Q1 2022 Associated Banc-Corp Earnings Call
Okay.
Good afternoon, everyone and welcome to associated Banc Corp's first quarter 2022 earnings conference call. My name is Hillary and I will be your operator today at this time all participants are in listen only mode.
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 website at investor day at associated Banc Dotcom.
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 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 associate at the most recent Form 10-K and subsequent SEC filings.
Factors are incorporated herein by reference.
A reconciliation of the non-GAAP financial measures to the GAAP financial measures mentioned in this conference call. Please refer to page 23 of the slide presentation and to page eight of the press release financial tables.
Following today's presentation instructions will be given for the question and answer session at.
At this time I would like to turn the conference over to Andy Harmening, President and CEO for opening remarks. Please go ahead Sir.
Thank you Hillary and good afternoon, everyone welcome to our first quarter earnings call I'm, Andy Harmening, and I'm joined here today by Chris Niles, Our Chief Financial Officer, and Patty earn our Chief Credit Officer.
To start things off by covering the highlights of the quarter and provide an update on our strategic initiatives from there Chris is going to walk through our updates on income expense in capital and then Pam will follow up with an update on our credit trends.
So here in the upper Midwest, we continue to see signs of a strong economy in our footprint COVID-19 restrictions have largely been eased or lifted and then employment trends remained remarkably strong with unemployment rates in Wisconsin, and Minnesota now down below 3%.
We also continue to see encouraging strength in our commercial loan pipelines and utilization rates, giving us confidence that the momentum we began to see in manufacturing back in the second half of 2021 .
Is in fact carrying over into 2022.
Meanwhile, all of our new lending initiatives are now fully now are now officially up and running putting associated with is positioned to deliver more and relevant product solutions to our customers.
While the war in Ukraine, continuing supply chain disruptions and inflation issue post significant significant question marks at the macro level.
Our core customer by customer basis remained resilient and continues to borrow and to grow.
This resilience is seen in the overall credit trends in our loan portfolios, which largely continued to improve.
As we continue to transform the bank one of our biggest opportunities is to listen to our customers and then take action.
Guided by their feedback we announced that we're making several changes to our overdraft program and these changes will significantly reduce the financial burden of overdrafts to our customers.
In summary, we have positioned associated to be in a far better place than we were a year ago.
Today, we're in a strong position to deliver expanding margins continued positive operating leverage and enhanced value to all of our stakeholders. So now let me touch on the first quarter highlights are outlined on slide two.
This quarter was marked by meaningful growth in our core loan portfolios and disciplined expense management, improving credit dynamics and strong bottom line results.
Our total loans grew at a 5% annual annualized rate on both an average and a period end basis and excluding P. P. P.
Average commercial and business loans expanded at an even faster 8% annualized pace.
This loan growth along with our continued investment strategies helped drive net interest income and margins higher despite having two fewer days in the quarter.
Now shifting to expenses, we manage our total expenses down quarter over quarter and year over year, while simultaneously increased our minimum wage investing in our technology platforms and invest in our initiatives.
We attribute these savings to the significant actions, we took to consolidate our operations and support functions in the latter half of 2021.
With respect to credit we would highlight that we are posting a modest net recovery this quarter portfolio metrics continue to be strong and stable as we keep a close eye on geopolitical and economic risks.
Taken together loan growth margin expansion expense discipline and strong credit drove robust EPS of 47 cents and another quarter of double digit returns on capital.
Yeah.
So turning to slide three I'd like to provide a little more detail on the loan trends we saw in the quarter.
Looking to our average balances we had net loan growth across all of our core business segments.
Consumer loans grew as our auto finance vertical kicked into gear and commercial lending grew including our new verticals.
More than offset the headwinds of the mortgage warehouse and P. P. P J.
General commercial lending again showed strong momentum, reflecting broad underlying loan demand with customer base.
On slide four we'd like to highlight several dynamics, which give us confidence in the continuation of the loan trends, we're seeing we've seen emerging over the past several quarters.
