Q4 2021 Associated Banc-Corp Earnings Call
Good afternoon, everyone and welcome to associated Banc Corp's fourth quarter and year end 2021 earnings conference call. My name is Hillary and I will be your operator today at this time all participants are in listen only mode. We'll be conducting a question and answer session. At the end of this conference copies of the slides that will be.
Reference during today's call are available on the company's website at Investor Dot associated Bank 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 a reconciliation of the non-GAAP financial measures to the GAAP financial measures mentioned in this conference call. Please refer to pages 24, and 25 of the slide presentation and to 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 over to Andy Harmening, President and CEO for opening remarks. Please go ahead Sir.
Well, thank you Hillary and good afternoon, everyone and welcome to our year end earnings call.
Andy Harmening, and I'm joined today by Chris Niles, Our Chief Financial Officer, and Pat <unk>, Our Chief Credit Officer.
I'd like to start things off by briefly reflecting on 2021, covering the highlights for the fourth quarter and giving you. The most recent update on the strategic initiatives, we rolled out in September .
From there Chris will walk you through an update on interest income fees and expenses and Pat will round us out with an update on credit.
In many ways 2021 was an inflection point for associated Banc, we enjoyed consistent deposit growth improving credit dynamics and stabilization in our loan book.
And importantly, we began to accelerate growth in several core and new lending categories.
More recently, we continue to see signs of a strengthening economy in the fourth quarter unemployment rates in Wisconsin, and Minnesota came down below three 5%.
The manufacturing expansion, we saw emerge in Q3 has maintained strong momentum, which has been reflected in increasing commercial pipelines and in utilization rates.
Customers remain resilient credit continues to improve and we feel well positioned to build on our momentum in 2022.
Now, let me touch on our fourth quarter highlights as outlined on slide two.
This quarter was marked by a significant expansion in our balance sheet.
Notably we saw meaningful loan growth as commercial loan Outstandings line utilization and our new initiatives all kicked into gear.
We saw a $600 million in loan growth for Q4, which equates to 10% annualized growth in terms of loan in terms of loans, even as we intentionally shrank, our PPP and our oil and gas portfolios each by more than half.
On the liability side core low cost deposits continue to grow and as promised we began building our investment securities book to put our excess liquidity to work taken together. These factors contributed to expanding margins growing net interest income and total higher revenues for the quarter.
Turning to credit our customers continued to prove their resiliency as markets recovered throughout the year.
After posting reserve releases and each of the first three quarters of 2021, we posted another negative provision in the fourth quarter and a further net reserve release or ceased our reserves remain appropriate for our risk profile, but as we grow into next year, we expect to add to our provision in accordance with our loan growth.
From an operating expense perspective discipline continues to be our foundational focus for associate at our full year noninterest expense was down year over year, while our fourth quarter expense ticked up by only 2%. Despite the rollout of several new initiatives and an increase in our minimum wage.
During the fourth quarter, we also repurchased $25 million of common stock.
Taken together all of these factors helped us drive full year, EPS to $2.18 and position us well going into 2022.
Now, let's shift to slide three.
To provide a little more detail on the trends we saw in our loan book in the fourth quarter.
In mid 2021, we started to see some encouraging signals of increased commercial activity in line utilization and this is now beginning to translate into meaningful growth in our commercial balances in Q4, our total commercial book and that is commercial and business lending and commercial real estate combined grew by nearly.
$500 million, which is more than a 13% annualized growth rate from the third quarter.
While several several of our specialty businesses added balances during the quarter Importantly, general commercial loans were the driving force behind this growth.
Additionally, we're still in the early stages of our new commercial initiatives, but our expanded asset base lending team has already started to bear fruit and our equipment finance team is not far behind.
On the consumer side, the new Auto Finance initiative, we launched on September 30th 30th is off to a very strong start adding nearly $140 million of high quality auto loans through our books, we have now booked over 4500 loans.
As mortgage activity is moderate these new auto loans will allow us to further diversify our portfolio, while earning slightly better spreads.
Following up on a strong Q3, we also saw credit card balances increased by another 6% quarter over quarter, which continue to suggest that confidence is growing among our retail customer base.
And during the quarter, we took advantage of a positive economic background to exit the majority of our remaining oil and gas book at minimum cost.
Our PPP balances also continue to pay down as expected throughout the quarter and at year end, our oil and gas Outstandings were just $52 million and our remaining PPP portfolio was down to $66 million.
And in January we realized an additional oil and gas pay off that will bring our remaining oil and gas portfolio to approximately $30 million with these runoff portfolios worked down we are squarely focused on driving growth in our general commercial and initiatives portfolios in 2022.
Turning to slide four we highlight our annual loan trends for 2021 and as you can see total end of period loan balances were down slightly year over year, but that was largely driven by intentional reductions in our oil and gas exposures runoff of PPP and some declining mortgage balances.
These reductions were largely offset by strong growth in general commercial and other commercial specialty verticals, giving us a very strong base to build on in 2022.
On slide five we've highlighted a couple of additional metrics that give us optimism as we turned the page going into 2022 in Q4 growth in commercial balances was once again supported by a steady monthly uptick in line utilization commercial line utilization numbers continue to close the gap relative to our history.
Eric levels in April of 'twenty, one we hit a low point in utilization with regional commercial customers funding 12 percentage points below our historic line utilization from that point. The monthly gap has continued to narrow and December the gap close to five percentage points line utilization increases during Q4.
About $125 million of the commercial loan balance growth. Additionally.
Additionally, our commercial real estate team has steadily grown construction lending exposures on a quarterly basis and in the fourth quarter exposures grew 5% from the from Q3.
Given seasonality and our substantial back book, we remain confident Outstandings will continue to grow well into 2022, especially once the ground daus in the upper Midwest footprint.
As we look to 2022, we remain bullish around loan growth specifically, we now expect full year auto finance loan growth of over $1 $2 billion and total commercial loan growth of $750 million to $1 billion.
Turning to slide six let me give you an update on our initiatives when we talk back in the fall we laid out a multiyear balanced targets for our new initiatives and while we're still in the initial phases of the plan I'm very pleased with the progress so far.
Already talked about total commercial and the reasons I'm excited about the broader segment, but we thought it was important to show a breakout of asset based lending and equipment finance. So you can more clearly see progress in those verticals going forward.
What you see here so far through year end is mostly ABL balances and while we have some ABL loans on the books historically the team has already made meaningful progress quarter over quarter.
Now that equipment finance is up and running in Q1 I'm confident both teams are working towards the targets. We have set as we move through 2022.
On the auto side the team is off to a very strong start, but we've been very thoughtful about steadily ramping up the program over time to ensure effective execution.
Production is now eclipsing $4 million per business day, and we expect this portfolio to grow more quickly as we roll out the program to our broader dealer network and into our core footprint states over the course of 2022.
Turning to slide seven.
We've highlighted some of the additional steps we've taken to make headway against the four pillars of our strategic plan and the auto finance businesses, we've stuck largely to prime and Super Prime space with average FICO is north of 750, and 82% average ltvs on the loan loss, we booked in the fourth quarter.
Additionally, we've officially begun began closing new ABL deals in November of 'twenty, One and are currently building an active equipment finance pipeline, while rounding out our full lending team.
