
<unk> has.
Disconnected momentarily so he can't reposition the line. So I think right now thats going to hear us.
You are you already get to be the practice of medicine.
Okay.
Okay.
I'll step back so others can ask questions if they are able.
Incentive to you.
She had worldwide EBIT.
Yes, so it's really a pleasure for our analysts that are online feel free to send your email questions directly into bend mccarville.
Ben Dot mccarville at associated Banc Dot Com I think most of you have is is information handy and we'll be sure to answer them in queue order as we come along I hope.
From this series of events that were really better at operating a bank that we are serving as moderators, but we're trying like heck to do it.
So so I will say.
We have a couple of questions that came through from Scott C for some additional questions on future from Scott.
Alright.
The first one here so.
What will be the amount of strategic initiatives charges in <unk> 'twenty. One I think you took $2 million in charges in the third quarter, but had been seeing 8 million for full year 'twenty, one so $6 million remaining and embedded in the full year 'twenty One guide I.
I think thats the right way to think.
About it's Scott So we're changing our we're not changing our full guide so that leaves us that amount that you've articulated there as a likely range of outcomes. We're obviously working through those and we will be diligent and disciplined about managing those brokers, but our total expense guide is unchanged.
Okay.
One for Scott.
What was the 28% linked quarter increase in potential problem loans this quarter.
So those were really like as I mentioned tied to what we call Covid related industries.
Some movie theater exposure hospitality transportation et cetera, it's really a handful of select deals that we don't.
Don't see us.
A systemic increase over the portfolio was just really very select credits.
Also from Scott what type of wage inflation are you seeing and can you absorb it within your existing efficiency initiatives. Yes, great question, It's something we're all seeing and as you probably noticed.
We noticed we announced a wage increase across our entire footprint effective November 21.
That wage increase has already been budgeted for and we believe we have appropriate plans in place for 2022. So we can absorb what we see is.
As increases.
Lastly forward pretty effectively and the good news is we've had a.
Very nice success on turnover year over year relative to other on what we're hearing in the marketplace.
Okay.
Last question from Scott the provision guidance is less specific than usual, 141% reserve is below the seasonal.
As a one of one 5% to 5% and energy was a portion of that are we done with the negative provisions should we assume that without meaningful economic changes, we'll keep the one 4% and producers will keep pace with loan growth.
So this is Chris Niles, let me give you a first response to that so we've given the more broad guidance because we.
We think going forward, our provision will be more economic and portfolio factor driven.
That having been said, we feel very comfortable with where we are at the end of the quarter with we think the reserve is appropriate.
But we also see some good overall dynamics and we won't be necessarily expecting significant negative.
We are over the near term.
Okay.
Alright, our next question comes from Chris Mcgratty with <unk>.
What is your expense guidance for Q4 trying to get a better idea of impact of prior one one time items.
So our expense guidance for the full year on a total basis. So you can take our total guidance subtract the first three quarters and that will be the fourth quarter guidance.
I think the other thing that two distinct areas.
Launched multiple initiatives, what we committed to is having positive operating leverage above the second quarter, we clearly did that in.
In Q3, and we expect to do that again in Q4.
Okay.
Pre tax pre provision above the $78 million that we outlined.
Alright, and then we have a few here from John Armstrong with RBC capital markets.
So the first question is when do you think commercial.
Loan yields can bottom out.
I'd like to think they already have.
Now that's a bit.
Over my skis, but the reality is we're beginning to see market yields generally rise and we take comfort in what we've seen as some of the larger bank.
Syndicated trends.
Transactions that have come out where they've started to build in so for adjustments and other factors that perhaps the compression in spreads that we've been experiencing thats driven absolute yield southern bottoms, we hope as perhaps behind us and while spreads may not expand absolute yield will continue to rise if market levels right.
I think the other thing that is a tailwind potentially is as we see the slow steady increase in utilization that typically comes with a with an improved margin as well so it's impossible to say on the forward looking exactly.
Bottom looks like but.
More to come.
Alright, so nicely.
Excerpt from John Berger.
Are you still planning on $1 billion in auto Outstandings by the end of 2022.
We're very much believing we're on track to be able to achieve that we are three weeks into it.
At the writing up this presentation. We're at 60 dealers since then I had a call.
Per day afternoon, and it looks like we've raised that to 211 dealers in the in the pilot so.
We are on track for that number and we expect incremental increases in November and December and that will really hit the ground running very well in January.
Yes, I'm also from John's if you exclude warehouse and energy are you more bullish on commercial lending for 2022.
Yes, I mean, the simple answer is yes, we brought over some talented relationship managers.
Cross, Wisconsin, and Chicago, so far in a pretty short period of time.
In addition to that when you think about the markets that we're in.
They are tailor made for asset based lending and equipment finance.
We are looking at deals already and asset based lending having had.
As the leader in that join us in the third quarter equipment Finance, we are ramping up quickly in fact, I met with our head of equipment Finance. This afternoon on his first day in the or.
Office to talk.
We bring a team around ramping that up.
As quickly as possible and it's a seasoned veteran Scott Denise who comes to US from Wells Fargo and GE capital. So those are pieces that we don't have in our numbers today in the third quarter that we expect heading into first quarter, we will have and.
And in spite of that we continue to see a really nice pipeline, we saw commercial increase of 3%.