First the left hand side of this page highlights the emerging total commercial growth we've experienced.
From the dual headwinds of P. P P and mortgage warehouse, our commercial portfolio at March 31 was up 9% year over year and expanded at a double digit annualized growth rates versus the third quarter.
This is largely been fueled by a rebound in commercial C&I balances growth from our new ABL and equipment finance initiatives as well as increased line utilization and we still see upside and room for more borrowing as the economic environment continues to normalize now second on the lower right. We'd also highlight that our back book.
Fun in CRE construction projects has continued to grow.
Year over year, we've added over a half a billion dollars in unfunded commitments most of it most of which we would expect to see funded over the next 18 months and while the first quarter is seasonally slow for construction in our markets. We fully expect this activity to pick up as the spring weather arrives in our footprint.
Okay.
Excuse me.
Underscoring the points I, just made I'd like to affirm our full year target loan targets on slide five.
With respect to commercial loans, we expect to end the year with $16 billion of Outstandings, excluding ABL and equipment finance, which I'll touch on in a moment give.
Given the growth that we've seen the robust pipelines that continue to have continued to grow since year end and the funding activity. We expect to see this quarter. We're confident we're on track to hit our commercial loan goals for the year, even with the headwind of dampening of mortgage warehouse activity.
We're also pleased to update you on the strong progress we're driving in our new ABL and equipment finance verticals, we have strengthened the teams both groups of attic commitments and outstandings during the quarter and we feel very confident about the $300 million target. We set for yearend. So taken together, we expect our total commercial book end the year at.
<unk> 16 $3 billion.
Turning to auto finance, the first quarter demonstrated our team's ability to deliver we expect this portfolio to continue to grow strongly and maintain a strong credit profile as we roll out the program to our broader dealer network and into our core footprints later this year.
In summary, despite some uncertainty in the markets and modest headwinds such as mortgage warehouse, we expect to achieve our lending growth targets in 2022.
Now turning to slide six let.
Let me make a few comments with respect to our continued investment in talent, our digital transformation and our capital priorities.
With respect to talent, we've continued to add new relationship and portfolio managers to our commercial and small business teams during the quarter and are on track to higher 15% to 20 bankers by yearend.
We also opened our Houston CRE office during the quarter and continued to ramp up our ABL and equipment finance teams.
On the digital front, we crossed a milestone by launching our internal pilot for our new NCR digital platform, which we plan to roll out to all of our all of our consumer customers. This summer.
Now this one this is one I'm personally very excited about because it's going to give us an open architecture platform, it's going to allow us to integrate integrate both customization and Fintech solutions.
Turning to capital, we remain committed to optimizing our capital to support our customers and.
In 2022 that means focusing squarely on organic growth, we see plenty of loan growth and our outlook and envision using all of our capital to support that growth, while paying a competitive dividend.
We continue to see our investments and strategies has created a differentiated growth path for associated that will drive further margin and efficiency gains in a time, where we are already expecting to see a significant tailwind from the rate environment.
So let me pause there for a moment and hand, it 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 seven net interest income continued to increase for the fourth consecutive quarter. The increase came as he put our excess liquidity to work in loans and six.
<unk> as we had previously indicated our NIM bottomed out last year and has continued to inch higher each quarter since given the rising rate environment, our general asset sensitive profile and the anticipated impacts of our growth initiatives. We fully expect our NIM to continue to expand and come in above the two and a half level, which we.
Already saw during the month of March we.
We now expect short term interest rates to rise following each of this year's upcoming F. O M. C meetings, assuming those rate increases are 25 basis points at least following this meeting we would expect our full year net income to exceed $840 million.
On slide eight we highlight that.
Purchase securities.
Sorry.
Which have been participating and move higher in rates and in fact, we've been averaging up into the yields were earning even as we've reined in durations are blended investment yields for the quarter continues to move higher than our total portfolio yields have improved by nearly 40 basis points since the third quarter.