As we look to augment the growth in our core businesses. We've continued to ramp up our staffing our commercial and small business segments and we also established a new commercial real estate office in Houston, allowing controlled expansion in the great state of Texas.
On the digital front, we're on track to pilot our consumer digital bank platform in the second quarter of the year, bringing increased flexibility and architecture that will more easily allow us to integrate fintech partners to improve the user experience.
And as always we continue to seek ways to efficiently deploy our capital while we see plenty of balance sheet balance sheet growth and our outlooks should that not materialize. We also have $80 million in remaining repurchase flexibility available to optimize our capital position.
In summary, our initiatives our buyer initiatives are in full swing and we look forward to building on this momentum as we head into 2022, let.
Let me pause there and hand over to Chris Niles, Our Chief financial officer to provide a little more detail on our revenue and income statement trends for the quarter, Chris Thanks, Andy turning to slide eight our net interest income increased $3 million from the prior quarter or nearly 2% driven by higher net interest income across most major segments and lower funding in time.
Deposit costs, our quarterly net interest margin continue to move higher after having bottomed out in Q2, we continue to see a steady decline in liability costs and expect asset yields to continue to move higher as we move through 2022.
Our nearly $16 billion of commercial and commercial real estate portfolios have historically been primarily floating rate LIBOR and prime based portfolios over 90% of those commercial loans will mature or reprice, our reset within the next year.
Relative to our mid cap banking peers, we have a higher percentage of near term repricing, earning assets and more capacity to grow our investment portfolio. So we believe we are at the upper end of the asset sensitivity range as we look into 2022.
We have already seen our margin stabilize and begin to move higher in every major lending categories poised the benefit from a rising rate outlook.
This puts associated in a solid position to capitalize on the expecting rising rate environment in 2022.
Given our expectations for at least two rate increases we expect our full year 2022, GAAP reported net interest income to exceed $800 million.
Turning to slide nine given the high levels of liquidity in the industry. We selectively added securities throughout Q4 during the quarter. Our average investment security balances grew by over $400 million and our blended portfolio yields rebounded to 176%, we anticipate deploying additional cash balances.
<unk> into the investment securities portfolio throughout 2022.
Investment yields today are expected to be 2% or better and will generally be accretive to our portfolio earnings.
We expect to rebuild the investment portfolio to between 20 and 22% of total assets by year end 2022.
Moving to slide 10, we continue to see record average deposit levels average deposits were up nearly $1 7 billion in Q4 or 6% year over year, notably growth continues to be concentrated in our lowest cost deposit categories are aggregated wholesale funding levels have also continued to steadily.
Over the past five quarters and have decreased by nearly $750 million year over year.
We expect these deposit and funding trends to continue in our margin to continue to benefit into 2022.
On slide 11, we note associated has shifted its lower cost deposits.
The shift to lower cost deposits has been even more pronounced when viewed on an annual basis in 2017, our average low cost deposits represented less than half of our total deposit base, while at year end 'twenty, one they accounted for 68% of our year end deposit levels.
Switching to noninterest income trends on slide 12, we note that noninterest income was essentially flat during the fourth quarter as strong wealth and capital markets fees offset softening mortgage banking results. We also saw modest growth in service charges card base and other fee related income items taken together.
We view these collective trend is encouraging indicators of growing customer confidence as we continue to emerge from the pandemic.
Looking to 2022, we expect full year non interest income to exceed 300 million for the year.
On slide 13, we highlight our expenses the fourth quarter came in at 180 to a $4 million increase from the prior quarter, including $1 million of facilities related exit costs. Our fourth quarter expenses included initiative related expenses and our recent announced increase the minimum wage to $17 an hour.
For the full year 2021, total noninterest expense of $710 million was within our guided full year range and down $66 million from the prior year.
I'll remind you that we execute on expense initiatives in the second half of this year that are expected to shave about $10 million per year off of our run rate.
As we continue to roll out our strategic initiatives, we remain committed to maintaining expense discipline.
Taking all of our initiatives into consideration, we expect full year 2022, non interest expense of between 725 and $740 million.
On slide 14, we have provided a walk forward of our quarterly pre tax pre provision income from the third quarter to the fourth quarter.
While our pretax income was down from the prior quarter, our pretax pre provision results were relatively flat quarter over quarter and remained well above the $78 million baseline we set for you in the second quarter.
Yeah.
As shown on slide 15.
Our tangible capital tangible book value per share continues to grow and a quarter over quarter.
Has increased 7% to $17 87.
While we have taken several steps to deploy capital in an effort to support stronger growth and shareholder returns associated with regulatory capital levels also remained strong.
We will continue to target TCE levels at or above seven, 5% and CET, one levels at or above at nine 5%.
Okay.
With that let me hand over to our Chief Credit Officer, Patty here to provide an update on credit.
Thanks, Chris I'd like to start by providing an update on our allowance as shown on slide 16, we.
We utilized the Moody's December 2021 baseline forecast for our seasonal forward looking assumptions.
Moody's baseline forecast assumes additional fiscal support continuing 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 $40 million and $32 million in the first three quarters of 2021, respectively.
We ended the year by posting a further net reserve release of $12 million in the fourth quarter.
This net release was driven by gross reductions in our allowance for several of our specialty commercial and CRE business units, specifically in $11 million reduction in oil and gas and another $12 million reduction in CRE.
As of December 31, our total ACL was $320 million down from $332 million in the prior quarter.
In addition, our ratio of reserves to loans declined to 132% from 141% during the quarter.
We had previously guided that we expected the ACL to loans to drop back down to <unk> being one levels by the end of 2021, and we ended the year comfortably below that benchmark.
Turning to our quarterly credit trends presented on slide 17, most of our key credit metrics continued to improve over the course of the quarter. Our key COVID-19 commercial exposures continue to decline for the quarter led by further declines in retail and shopping center exposures.
Non accrual loans also decreased by 3% in Q4 and were down 38% year over year.
While aggregated restructured loans and delinquencies have fluctuated throughout the year I am pleased to announce a decreased 35% year over year.
Net charge offs also decreased by $1 million quarter over quarter and by $21 million versus Q4 of 2020.
Going forward, we expect to adjust provisions to reflect changes in risk rate economic conditions loan volumes and other indications of credit quality.
With that I will now pass it back to Andy to share some closing thoughts as we look to secure momentum into 2022.
Thanks, Pat on Slide 18, we recap our full year guidance for 2022, as we look to capitalize on the economic outlook in 'twenty two.
We are expecting strong loan growth had associated with full year auto finance loan growth of over $1 2 billion total commercial loan growth of $750 million to $1 billion.
And then reflecting reflecting our growth outlook and anticipation of a rising rate environment. We expect total interest income to exceed $800 million and total noninterest income of $300 million plus for a grand total north of $1 1 billion.
We expect to finish 2022 with approximately $725 million to $740 million of noninterest expense.
Speaker 1: With that, and before moving to Q&A, I'd like to say a few words about the CFO transition we also announced this afternoon.
With that.
And before moving to Q&A.
I'd like to say a few words about the CFO transition, we also announced this afternoon.
Speaker 1: After nearly 12 years with Associated Bank, our CFO Chris Niles will retire from the bank later this year.