In the third quarter, and we maintained a very nice pipeline and commercial even with the closings that we had there so feeling very bullish on our commercial business heading into first quarter.
At 2022.
Two.
All right. So a couple of years and I am not blend together on John.
Okay.
So it seems like the margin should be up nicely in 2022 and more broadly what are you willing to talk about your outlook for 2020 overall.
We've historically, given our 2022 guidance in our January 22 call.
Paul So you can expect to hear from us and but obviously, we will be presenting at a conference later this quarter and will perhaps give you a little more update on our strategic initiatives at that time.
Okay.
Alright. So next up we have a couple of questions from Terry Mcevoy with Stephens. So first of all how will the FTE count change.
From the day, Andy joined until the day that you are hiring initiatives.
Sure we think about the overall.
FTE counts were roughly at 4000 in the second quarter 3990, and the press release tables.
Just over 4000 <unk>.
10, now so they really haven't changed much.
But the new hires and the additional staff to support all of our initiatives will raise the overall count.
A couple of hundred incur.
Including some backfill open positions that we need to work on as well. So you can expect the overall count to go up by several hundred.
Next from Terry what markets have you hired commercial bankers and what markets are still on the drawing board.
While we've hired we've hired lenders in Chicago.
We've hired lenders in Milwaukee, we have hired a couple in northeast, Wisconsin, which we thought were very strong.
So primarily so foreign Chicago, Milwaukee, and then northeast, Wisconsin in Central Wisconsin.
We think there is still be opportunity in Minneapolis.
Two on the hiring front and we intend to keep moving forward on that front.
The next.
And we have is from Daniel Tamayo with Raymond James.
With the reduction in NIM guidance offset by the balance in balance sheet growth offset by the balance sheet growth excuse me, how do you think about.
Overall net interest income growth now relative to a quarter ago can you provide more details from <unk>.
New distribute content.
Next question sure. So I think we refer you to the guidance slide where we also highlighted that not only do especially at the upper end of our fee range, but we expect to be within the total revenue range that we had previously provided at the Barclays presentation conference and so the difference obviously between the total revenue and the fee guidance is.
And then just income.
The fairly robust number I think you'll find it.
Pretty easy to drive.
Okay.
Our next question comes from Jonathan <unk> with Wells Fargo.
What is the duration on the securities you're purchasing as you build investment portfolio also what would the duration go too.
And a 200 basis points plus.
Sure So Jonathan as I mentioned the mix of Securities that were purchasing is very similar to the mix of our current portfolio.
There'll be a little bit longer duration on the new mortgages purchased than the existing book, obviously, but similar duration on the munis and so that'll be a little lengthy.
A little bit beyond sort of the five year that you've seen from historically, but not much.
With regard to what that would do in an up 200 rate shock I don't have the immediate number at my hands, but suffice it to say.
With a five year duration is 200 basis point shock is mathematically about a 10 point swing in value.
That having been said.
I'm not seeing anything in the 10 year yield profile or the forwards that would indicate that's a consensus view.
Okay.
Alright, I have a few more questions here in my inbox, but if you have any others feel free to send them along here.
On.
We have a follow up from Terry Mcevoy with Stephens. According to other banks mortgage yields are less in auto yields, but auto the non-religious chip business, how would you respond to that.
Yeah.
What I would say right now is our mortgage book consists of both originated and third party originator.
And so.
Third party origination expansion does not necessary for us and there is opportunity on the on the indirect auto a portion of that to get a yield that is better than what we had before so from an associated bank standpoint, it puts us in a really good position in a market that has seen.
<unk>.
<unk> seen a downturn probably in mortgage origination across the industry in 2022 to.
To quickly transpose that but I would point out that we have a pretty significant expectations.
Very customer friendly relationship businesses of small business and commercial banking and that was on purpose.
We believe those are massive.
Massive deposit engines. In addition to that we have an initiative that we haven't talked as much about and that's a massive fluid initiative, which provides typically 70% to 75% of our retail banks deposit base. So we have an upside in gathering deposits from those customers as well so in terms.
What it means for us, it's a bit of a mix switch out and.
<unk> trends on mortgage while simultaneously, having a plan around deposits on mass affluent and entering very heavy deposit industries of small business and commercial banking.
Middle market.
Alright.
Two remaining questions.
<unk>, that's one from Scott <unk> with Piper Sandler.
So you had suggested a 275% steady state NIM over three plus years with your September strategic initiative announcements do you still feel comfortable with that expectation in light of how long excess liquidity is sticking around.
Well I think the question on excess liquidity.
Terms of what there are some indications that typically when you see some spend and you see some account fee increases that's typically a leading indicator that's something that there may be a decrease in deposits over time, we're seeing that.
So absent stimulus for those have been sticky for us through three quarters and happened through the whole entire and the entire industry.
Look heading into 2022, I think there are some signs of that being a decrease so overall right now I would say that we are we are still committed to that the margin that we'd laid out in our midterm plan.
Okay.
And that actually was the final question that we've had in Q.
Right.
If there are no further questions Andy I think pass it back to you to wrap up well I'll say two things. Thank you for being with US today and thank you for your perseverance and getting through three different four different moderators, including in Somalia.
And probably one good one so.
Thank you for the attention to given associated bank, we're excited about.
I didn't hear I have a great evening. Thank you.
With that you can disconnect your lines.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
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