In anticipation of higher rates. We also took steps in Q1, two re designate one 6 billion of our securities from a F S to HCM.
Nonetheless, our LCI does reflect a $127 million reduction in the value of the portfolio during the quarter.
This a OCI impacts net of earnings drove the 18 basis point reduction in our TCE, which you can see in our tables.
Our TCE Nonetheless ended the quarter at seven 7%.
Moving on to slide nine we continue to benefit from our strong deposit trends.
In a time of year, when we might typically expect to see a post new year outflow average deposits were up $245 million quarter over quarter and up 7% year over year growth continues to be concentrated in our low cost deposit categories, such as our savings and interest bearing demand accounts for consumers.
With rates expected to rise throughout the year, we may see some outflows later in the year and would expect deposit pricing to heat up at some point, but so far we have not seen customers reduced balances and we're not seeing competitive pressure to raise rates in our markets.
Moving on to slide 10, our core fee based revenues came in modestly ahead of last year's comparable quarter.
Total noninterest revenues did not improved year over year.
Yeah.
With notable reductions in mortgage banking revenue asset gains and branch sales as well as slightly reduced slowly income.
What's the expectation for continued rising rates, we see mortgage banking revenue further moderating as we move through the year.
We also expect that higher rates will ultimately translate into higher earning credit rates for some commercial deposit customers, which will have the effect of dampening commercial deposit fees later in the year.
As Andy mentioned, we also announced several changes to our Odie NSF programs today.
Will impact our run rate for fees beginning in the third quarter.
While these changes are intended to reduce the burden on our customers. They will also reduce our deposit service charge revenues by approximately $3 million in 2022.
Given our outlook for higher rates and the revised expectations of lower service charges revenue from both commercial and consumer customers over the back half of the year.
Therefore, modifying our full year noninterest income guidance moderately downwards.
We would now expect total noninterest income for the full year of between $290 million and $300 million.
Moving onto slide 11 first quarter expenses came in at 173 million 9 million lower than Q4 amid reduced personnel and other expenses.
In alignment with the strategic initiatives, we announced last fall, we do expect to scale up investments in areas such as technology and personnel later in the year.
But as we continue to execute our plans we remain committed to maintaining our expense growth in line with the revenue and the revenue expectations.
Taking all of our initiatives in consideration we continue to expect our full year 2022, noninterest expense will be in the range of $725 million to $740 million.
On slide 12, we provided a walk forward of our quarterly pretax pre provision income from the fourth quarter of 21 to Q1 of 'twenty two.
While our noninterest income was down from the prior quarter, our pretax pre provision income grew by $3 million quarter over quarter, Despite having two fewer days in theory.
We estimate our daily interest accrual benefit at about 1 million per day.
Slide 13 shows the four quarter trend of our P. T. T. T income as Youll recall, we had stated back in July that we expected pre tax pre provision she consistently come in above the $78 million baseline. We said in Q2 I'm pleased to confirm that we've delivered on that and help to that statement.
Over the past three quarters.
Furthermore.
We expect <unk> to continue to trend higher as we expand our operating leverage throughout 'twenty, two and into 'twenty three.
Moving on to Slide 14, we remain disciplined from a capital perspective, and continue to drive our capital ratios towards their targets.
As we continue to grow loans on the balance sheet as.
As I mentioned previously the OCI impact we realized in our Securities book was a key driver of our decrease in TCE quarter over quarter.
But thanks to strong earnings and the re designation of actions we took in the quarter, our tangible book value per share only decreased 3%.
We will continue to target TCE levels, those seven and a half and CET one levels of nine and a half.
I'll now turn it over to Pat <unk>, our Chief credit officer for credit quality update.
Thanks, Chris I'd like to start by providing an update on our allowance as shown on slide 15.
We utilized the Moody's February 2022 baseline forecast for our seasonal forward looking assumptions the Moody's baseline forecast remains consistent and assumes additional fiscal support.