After nearly 12 years with associated bank, our CFO , Chris Niles will retire from the bank later this year.
Speaker 1: We've engaged diversified search group, and the search for successor is underway. Chris will continue in his current position until a successor is in place to ensure a seamless and successful transition.
We've engaged diversified search group and the search for a successor is underway.
Chris will continue in his current position until a successor is in place to ensure a seamless and successful transition.
Speaker 1: Chris, on behalf of the whole Associated Bank team, I want to thank you for your many contributions over the years, first serving as our treasurer, then serving as the CFO . And on a personal note, I want to say I appreciate you helping me get my puddings at Associated Bank. Your partnership and generosity of spirit has allowed me to get acclimated internally and exp—
Chris on behalf of the whole associated bank team.
Thank you for your many contributions over the years first serving as our Treasurer, then serving as the CFO and on a personal note I want to say I. Appreciate you, helping me get my footings at associated Banc.
Partnership and generosity of Spirit has allowed me to get acclimated internally and externally.
Speaker 1: I also want to emphasize that I believe we are making this CFO transition from a position of strength, especially given our positive momentum and momentum at year end. Our Midwest markets are robust and our 2021 performance demonstrates we are driving revenue growth across our core business lines and we are moving decisively to accelerate our digital transformation.
I also want to emphasize that I believe we are making the CFO transition from a position of strength, especially given our positive momentum and momentum at year end, our Midwest markets are robust and our 22021 performance demonstrates we are driving revenue growth across our core business lines and we are moving to <unk>.
Size of late to accelerate our digital transformation.
I am confident in our strategy.
And I'm confident in our team to continue to deliver strong performance for our stakeholders in the years to come.
Our patent I'll pass it over to Chris for a few words.
Thank you Andy for those kind words it has been my privilege to work alongside an exceptional team over the last decade.
Speaker 2: It has been my privilege to work alongside an exceptional team over the last decade. I could not be prouder of our collective accomplishments.
Not be prouder of our collective accomplishments.
Speaker 2: As I indicated to Andy and the board, I've been thinking about the next phase of my life for a while. In consultation with Andy, we agreed 2022 is a good time to initiate the succession process.
As I indicated and in the board.
I've been thinking about the next phase of my life for a while and consultation with Andy. We agreed 2022 is a good time to initiate the succession process.
Speaker 3: Retiring from Associated will allow me to attend to personal and family interests, and I'm deeply grateful for that opportunity. With that, let's open it up for questions.
Retiring from associated will allow me to attend to personal and family interests.
I am deeply grateful for that opportunity.
With that let's open it up for questions.
Thank you.
We will be conducting a question and answer session.
Ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if he would like to remove your question from the queue.
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One moment, please while the poll for questions.
Our first question is from Scott <unk> of Piper Sandler. Please proceed with your question.
Speaker 4: Afternoon guys, thanks for taking the question. So I guess before I get into it, Chris, I enjoyed working with you over the years and I hope to do so more this year and wish you the best.
Afternoon, guys. Thanks for taking the question.
So I guess before I get into a crisp enjoined enjoyed working with you over the years and do so more of this year and wish you. The wish you the best so.
Speaker 4: Thank you. First, yeah, you bet. So thank you for all your help. Maybe first question is for you, Chris. Just on sort of how you see the margin projecting from this quarter's 240, kind of where do you stand with respect to the 275 aspirational margin in terms of progress this year? It seems like you should get a bunch of help from RATES. So maybe just some thoughts there.
Thank you first but yeah you bet. So thank you for all your help.
Maybe first question for you, Chris just on sort of how you see the margin trajectory from this quarter's $2 40 kind of where do you stand with respect to the 275 aspirational margin in terms of progress. This year. It seems like you should get a bunch of help from from rates. So maybe just some thoughts there.
Speaker 2: Yeah, so when we look back on the year, clearly our margin results for the year were weighed down by the excess liquidity levels that we carried over the course of the year. We estimate that probably cost us about 11 basis points in margin for the year. So, absence the excess liquidity, our start point probably is somewhere north of 250.
Yeah. So when we look back on the year clearly our margin results for the year were weighed down by the excess liquidity levels that we carried over the course of the year.
We estimate that probably cost us about 11 basis points in margin for the year. So absence, the excess liquidity, our start point, probably somewhere north of $2 50, and we're continuing to build into positive yield accretive asset classes as we move through the through the course of the year. So I'd like to think that we're going to quickly move to.
Speaker 2: and we're continuing to build into positive yield accretive asset classes as we move through the course of the year. So, I'd like to think that we're going to quickly move towards 250 and build from there. I don't expect we'll get to 275 this year. We didn't say we would either, but we're going to make solid progress and move a nice way in that direction.
$2 50, and build from there I don't expect we will get to $2 75. This year, we didn't say we would either.
But we're going to make solid progress and move a nice way.
The direction.
Speaker 4: Perfect. And then, so a lot of moving parts with the change of the balance sheet mix as well as
Okay, perfect and then so a lot of moving parts with the.
The change in the balance sheet mix as well as.
Speaker 4: Just the higher rates. So I guess there's just as a follow-up want to confirm you You suggested that two rate hikes are sort of embedded in the NII guide for the year And then you have sort of an easy rule of thumb that you're using for how much NII help you get for each 25 basis points rate hike kind of in isolation
Just the higher rates. So I guess, just as a follow up I want to confirm you you suggested that two rate hikes are sort of embedded in the NII guide for the year and then you have sort of an easy rule of thumb that youre using for how much NII helped you get for each 25 basis points rate hike gotta be in isolation.
Speaker 2: $1.5 million per month for 25 basis point hike. All right, perfect. That is a good one.
One $5 million per month for 25 basis point hike.
Alright, perfect that is a good one.
Alright, Thank you very much.
Okay.
Speaker 3: Our next question is from Chris McGrady of KBW.
Our next question is from Chris Mcgratty of K B W. Please proceed with your question.
Speaker 5: great thanks and convert that chris will miss you
Great. Thanks, and congrats Chris we'll Miss you.
Speaker 5: In terms of the outlook, I was hoping you could refine or give a little more color on slide 18. The 800 plus......
And in terms of the outlook I was hoping you could refine.
I'll give it a little bit more color on on slide 18, the <unk>.
800, plus a 300 plus obviously, it's I bet intentionally open ended but wondering if you could.
Speaker 5: I bet intentionally open-ended, but I wonder if you could provide a little bit more clarity on what would drive those two meaningfully above it and how meaningfully above the 1.1.
Can you provide a little more clarity on what would.
Drives us to be meaningfully above it and how meaningfully above the 1.1 do you expect.
Speaker 1: Well, maybe I could start that off and turn it over to Chris. This is Andy. So, Chris, what I would say is we're 20 days into the new year. And we had a strong end of the year, which put us in a really good position. So, seeing where our pipelines are, what we've closed, where we started the year, we think we're very much on track to what our midterm, short-term, depending on what points we go through consumer
Well, maybe I could start that off and turn it over to Chris This is Andy so.
Chris What I would say is we were 20 days into the new year, and we had a strong end to end end of the year, which put us in a really good position, so seeing where our pipelines are what we've closed where we started the year. We think we're very much on track toward our mid term short term.
Speaker 1: targets are. So yes, we did leave it meaningfully open-ended, but what I will say is every initiative that we have is on target.
Targets are so yes, we did leave it meaningfully open ended but what I will say is every initiative that we have is on target.
Speaker 1: not just from hiring people but from pipeline and not just from pipeline but from the loans that are booking. Whether that's the new RMs that we have in place, we haven't hired enough RMs at this point already to hit our commercial baseline in market target.
Not just from hiring people, but from pipeline and not just from pipeline, but from the loans that are booking although that's the new RMS that we have in place we haven't hired enough. Our EMS at this point already to hit our commercial baseline end market targets.
Speaker 1: We are very much on target in ABL, and our expectation was our first loans in equipment finance would book in the first quarter. So we feel very bullish about what our forecast is, but 20 days into the year, we didn't want to forecast the month by month blow of how we end up. Chris.
We are very much on target and ABL and our expectation was our first loans and equipment finance would book in the first quarter. So we feel very bullish about what our forecast is about 20 days into the year, we didn't want to forecast the month by month.
How we ended up Chris.
Speaker 6: In terms of the auto book, I'm interested, I know you talked about the prime and super prime. Can you just provide some color on where yields are coming on today? Then also, you're expecting a lot of growth and you talked about providing for that at some degree this year. Maybe throwing a little bit more color on that would be great.
Yes.
Thanks, Tony I get it.
In terms of the auto book.
I know you talked about the prime and Super Prime can you just.
Provide some color on where yields are coming on today and then also you are expecting a lot of growth and you talked about providing for that at some degree this year, maybe throw in a little bit more color on that would be great.
Sure So as Andy mentioned we're.
Booking more than $4 million per business day.
Speaker 2: And that's why we have very high confidence that we're gonna get well above the sort of 1.2 billion full year growth level because we're continuing to add more dealers and we'll continue to add more markets as we go through the year. So the baseline is there to support the growth and we think we're gonna add to it. Second, I would note that...
And that's why we have very high confidence that we're going to get well above the sort of $1 2 billion.
Full year growth level, because we're continuing to add more dealers and we'll continue to add more markets as we go through the year. So the baseline is there to support the growth and we think we're going to add to it.
I would note that the.
Speaker 2: yields have come in essentially where we thought they would was a premium to what we've seen in the mortgage market and Higher than mortgage yields, which is what we've been targeting in that net threes net of the dealer discounts, etc And so when you see the numbers will be breaking those out in future quarters. I suspect it'll be something that will be in the It's re-handled with a you know varying range that as we move through the course of the year and as rates perhaps evolve with that policy.
Yields have come in essentially where we thought they would was a premium to what we've seen in the mortgage market and higher than mortgage yields which is what we've been targeting in that net <unk> net of the dealer discounts et cetera, and so when you see the numbers will be breaking those out in future quarters, I suspect youll see something.
That will be in the three handle with.
Varian ranged it as we move through the course of the year and as rates, perhaps evolve with that policy I'll say, Chris on top of that as we've opened up the number of active dealers we've purposely.
Speaker 1: I'll say, Chris, on top of that is we've opened up the number of active dealers. We've purposely controlled the number of active dealers we have. So we're at about 700 active dealers. And we've increased that roughly every 30 days. As we've increased the number of dealers each month, we've seen increased production.
Control the number of active dealers, we have so we're at about 700 active dealers and we've increased that roughly every 30 days as we've increased the number of dealers. Each month, we have seen increased production. Each month, we want to make sure that we're sound on the operational side I want to make sure. We're sticking to the credit box very strictly and we have.
Speaker 1: We want to make sure that we're sound on the operational side. I want to make sure we're sticking to the credit box very strictly. And we have been, in fact.
I've been in fact.
Speaker 1: right on target. So I'm pleased with what we've done so far, but we want to make sure we do this the right way. While we're at 700 active dealers today, we think we could end the year with a number well exceeding double that number. So and those, the dealers have been very accepting based on the long-term relationships we had hoped for. And we had hoped that they would send us strong deals and prime and super prime and that's exactly what's occurred so far.
Right on target so I'm pleased with what we've done so far but we want to make sure. We do this the right way while we're at 700 active dealers today, we think we could end the year with a number well well exceeding double that number so.
And those the dealers have been very accepting based on the long term relationships. We had hoped for and we had hoped that they would send us strong deals in prime and Super Prime and that's exactly what's occurred so far.
Speaker 6: Great, and then just a ticky tack one, Chris. When in the year are you assuming the hikes and is there any non-recurring in that expense?
Great and then just a tick tack one Chris.
When in the year are you assuming the hikes and is there any.
Nonrecurring in that expense got it thanks.
Speaker 2: I'll happily take your forecast on red on the Fed. I'm pretty sure it's probably better than ours.
I'll I'll happily take your forecast on the fed I'm pretty sure, it's probably better than ours.
Speaker 2: But you said at least two, I think, in your prepared remarks, are they mid-year and end of year? I'm just trying to get a sense of what's in the guide. One in the first half, one in the second, and if there's more than that, there's upside. Okay, okay.
But you said at least two I think in your prepared remarks the.
Mid year and end of year I'm, just trying to get a sense of what's in the guide.
One in the first half one in the second and if theres more than that there is upside.
Yes.
Yeah.
Our next question is from Michael Young of true. It. Please proceed with your question.
Speaker 7: Hey, thanks for taking the question. Wanted to start just on the mortgage portfolio. Obviously, that's been an area that's been kind of shrinking. But, you know, as rates rise, we would expect, you know, maybe, you know, payments in that area and refinances out of that book might slow. So, should we expect those volumes to become a little more stable? Or any other thoughts? Are you doing anything proactively, you know, ahead of higher rates to, you know, kind of move some of that off the books?
Hey, Thanks for taking the question wanted.
I wanted to start just on the mortgage portfolio. Obviously, that's been an area that's been kind of shrinking.
As rates rise, we would expect you know maybe payments in that area and refinances out of that book might slow. So should we expect those volumes to become a little more stable or any other thoughts or are you doing anything proactively ahead.
Ahead of higher rates to kind of move some of that off the books.
Speaker 1: Michael, this is Andy. That's exactly what we're expecting is stability in that book. Not only stability in the mortgage book, but...
Michael This is Andy.
That's exactly what we're expecting is stability in that book not only stability in the mortgage book, but we actually think our long term trend on home equity is shifting right now as well.
Speaker 1: We actually think a long-term trend on home equity is shifting right now as well. In fact, we see that. So we think for the first time in a long time, home equity has a real chance to grow. So we're proactively addressing that in the first quarter of the year.
We see that so we think for the first time in a long time home equity has a real chance to grow so we're proactively addressing that in the first quarter of the year clearly with the rates people locked into the first mortgage at very low rates are not going to want to refinance that mortgage which opens up the home equity market as rates go up we will start to.
Speaker 1: Clearly with the rates, people locked into the first mortgage at very low rates are not going to want to refinance that mortgage, which opens up the home equity market.
Speaker 1: As rates go up, we will start to see a decrease in the churn of that portfolio. So, when we looked at the year, our forecast was that the mortgage portfolio is going to be fairly flat.
A decrease in the.
The churn of that portfolio. So when we looked at the year. Our forecast was that the mortgage portfolio is going to be fairly flat.