Relatively low interest rate environment, the recent acceleration in consumer prices to be transitory.
Relatively localized COVID-19 cases.
Following net reserve releases in the fourth.
Quarters of 2021, we posted another negative provision in Q1 of 2022.
So on net recoveries as opposed to net charge offs during the quarter.
Our AC L. L. As of March 31 was $318 million down from $320 million at year end here.
Here in Q1, the reduction in <unk> was driven primarily by a $6 million reduction in oil and gas as that portfolio continues to run off.
Our ratio of reserves to loans declined slightly to one 3% from 132% during the quarter.
Turning to slide 16, we highlight our quarterly credit trends.
As Andy mentioned most of our key credit metrics continued to improve over the course of the quarter nonaccrual loans did tick up slightly quarter over quarter with the increase tied to one specific credit.
Nonetheless, total non accruals were down 12% year over year.
While on total restructured loans and delinquencies have fluctuated over the past five quarters, we have now decreased 26% quarter over quarter decreased by $13 million versus Q1 of 2021.
Moving forward, we would expect to adjust provision to reflect changes to risk rates economic conditions loan volumes and other indications of credit quality.
With that I will now hand, it back to Andy share some closing thoughts.
Pat So on slide 17, we recap our full year guidance for 2022 over the remainder of 2022, we remain bullish about loan growth specifically, we continue to expect full year auto finance loan growth of over $1 $2 billion in total commercial loan growth of $750 million to $1 billion in AOI.
Our forecasts, we had anticipated a 25 basis point increase at each F. N F O M. C meeting this year and accordingly, we expect our full year 2022, net interest income to exceed $840 million.
Given this revised rate outlook. We are also modifying our fee income guidance to account for lower mortgage banking and service charge revenue throughout the remainder of the year as such we now expect total noninterest income to be between $290 million and $300 million for the full year and then taken together we now expect the combined total net interest.
And fee income to exceed $1.135 billion.
Lastly, our commitment to expense discipline remains a focus and we continue to expect between $725 million and $740 million of noninterest expense in 2022, so with that we'd like to open it up for questions.
Thank you at this time, we'll be conducting a question and answer session. If he would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question. Kim You May Press Star two if he would like to remove your question from the queue for participants using speaker equipment may be necessary to pick up your handset before.
Pressing the stacking one moment, please while the poll for questions.
Our first question is from Scott <unk> of Piper Sandler. Please proceed with your question.
Afternoon, guys. Thanks for taking the question.
Correct maybe for.
Our first question for you the $40 million favorable Delta in the NII guide so is that completely due to the.
The the.
The higher rate expectation or are there any other nuances in there I'm I'm guessing, it's mostly due to rates given no change to the loan growth or securities portfolios outlooks outlooks, but just curious to hear your thoughts.
Yeah, it's rate driven.
We've been monitoring spreads and I think that reflects our expectations around <unk>.
<unk> and their impact on spreads and deposit betas, which we've continued to get comfort in as we've gone through the quarter.
Okay, and then I think last quarter, you alluded to sort of a one and a half million dollar per months benefit from each fed rate hike is that still a good rule of thumb in your mind.
So we would say that the 840 million incorporates the early benefit of the first 25, and a marginal above and beyond that it's probably a little.
Tampered down so it'd be about a million.
Per month for any rate rise above 25. So for example, it would be a little more specific than I was last time, if there's 50 basis points in may.
We would see the bit that benefit start to show up in June and so you'd have seven months of additional $1 million benefit. The centers 50 in May for example, so the $8 40 would be eight.
<unk> hundred 47 ish.
Okay, Perfect and then I guess final question, how are you thinking about overall balance sheet growth, specifically, earning asset growth for.
For the full year, I guess, another way of asking sort of.
Deposit our deposit flow expectations.
Yes, so we have seen our deposits remained remarkably resilient and so the balance sheet is going to be driven by the asset growth from our perspective, and we are reaffirming all of the asset growth numbers here.
Yeah.