Speaker 1: And auto would make up for that at a slightly higher margin.
And auto would make up for that at a slightly higher margin that is proven early on to be the case.
Speaker 1: that is proving early on to be the case.
Speaker 7: Okay, and on the auto book, I'm just curious, you know, given your history or how you guys are kind of attacking this, do you expect that, you know, rates, you know, as they rise in the market that the auto book will keep pace in terms of the yield? Or do you think at some point, you know, that may be a less attractive area to deploy capital versus commercial or other?
Okay and on the auto book I'm, just curious you know.
Given your history or how you guys are kind of attacking this do you expect that rates may rise in the market that the auto book will keep pace in terms of the yield or do you think at some point you know that maybe are less attractive areas to deploy capital versus commercial or other areas.
Speaker 1: Well, I see the auto as one piece of a balanced approach. And so when I look at the margin being well above three, we have room to come down and still hit the forecast that we've put out there. We are going to stick with prime and super prime period. That is our focus and has...
Well I see I see the auto is one piece of a balanced approach and so when I look at the margin being well above three we have room to come down and still hit the forecast that we've put out there and we are going to stick with prime and Super Prime period that that is our focus and has been now when I think of the <unk>.
Speaker 1: Now when I think of the balance of growth, I think of the equipment finance and the ABL. And you can see we put pretty modest targets out there. We booked about 67 million, I believe, in ABL, new ABL in the fourth quarter. That's two months worth of work and we forecasted 300 million.
<unk> growth I think of the equipment finance on the ABL and you can see we've put pretty modest targets out there we booked about 67 million I believe in ABL, new ABL in the fourth quarter. That's two months worth of work and we forecasted $300 million.
Speaker 1: and combined at the end of the year between ABL and equipment finance. So we think those businesses are ones that will continue to grow for us. They make sense.
Combined at the end of the year between ABL and equipment finance. So we think those businesses are ones that will continue to grow for us they make sense. We're in a manufacturing belt the ABL as extension of our commercial and we're expanding our commercial team. So I expect.
Speaker 1: We're in a manufacturing belt. The ABL is an extension of our commercial, and we're expanding our commercial team.
Speaker 1: I expect that as we look at $750 to $1 billion in commercial growth.
Check that as we look at 750 to a $1 billion and commercial growth.
Speaker 1: this year, that will continue to be a strategy for us to continue to expand on the verticals that we have and feed those. I think that the margin
This year that will continue to be a strategy for us to continue to expand on the verticals that we have and feed those.
And I think that the margin.
Speaker 1: I'm optimistic that we have room to even go down in that margin on prime and super prime and still hit the forecast that we have laid out.
I'm optimistic that we have room to even go down in that margin on prime and Super Prime and still hit the forecast that we have laid out.
Speaker 7: Okay, and one last one for me just on expenses. Just as I kind of think about mortgage, you know, and volumes kind of coming down at a macro level. Are you guys, you know, kind of shrinking the expense base there, assuming that we're gonna be in a lower origination environment for longer? Or are you pivoting, you know, personnel into auto? Or just how are you kind of thinking about that expense run rate?
Okay and one last one for me just on expenses, just as I kind of think about mortgage volumes kind of coming down.
At a macro level. There are you guys kind of shrinking the expense base there assuming that we're going to be in a lower origination environment for longer are you pivoting personnel into auto or just how are you kind of thinking about that.
Run rate.
Speaker 2: Sure, I think we're positioning ourselves to continue to service our customers and our markets through our mortgage teams across the marketplace in an effective manner, recognizing that there may be less volume to manage as we move through 2022. There will still be plenty of customers to service.
Sure I think we're positioning ourselves to continue to service our customers and our markets through our mortgage teams across the marketplace in an effective manner recognizing that there may be more sorry, less volume to manage as we move through 2022, there'll still be plenty of customers a service plenty of loans to make sure.
Speaker 2: plenty of loans to make sure that we're doing the right thing on. So I don't think it's going to be a significant shift in our strategy, but we certainly recognize that maybe less new origination volumes and fewer commissions fade as we move forward.
That we're doing the right thing on.
So I don't think its going to be a significant shift in our strategy, but we certainly recognize though maybe less new origination volumes and fewer commissions paid as we move forward.
Speaker 1: Yeah, I think the other thing is we built flexibility in our expense base by having outsourced colleagues as well as FTE. So we'll monitor that closely based on volumes and the contractual nature of what we have out there. But we've built in the assumptions that as that goes down, the expenses of that book go down as well. They're not necessarily transferable resources into auto as that's a specialty vertical.
Yes, I think the other thing is we built flexibility in our expense base by having outsourced and colleagues as well as <unk>.
FTE. So we'll monitor that closely based on volumes in the contract shall nature of what we have out there.
But we've built in the assumptions that as that goes down the expenses of that book go down as well theyre not necessarily transferable resources into auto and Thats a specialty vertical.
Speaker 7: Okay, fair enough. And Chris, I'd be remiss if I didn't wish you congratulations and I hope you at least get to spend a few weeks somewhere warm here near term.
Okay fair enough and Chris I'd be remiss, if I didn't wish you congratulations and I hope you at least get to spend a few weeks somewhere warm here near term.
Thank you I appreciate it.
Speaker 8: He means warmer than Green Bay, Chris.
He means warmer than Green Bay, Chris.
Yeah.
Okay.
Our next question is from Terry Mcevoy of Stephens. Please proceed with your question.
Hi, good afternoon.
Speaker 2: Good afternoon, Terry. Hi, Terry. And, Chris, I'll echo what others have said this afternoon, congrats, and I can't believe it's been 12 years. Enjoyed working with you. Thank you. Thank you very much, Terry.
Good afternoon, Jerry Hey, Terry and Chris I'll Echo Echo what others have said this afternoon, Congrats and I can't believe it's been 12 years enjoyed working with you.
Thank you. Thank you very much Jason and platinum.
Speaker 9: And then just a couple questions in your November investor deck, you talked about 23 revenue growth of 17 to 10%, and expense growth of three to 4%. I didn't see it in today's presentation. I just want to confirm that those are still good growth rates and similar in terms of how you're thinking about next.
And then just a couple of questions in your November Investor deck, you talked about 'twenty, three revenue growth of 17% to 10% and expense growth of 3% to 4% I didn't see it in today's presentation I just want to confirm that those are still good growth rates and similar in terms of how you're thinking about next year.
Speaker 2: Yeah, we're not changing our long term outlook. We think the numbers that we're putting forward here are consistent with that outlook. And I think you'll find that we're making steady progress for those long term goals. And we feel good about those long term goals.
Yes, we're not changing our long term outlook, we think the numbers that we're putting forward here are consistent with that outlook and I think you'll find.
We're making steady progress towards hitting those long term goals and we feel good about those long term goals.
Alright.
Speaker 9: uh... others have covered the auto and margin to the other one was any anything to report on the increase in potential problem loans it just kind of caught my eye up uh... i believe about twenty percent quarter of a quarter in the commercial portfolio nothing to talk about their
Others have covered the auto and margin. So the other one was any anything to report on the increase in potential problem loans. It's just kind of caught my eye up I believe about 20% quarter over quarter in the commercial portfolio anything to talk about there.