Okay. Good. Thank you guys very much.
Thank you Scott.
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.
Maybe just following up on the deposit question I. Appreciate the comments that <unk> was typically seasonally weaker and held up better. This go around.
Just given kind of the liquidity that you still have on your balance sheet the loan to deposit ratio to the extent that there are incremental outflows here in the second quarter, which we have seen in the past, but are you. Okay, just kind of letting those flow through in and having the loan to deposit ratio tick up higher.
Or is there an expectation that you'll kind of offset those exiting deposits with with either brokered money or a wholesale funding.
Well this is Andy and of course, we always have the option of buying it on the wholesale market or what I would say is and where we're in a pretty good position from a core funding standpoint today, but if you look at some of the initiatives we've talked about our commercial bankers are business bankers.
We've added since I got here roughly 22% increase in relationship managers those folks don't do just loves they are in our core markets and they will start to drive our deposit.
Strategies, we're also launching our mass affluent strategy and I can tell you that I see the index of our mass affluent customers and in our consumer bank. They make up 70% of the deposits were under indexed in the amount we have from each of those this will be the third time I've lost this type of strategy and in bank and I know what to expect.
We will see additional growth at the tail end up the year going into the next year. We're a top 20 HSA provider that has a very deposit heavy business. We have the infrastructure and we will continue to invest in that will invest in our digital account opening and will invest in our branch count openings. So some of the things we haven't talked as much about will.
Fully relate to how we fund.
Our core deposits over time, so to answer the question, we do feel like we have sufficient liquidity from different sources.
But we're also making sure we are prepared.
From a balance sheet standpoint from both the loan side and deposit side.
Okay. That's helpful. Thank you and then on the loan side.
I guess, how much of an expected remaining headwind is there out of the mortgage warehouse portfolio and I'm, assuming as that stabilizes as.
P becomes less of an issue.
These new initiatives are going to result in faster kind of balance sheet and loan growth is there another leg lower in the second quarter for warehouse and then we really start to see loan growth accelerate in the back end of the year or do you think that much of the warehouse reduction has already been addressed here in the first quarter.
So I think you're hitting the nail on the head a little bit there. We don't expect the year end balances to be much different than what we forecasted we just expect this week.
We have seen them more quickly with the ramp up in rates. So.
We still expect a modest decrease in mortgage warehouse the rest of the year, but not at the rate that we saw in the first quarter as you add our EMS and edgy mature. These initiatives. We expect our pipeline is the highest we've seen in six months. So we expect that to follow through and.
Pull through to the balance sheet. So so yes, there'll be a slight dampening and that's why I use the term modest on purpose supposed to be a modest dampening our mortgage warehouse, where it was much more significant in the first quarter.
Okay and then just last for me on the expenses great to see the expense control in the first quarter and I guess I'm, a little bit surprised that with it didnt come a reduction in our full year guidance.
I know you talked about some personnel spend and technology spend in the back end of the year, but I mean, how much of that is <unk>.
So you guys being conservative on that front.
Versus kind of planned dollars and the pipeline that you have visibility to coming in the remainder of the year, that's going to drive our expenses kind of to the guided level.
Yeah, Great question I'm going to take your first comment is I'm going to say thank you for the kudos on expense management and what I would say is look this is a growth story and as we grow we have to invest to grow and so we expect as we go through the year, we're going to add another 20% on the RM side.
That will set us up not for this year, because the folks who've already hired a set us up for this year that will set us up for the end of the year heading into next year. So we want to continue to fuel this and we expect as we put out in our strategic initiatives that we expect positive operating leverage which we are achieving and believe we will achieve throughout the year and so.
In order to do that you have to reinvest in the business and so we see that steady growth, but we'll control that investment to make sure it lines up with our revenue growth.
Got it.
Great. Thank you for the questions.
Thank you.
Our next question is from Terry Mcevoy of Stephens. Please proceed with your question.
Hi, good afternoon everybody.
Terry.