Speaker 10: No, not really. I think we have, you know, as you know, in the portfolio it ebbs and flows quarter to quarter, but I don't think we're seeing anything systemic there that's affecting the portfolios at large.
No not really I think we have as you know in the portfolio it ebbs and flows quarter to quarter, but I don't think were seeing anything systemic there.
That's affecting the portfolio at large.
Speaker 9: And then just one last question. Just want to make sure of all the hires been made and relationship with dealers established to hit those loan growth targets for the year.
And then just just one last question just want to make sure of all the hires been made and relationship with dealers established to hit those loan growth targets for the year.
Speaker 2: The hiring for the auto team is largely in place. Yes, that's not a significant gap. And we have established.
The hiring for the auto team is largely in place, yes, Thats, a significant gap and we have established.
Speaker 1: deal relationships with about 700 today. As Andy mentioned, we'll likely more than double that as we move through the course of this year, so there's more to come. And we haven't yet opened up our footprint states, Minnesota, Wisconsin, Illinois in particular, which we think will be a nice source of additional growth later in the year. And what I'd say on the vertical.
Dealer relationships with about 700 today as Andy mentioned will likely more than double that as we move through the course of this year. So theres more to come and we haven't yet opened up our footprint States, Minnesota, Wisconsin, Illinois in particular, which we think will be a nice source of additional growth later in the year.
And what I'd say on the verticals, we have we have about 60% to 70% of the colleagues that we that will hire by year end already.
Speaker 1: We have about 60 to 70 percent of the colleagues that we that will hire by year end already hired and in place.
Tired and in place so with what we have there today, we're on track to hit our targets on the commercial side, we have roughly half of the colleagues already in place and with that we're on track to hit our targets, though the colleagues that we bring on the rest of the year and commercial will start funding our end of year beginning of next year.
Speaker 1: With what we have there today, we're on track to hit our targets. On the commercial side, we have roughly half of the colleagues already in place.
Speaker 1: With that, we're on track to hit our targets. The colleagues that we bring on the rest of the year in commercial will start funding our end of year, beginning of next year target numbers as well. So—
That numbers as well so we're right on pace.
Speaker 1: We're right on pace, feel very comfortable on the hiring front and what those hires mean from a production standpoint.
Very comfortable on the hiring front end and on what those hires mean from a production standpoint.
Alright, thanks, everyone.
Thank you.
Speaker 3: Our next question is from Daniel Tamio of Raymond James. Please proceed with your question.
Our next question is from Daniel Tamayo of Raymond James. Please proceed with your question.
Good afternoon, everyone.
Daniel.
Just just one from me here.
Speaker 7: one from me here. As we think about, you've been asked about the revenue guide as a whole, as we think about it just related to fee income, the 300 plus million number, kind of putting aside whatever assumptions that are made for the mortgage banking business, is there anything within the remaining line items that you would expect not to grow in 2022? Or are you seeing growth in those numbers? And then we can kind of put whatever assumption we have on.
As we think about you you've been asked about the revenue guide as a whole is as we think about it just related to fee income that 300 plus million number.
Putting aside whatever.
Assumptions that are that are made for the mortgage banking business is there anything within the remainder the remaining line items that you would expect not to grow in 2022 or.
Are you seeing growth in those numbers and then we can kind of put whatever whatever assumption we have on the mortgage banking business.
Speaker 2: I think broadly speaking, we're seeing positive trends in the service charges, card businesses, capital markets, etc. We don't make a practice of projecting a lot of
Yeah, I think broadly speaking, we're seeing positive trends in the service charges card businesses capital markets et cetera.
We don't make a practice of true.
<unk> a lot of Bally increase.
Speaker 2: and we're not necessarily in the business of taking asset gains and losses per se.
We're not necessarily in the business of taking asset gains and losses per se.
Speaker 2: So those would be sort of the two of the wild cards, but generally speaking, our fee, our core fee-based revenue streams all have a nice year-end trajectory and continue to build nice
So it doesn't need to sort of the two the wildcards, but generally speaking our fee our core fee based revenue streams, all have a nice year and trajectory and continue to build nicely and just be the wealth business is probably another one that wasn't necessarily mentioned there. We had record production we have a dedicated leader in that business for the first time in quite some time.
Speaker 1: And just the wealth business is probably another one that wasn't necessarily mentioned there. We had record production. We have a dedicated leader in that business for the first time in quite some time and that's really brought the group together. I'm pleased with the results, both on the sales and the retention and the portfolio performance.
That's really brought the group together I'm pleased with the results both on the sales and the retention in the <unk>.
Portfolio.
Performance.
Great everything else has been asked and answered and I will just also give you my my wishes wishes for a happy retirement and congratulations on that on a great career Chris.
Speaker 11: Also, I'll give you my wishes for a happy retirement and congratulations on a great career, Chris. Thank you, Daniel.
Thank you Daniel.
Okay.
Our next question is from Jared Shaw of Wells Fargo. Please proceed with your question.
Hi, Good afternoon, this is tim or Brazil, or filling in for Jared.
Speaker 1: Maybe just starting on the improved line utilization and just the loan growth in general, maybe talk through pay down activity, kind of how that trended through the quarter. And I'm wondering if you get a sense that any of the loan activity was pulled forward from…
Maybe just starting on the improved line utilization and just the loan growth in general.
Maybe talk through pay down activity kind of how that trended through the quarter and I'm wondering if you get a sense that any of the loan activity was pulled forward from the first quarter of 'twenty two or is this type of momentum kind of sustainable as we are now 20 days into the new quarter.
Speaker 1: quarter of twenty-two or is this type of moment
Speaker 2: Well, I think if you look at the growth which was
Yeah.
Well I think if you look at the growth which was.
Speaker 2: almost half a billion for the quarter. We're not calling for that to be sustained for quarters going forward. We had really strong growth and we don't think that it was necessarily pulled forward. I think it was really our customers stepping into the market in a very positive way.
Almost half of $1 billion for the quarter were not calling for that to be sustained for quarters coming forward.
We had really strong growth and we don't think that it was necessarily pulled forward I think it was really our customers.
Stepping into the market in a very positive way.
Speaker 2: Payoffs were not necessarily out of line with what we've seen in prior periods, but new fundings and draws were the difference maker of the score, and they were increases. So that's what we saw both new customers.
Payoffs were not necessarily out of line with what we've seen in prior periods, but new fundings and draws where the difference and the difference maker of this work and they were increases so that's what we saw both new customers.
Speaker 2: new lines from existing customers or new additions, and line utilization all contribute to those numbers.
New lines from existing customers or new additions and line utilization all contribute to those numbers.
Speaker 1: And line utilization has been a steady number for us. We've seen it go up slightly for several months in a row. The auto business, I think, is a very clear line that's increased each of the last three months.
And line utilization has been a steady.
Number for US we've seen it go up slightly for several months.
Ro.
The auto business I think is a very clear line that has increased each of the last three months.
Speaker 1: and we expect that to continue to do so. The commercial side, as Chris said, look, we're looking for $750 to $1 billion in growth for the year, so it was a very strong.
We expect that to continue to do it do so.
The commercial side as Chris said look we're looking for 750 to a $1 billion in growth for the year. So it was a very strong.