Maybe big picture question for Andy a lot of what you've done has been on the lending side and I guess deposits, which you highlighted as well you know what are your thoughts on adding to the fee income businesses. When I look at your 2022 outlook, it's about 25% fee income, which.
I get my gut tells me that it was a bit light versus some peers. So do you have any kind of bigger picture plans on expanding fee businesses. Once once these lending platforms are up and running.
Yeah, It's a good question.
I'll say a couple of things one the mass affluent strategy in order to be a good wealth bank of really good wealth bank, having the mass affluent piece in place is really important what happens is you have the initial conversation with people that are switchers that move money. Those those folks that are in the mass affluent bucket, which as you know 250000 to a million they grow into wealth customers and end.
New upstream so as we launched the mass affluent our expectation is we will rebrand our our wealth business. We will have a digital roadmap for wealth that aligns with the conversations we're having and then ultimately we will start to feed that business, but getting the mass affluent first is important for US we'll have a focus on.
The commercial business, which we do believe can drive some additional fees, whether that'd be treasury management or capital markets.
That is just getting started for us so Jerry I think your observation is right.
There is a lot on the margin side of this and over time, we believe that we can build the capabilities some organically.
On the fee income side of that through well in commercial banking.
Thanks, Thanks for that and then maybe my follow up for Chris is about it it's about $2 million increase in quarter over quarter mortgage is that a function of earlier in the year adopting kind of fair value of your MSR and just seeing that asset.
<unk> worth more valued more today than three months ago.
So if I look at them.
Short answer to your answer to your question is yes, just so that we're on the same page mortgage banking that was only up modestly 300000 quarter over quarter, but the lift for the quarter was all driven by looking at how we adopted fair value.
And it came in as we expected but was it was a contributor.
Yes.
Okay. Thank you Chris Thanks, Andy.
Thank you Terry.
Our next question is from Daniel denial of Raymond James. Please proceed with your question.
Good afternoon guys.
Daniel.
Really.
And Oh, a good story on the credit quality front.
Very few issues there, but just the the non accrual isn't that someday. It looked like it was a commercial real estate.
Non accrual in the quarter, if there's any other detail around you know industry or anything like that they used to provide I'd be interested.
No as we mentioned it was really one specific credit.
Given some events around that we feel confident that we're not going to see a long term wash their boots to watch it.
In terms of what we're seeing in the commercial real estate space.
And pretty resilient as well.
Anyone else, we're watching the CRE office asset class you feel pretty good about how we've been pretty conservative underwriting that asset class.
Over the historical period, but we're always monitoring and doing probably further deep dives than we had in the past just given the shifts coming out of Covid and how how tenants are going to start using their space.
Okay.
Okay.
And then the.
Necessities that are going to be coming out.
Just a modeling question, but the 3 million is that literally just a million a quarter or is that it's gonna be started later in the third quarter or is that just July 1st.
Yeah I think this is Andy from a modeling perspective, we expect that $3 million is really a half year impact so doubling that up our annualized impact is about $6 million. So it is roughly a million and a half a quarter.
Okay, perfect Alright, that's all I Uh huh.
Answers.
Thank you.
As a reminder, if you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue.
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Our next question is from Chris Mcgratty of K B W. Please proceed with your question.
Oh, great. Thanks.
Maybe a question for Chris.
Last last cycle you guys.
You've made some efforts to reduce the network deposits.
And those dollars are coming out I guess, where could you be be surprised in your deposit base.
We saw some of your peers have some chunky movement. This quarter, you, obviously didn't but where could you be surprised.
Well I'll go with Andy the first thank you for the kudos on the management that we did here over the last couple of years to make sure that when the rates started to turn again, we wouldn't be in a position of being surprised and so I'd say, we've worked hard to make sure that wasn't that dynamic.
As you pointed out and as we show on our tables the entire amount of network deposits is down to $760 million and that number was close to 4 billion at one point in time, so dramatic role.
We're seeing that.
Where are we I think we're most concerns.
Is the significant uplifts in noninterest bearing and so the noninterest bearing is up to $8 3 billion, which is a remarkable and wonderful thing.
And if you had asked me, which Andy did what's going to happen in the first quarter. The answer was well they're going to flow out.
And he did.
And if you'd asked me what's going to happen. After April 18th as your stack State I would have said well, we'll see a downtick.
And we haven't and.
And so the reality is they are proving to be a lot stickier than I would've expected.
That's been a positive, but that's the biggest risk, but so far.
And on what here, we just haven't seen it.
Okay.
That's great color Thanks, Chris.
A second one on <unk>.
Pricing for the auto business case, remember remind us what part of the curve is priced off how have spreads and pricing held up given competition sure.
So on page six of the press release tables, we break out the yields for the auto finance portfolio, which for the quarter came in at 352.
I haven't looked at everyones results on that basis, but.
And he didn't have me to look at a bank based in Ohio that has a big auto book and I noticed that our yields are about 14 basis points higher than there. So I guess, we're in sync.
Okay.
Thanks.
Yeah.
Okay.
Our next question is from John Armstrong of RBC Capital markets. Please proceed with your question.
Thanks, Good afternoon guys.
Okay.
Hey, I'm on slide three.
When you're going through your prepared comments, Andy you made a comment about construction.
Lending.
And I missed part of it then I think I understood, what you're saying, but can you go through that again in terms of what you're saying on your backlog.
Yeah, I mean, the crux of it is our unfunded commitments continue to grow on the construction side. So clearly our belief is as we get into heavier construction season, we have an opportunity for growth. So we've put on roughly a 500.
Increased year on year over year in commercial construction.
Construction CRE construction so.
<unk>.
What we're saying is we believe that will serve as a tailwind for growth for us. The rest of this year and really the expectation is that does bond that entire amount over roughly an 18.
Okay. Okay. Okay. Good.
The other question I had is kind of new ones, but.
The general commercial your averages were up about 240.
Period end was up about 40.
What what's the subtlety there yeah, I know, it's sometimes different to compare the average for the period I'm just curious.
Sure I think if you look on page three you can see it's not that subtle its mortgage warehouse.
That's the biggest part of it.
So just for the total commercial.
Outside of yeah, He's asking do I see yeah.
General commercial general counsel.
Well, what we had done on there as we've shown kind of the fourth quarter combined with the first quarter, because we had a very big.
Fourth quarter in commercial and so that dampened a little tweaks, we pulled forward some of those deals they happened to close pretty quickly that the not subtlety that you can't see is we have our highest pipeline in the last six months. So we've been able to rebuild that during the first quarter, so a little bit.
Accelerated all hit at once.
Saying that a little built it back up to where it was and then some significantly above there. So that's what's giving us confidence in the and the growth as we see the general C&I on the on the go forward basis.
Okay.
And then maybe more philosophical the change in overdrafts.
<unk>.
I think we all understand what the bigger banks are doing on it I'm just curious.
If you can you can gain from this I know there was a loss that we talk about financials, but can you gain from this relative to some of your other competitors that may not be waiving overdraft fees, your small and medium sized competitors.
It's hard to predict what their actions are going to be in the future, but when you do things that are in our customers' favorite you'd do it willingly that usually serves as a positive when it comes to SaaS fashion. So our expectation is that as they see this there's only a positive.
Our response to this I'm I'm I'm, particularly pleased with the NSF fees that that will go away is that those NSF fees, our overdrafts that arent paid so.
So just to know that goes away I really like that one in particular, although all of them are in the customer's favor. So my answer probably can't be relative to others, because that's a fluid situation.
I do expect a positive.
Our own customer base.
Okay. Okay last.
Last one Pat for you and anything you're wary of.
If we do get fed.
Fed funds at 200 basis points by the end of the year anything that makes you nervous about that.
Okay.
No not really.
<unk> all of our upfront underwriting too we're sensitizing interest rates, we're looking out kind of.