Speaker 1: quarter. That puts us in good shape, but when we think about the CRE book and the numbers that we see out there on the construction side, that really bodes well for that business as we head into the year, the commercial pipelines that we had. And keep in mind, we haven't yet booked our first equipment finance loan, so we'll have equipment finance, we'll have asset-based lending, we have NYSE.
Quarter that puts us in good shape.
But when we think about the CRE book and the numbers that we see out there on the construction side that really bodes well for that business as we head into the year.
The commercial pipelines that we had in and keep in mind, we havent, we havent yet booked our first equipment finance loans. So we will have equipment finance will have asset based lending we have nice.
Speaker 1: Nice growth in the opportunity in CRE. So while I don't expect $500 billion forecast per quarter, and we're not forecasting that, I'm pretty bullish on what we are seeing in the fourth quarter and what that could mean for 2022.
Nice growth in the opportunity in CRE so.
While I don't expect $500 billion forecast per quarter, and we're not forecasting that.
I'm pretty bullish on what we are seeing.
In the fourth quarter, and what that could mean for 2022.
Speaker 1: That's good color, thank you. Just one last one for me if I can follow up on some of the auto-related questions.
Okay. That's good color. Thank you and then just one last one for me if I if I can follow up on some of the auto related questions.
Speaker 12: I guess the new growth, is it coming from the addition of the new dealers coming online every 30 days? Is it coming from the existing dealers? And maybe talk about some concentration limits that you're going to be putting in place once the dealer networks.
I guess, the the new growth is it coming from the additions of the new dealers coming online every 30 days is it coming from the existing dealers and maybe talk about some concentration limits that youre going to be putting in place once the dealer.
Network is kind of fully built out.
Concentration limits on dealer activity.
Speaker 2: Yeah, so clearly the team we hired came over with a very well-established collection of long-standing, deep-rooted relationships.
Yeah. So clearly the team we hired came over with a very well established collection of long standing deep rooted relationships and as part of our <unk>.
Speaker 2: And as part of our acquisition of intellectual property from KeyBank, we acquired dealer scorecards and histories as part of this.
Acquisition of intellectual property from Keybanc, we acquired dealer scorecards and histories as part of this so I think we have a very good handle on the folks were doing business with we have a very good handle on the type of volume.
Speaker 2: So I think we have a very good handle on the folks we're doing business with. We have a very good handle on the type of volume, the consistency of that flow of activity, and we feel very comfortable with what we've been doing over here over the last roughly 120 days. And it's come on along at essentially exactly what our team said it would be. So we're actually very pleased with that. And don't see us running into any...
The consistency of that flow of activity.
And we feel very comfortable with what we've been doing over here over the last roughly 120 days and its coming along at essentially exactly what our teams that it would be so we're actually very pleased with that.
I don't see us running into any.
Speaker 2: constraints or limits for a while as we expect this to become a multi-billion dollar portfolio on our balance sheet over time.
Constraints or limits for a while.
We expect this to become a multibillion dollar portfolio and our balance sheet over time.
Speaker 1: I'll also follow that up by reiterating the balanced nature of what our plan is and how much I think we have some legs on small business. We haven't talked much about that. You know, we're looking at a $100 million increase in production year over year just in small business.
I'll also follow that up by reiterating the balanced nature of what our plan is and how much.
Think we have some legs on small business, we haven't talked much about that.
We're looking at a $100 million increase in production year over year, just in small business, our commercial businesses as we've hired people we've gotten the production fairly.
Speaker 1: our commercial businesses as we've hired people, we've gotten the production fairly quickly and we have an opportunity in market to grow those. The verticals that we have, we believe have legs for years to come. So there will be a point where that growth clearly dissipates in auto in year, I don't know.
Fairly quickly and we have an opportunity in market to grow those the verticals that we have we believe have legs for years to come so.
There will be a point where that growth clearly.
Dissipates in auto in year I don't know.
Speaker 1: three, four, but as we're moving towards that time, we have a path outlined and we've taken the actions towards the beginning of both verticals, commercial and small business growth.
Three four.
But as we're moving towards that time, we have a path outlined and we've taken the actions towards the beginning of both verticals commercial and small business growth.
Great. Thank you for the questions and good luck and congratulations Chris.
Thank you. Thank you.
Speaker 3: Our next question is from John Armstrong of RBC Capital Markets. Please proceed with your question.
Our next question is from John Armstrong of RBC Capital markets. Please proceed with your question.
Okay. Thanks, a lot.
Congrats Chris.
John .
Speaker 13: Did you think you were this popular, by the way?
Did you think you are in this popular by the way.
Yeah.
Speaker 14: If I gave my usual answer, I would say, of course I did.
If I gave my usual answer answered so of course.
Yeah.
Yeah.
Speaker 13: Um, question for Chris or Pat, just, um, how do you want us to think about the prevention?
A question for Chris or Pat just.
How do you want us to think about the provision.
Speaker 13: still have pretty healthy reserves, but you did say you're below day one CECL.
Still have pretty healthy reserves, but you did say you blow day one Cecil.
Speaker 13: and you obviously have a lot of growth on the horizon. Are we at the end of the reserve releasing a negative provision?
And you obviously have a lot of growth on the horizon is this are we are we at the end of the reserve releasing and negative provisions or how should we think through that.
Speaker 10: This is Pat. I would say from a reserve ratio, we might see that come down a little bit. Could it be in the 125 to 130 range? Possibly, but I think we're starting to see this quarter with growth needed to add to that provision. So I think as we get into the year, the growth that we've outlined here will kind of push that provision in more of a build standpoint than a...
This is this is Pat I would say from a <unk>.
Our reserve ratio, we might see that come down a little bit.
Could it be in the 125 to 130 range, possibly but I think we're starting to see this quarter with growth.
Some need need needed to add to that provision. So I think as we get into the year.
Growth that we've outlined here, what kind of push that provisions in more of a build standpoint than a release.
Okay. Okay. Thank you for that.
Speaker 13: Chris, the 1.5 million per month for each 25 basis points, that's great, that's a great way for us to think through it. How long does that relationship hold, meaning?
Chris the the $1.5 million per month for each 25 basis points. That's great. That's a great way for us to think through it.
Long does that relationship hold.
Meaning how do you think about deposit betas and.
How comfortable are you with the rate sensitivity in the deposit base.
Speaker 2: Yeah, so I think we've been very thoughtful about the sensitivity that we experienced deposits in the last run-up and our estimate reflects that into the number that I gave you, the one and a half million per month for 25 basis points.
Yes, so I think we've been very thoughtful about the sensitivity that we experienced the deposits in the last run up.
Our estimate reflects that into the number that I gave you. The one 5 million per month for 25 basis points.
Speaker 2: Clearly, it's our expectation that liquidity levels are elevated and that there's going to be a shift somewhat downward.
Clearly, it's our expectation that liquidity levels are elevated.
And that theres going to be a shift somewhat downward.
Speaker 2: I think if you asked us a year ago, we would have thought that would be a more rapid shift than we're actually seeing. And the reality is, as I think John , you and I have talked about in the past, the alternatives that used to be out there for investors were the commercial paper markets, the asset-backed E.T. conduits, the money market alternative funds, the prime rate funds. Money market reform really did away with a lot of that. And so there's fewer alternatives. And we're seeing that reflected in the biggest banks pricing. And so I think there's an opportunity here where.