Especially in the real estate book, the commercial real estate book to an exit so we're building a lot of that stuff into our underwriting.
Hasn't happened in the last couple of years, we might start to see it now but.
Right now like I said the book overall is doing very well the one item we're watching like everyone else is just the the office.
Okay. Thanks for thanks for the help guys I appreciate it.
Alright, thanks for the interest.
Our next question is from Michael Young of True Securities. Please proceed with your question.
Hey, Thank you for taking the question John took a couple of mine, but I did want to take another crack at the higher rates sort of question and just you know as we move later in this year and we are at higher levels of absolute rates is there any interest in you know maybe turning back on or putting some mortgage on.
The balance sheet. It you know kind of higher interest rates or is that still you know kind of really in run off even once we've reached those levels.
Well I would say, we're not really in runoff, but we said as balances were relatively stable and so clearly.
Mortgage rates are in the high fours and fives.
Our relatively attractive, but so as a growing commercial book and so as our.
Auto book, and so I think we've got focus on growth but.
We won't turn Blayne is opportunities and what we might say is if I can put on a mortgage at four or security or three sometimes a mortgage looks better.
Gotcha.
And then my follow up question was was actually just on the auto you know obviously you know it's been performing well, thus far but consumers are starting to feel a little bit more of a pinch or are you guys seeing any early signs or anything that you're monitoring more closely now I'm, just kind of with the inflation backdrop in and the squeeze.
Some consumers.
You know, it's an interesting question.
Who is feeling the pinch and what that means and what we're hearing and seeing is the subprime market is feeling the pinch and maybe those delinquencies are at a level that may be similar to pre pandemic, we actually don't have that.
In our portfolio. So we're not seeing that the second thing is general consumer is fairly healthy relative to where they entered the crisis from a average liquidity position. So so the answer is you know the consumers fairly healthy in the segments that we're lending to we have not seen anything and.
We won't have a blind eye to that with inflation at the levels that we have and the actions that are being taken having geopolitical conflict, but we like the way that we're lending into a a very prime super prime customer.
Okay. Thanks very much.
Thank you.
Our next question is from Jared Shaw of Wells Fargo. Please proceed with your question.
Hey, guys. This team are again, just one more follow up on auto.
Slide balance for a year end kind of suggests a similar growth rate to what we've seen here in the first quarter.
I'm just wondering as you continue to rollout that product set to the rest of your footprint.
Does that.
Does that growth accelerate is there something that you're going to be doing on your end to kind of limit that growth to that one point to 1.3 billion by year end.
Would just love to hear your comments on the trajectory of the expected growth rate in auto.
Yeah. So this is Andy I'll take that one and.
The way that I would answer that as well.
Well I like the auto vertical we don't want to be just an auto bank, we want to be lending across the spectrum and using our capital for commercial for business banking for ABL for equipment Finance Auto I also want to make sure that we're operationally solid and strong as we go through this so we don't I don't feel a need to put too much pressure on this.
Machine.
To me $1 $2 billion in growth is strong.
As a strong year and so if we are getting returns. If we are operationally strong if we believe that it fits within the capital usage of all the other pieces of that.
That will that will bear out what our decision is but as it goes right now with the pipelines that we're seeing in commercial.
And the successful launch of multiple initiatives the successful hiring of talented RMS on the commercial side I I really like the balance that we're getting right now are very much want to get into footprint I actually think that with our brand name and our recognition, it's actually a product while it's indirect it actually can translate.
On the direct side for our customer base and and so that that's probably where our focus is and I I don't feel the need to come out and modify the the.
Forecast on that for the sake of volume.
Got it okay. Thank you.
Thank you.
Yeah.
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.
Well, thank you and based on the questions I want to thank you for your interest in associated as always if you have questions reach out to us.
More than happy to to answer those and we appreciate your continued interest in the story that's unfolding for us at associated Banc.
Yeah.
This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation and have a great day.
Okay.
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