I think if you'd asked us a year ago, we would have thought that would be a more rapid shift then we're actually seeing.
And the reality is as I think John you and I have talked about in the past.
The alternatives that used to be out there for investors, where the commercial paper market the asset backed CP conduits.
Any market alternative funds the prime rate loans.
Money market reform really did away with a lot of that and so there is fewer alternatives and we're seeing that reflected in the biggest banks pricing and so I think there's an opportunity here where youll see.
Speaker 2: as we have seen in the past, a fair amount of deposit lag.
As we have seen in the past a fair amount of deposit lag.
Speaker 2: But we'll see some outflows. And so we're assuming those outflows, and we're assuming some deposit lag, and that's baked into that million and a half from us.
But we will see some outflows and so were assuming those outflows and we're assuming some deposit lag and that's baked into that million and a half from us.
Okay. Okay fair enough and then last question maybe for you Andy you touched on the footprint.
Speaker 13: And then last question maybe for you Andy, you touched on the footprint being strong. And I'm looking at slide six and slide 18.
Being strong.
And kind.
Kind of look I'm looking at slide six and slide 18 in terms of the commercial loan growth and some of the expectations. There how much of that do you think is just from the footprint versus some of the specialty lines of business.
Speaker 1: I would say that we're getting a lot of single name credits. And we're seeing it balanced out between Wisconsin, specifically, probably Milwaukee, Chicago and Minneapolis.
I would tell you that we're getting a lot of single name credits.
And we're seeing it balanced out.
Between Wisconsin, specifically, probably Milwaukee, Chicago and Minneapolis.
No.
Speaker 1: I don't have the exact mix in front of me, but I will tell you that the occurrence of single name, we can follow up on that, but the occurrence of single name credits has been significant for us, particularly as we've added RMs in market.
I don't have the exact mix in front of me, but I will tell you that the occurrence of single name. We can follow up on that but the occurrence of single named credits has been significant for us.
Particularly as we've added RMS in market.
Yes.
Throw out that we do some geographic reporting and our largest growth.
In commercial real estate was absolutely in our Wisconsin market.
And.
A nice turn.
We saw growth.
Speaker 13: Wisconsin, Minnesota, Michigan, Illinois, those are sort of the top four out of the five states in the commercial land. So it's happening today in our four markets. Okay, that's what I was getting after. Thank you very.
Wisconsin, Minnesota, Michigan, Illinois, those are sort of the top four to five states and the commercial land. So it is happening today in our core markets.
Okay. That's what I was getting after thank you very much I appreciate it.
Thank you.
Our next question is from Scott <unk> with Piper Sandler. Please proceed with your question.
Speaker 4: Hey guys, thank you. So Andy, for you, one of the questions that I have gotten more recently since the forward curve is.
Thank you Andy for for you at one of the questions that I have gotten more recently since the.
The forward curve has really changed quite a bit since back when you guys put out the strategic plan is.
Speaker 4: really changed quite a bit since back when you guys put out the strategic plan is
Speaker 4: Do you still feel the same need to grow the newer verticals at the same rates you discussed last year or does the likely help from rate? Would that allow you to ease off the gas or be more measured? I think I know the answer from the tone of a lot of your prepared comments and responses to questions, but I would just be curious to hear your thoughts.
Do you still feel the same need to grow the newer verticals at the same rates you you discussed last year or does the likely help from rates.
Would that allow you to sort of ease off the gas it would be more measured I think I know the answer from sort of the tone of a lot of your prepared comments and responses to questions, but I would just be curious to get your thoughts on that.
Speaker 1: Well, I think the good news is we started measured. So, when you have numbers that you feel are very attainable, you don't have to change your strategy. We don't have to reach for credit to hit 150 million in AVL. I think we exhibited that with $67 million in the fourth quarter.
Well I think the good news is we started measured.
So when you have numbers that you feel are very attainable you don't have to change your strategy. We don't have to reach for credit to hit a $150 million ABL I think we've exhibited that was $67 million in the fourth quarter.
Speaker 1: equipment finance in a heavy manufacturing belt, people are asking for these kind of loans. So I feel very comfortable with the numbers. That doesn't change our strategy or our approach. We're going to stay true to the credit side. We're going to stay true to the prime and super prime and auto. We're going to make sure that we have the fundamentals down behind it. I see the rate increase as more of a tailwind for us.
Equipment finance in our heavy manufacturing hub belt.
People are asking for these kind of loans, so I feel very comfortable with the numbers.
That doesn't change our strategy or in our approach, we're going to stay true to the credit side, we're going to stay true to the prime and Super Prime and auto we're going to make sure that we have the fundamentals down behind it I see the rate increase is more of a tailwind for us.
Speaker 4: Perfect, perfect. And then just maybe returning to loan growth for a second. So it's pretty clear what's what's going on with auto and commercial but was curious Chris, we might have a sense for what you know,
Perfect Perfect and then just.
Just maybe returning to the loan growth for a second so.
I mean, it's pretty clear, what's what's going on with auto and in commercial but was curious Chris we might have a sense for what.
Speaker 4: full kind of all in loan growth would look like in 22 after you can take out the account all the moving parts, you'll be at the combination of the CNI momentum, auto finance, but you know, also PPP run off middle hit averages and you know, some of the other areas that are kind of getting de-emphasized to make room for auto.
Full kind of all in loan growth would look like in 'twenty. Two after you kind of take out the kind of all the moving parts you know be it the combination of the C&I momentum auto finance, but.
Also PPP run offs that'll hit averages and.
Some of the other areas that are kind of getting deemphasize to make room for auto.
Speaker 2: I mean, the reality is, is our runoff portfolios now are down to, you know, given the payout that we had here in the first, here in January , down to less than $100 million. So that's the runoff book is $100 million and shrinking, and we're looking to stabilize the mortgage book. So the really only moving part that we haven't given you is home equity, and I'd like to think that in a rising rate environment, home equity will probably stabilize. So if those are stable, then really the growth is all coming from the initiatives that we've outlined and talked through. Perfect. Okay.
I mean, the reality is is a runoff portfolios now we're down to <unk>.
Given the path that we have here.
For sure.
In January down to less than $100 million. So thats. The runoff book is $100 million in shrinking and we're looking to stabilize the mortgage book. So there's really only moving part that we haven't given you is home equity.
Now I'd like to think that in a rising rate environment home equity will probably stabilize.
So those are stable then it really the growth is all coming from the initiatives that we've outlined and talked through.
Perfect.
Wonderful thank you.
Thank you.
Speaker 3: We have reached the end of the question and answer session. I will now turn the call back over to Andy.
We have reached the end of the question and answer session I will now turn the call back over to Andy Harmening for closing remarks.
Speaker 1: Well, I want to thank you all for your interest in Associated Bank. And I would be remiss if I didn't end with, I hope you guys are all going to have a great weekend and support our Packers. Thank you so much.
Well I want to thank you all for your interest in associated Bank and I would be remiss. If I didn't end with I Hope you guys are all going to have a great weekend and support our Packers. Thank you so much.
Speaker 3: That concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation and have a great evening.
Okay.
[music].
Speaker 8: The.