Q4 2024 Associated Banc-Corp Earnings Call
Good afternoon, everyone and welcome to the associated Banc Corp's fourth quarter 2024 earnings Conference call. My name is Matt and I'll be your operator today.
At this time all participants are in a listen only mode.
Conducting a question and answer session at the end of this conference copies of the slides referenced during today's call are available on the company's web site at Investor Day associated Bank Dot com.
As a reminder, this conference call is being recorded.
It's 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.
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.
Actual results could differ materially from the information discussed today is readily available on the SEC website in the risk factors section.
<unk> most recent Form 10-K, and subsequent SEC filings.
These factors are incorporated herein by reference.
A reconciliation of these non-GAAP financial measures to the GAAP financial measures mentioned in this conference call. Please refer to pages 31 through 34 of the slide presentation anti pages 10, and 11 of the press release financial tables.
Following today's presentation instructions will be given pretty question and answer session.
Tom I'd like to turn the conference call over to Andy Harmening, President and CEO for opening remarks. Please go ahead Sir.
Well good afternoon, everyone and welcome to our fourth quarter earnings call I'm, Andy Harmening I'm joined once again by our Chief Financial Officer, Derek Meyer, and our Chief Credit Officer Patty Egan.
I want to start off by sharing some highlights from the fourth quarter of 2020.
From there Derek will cover margin income statement and capital trends and Pat Pat will provide an update on credit.
We continue to see signs of strength in the U S economy closer to home in the Midwest. The situation has remained remarkably stable unemployment rates in Wisconsin, Minnesota and several other Midwestern states remain well below the national average of 4.1% are prime and Super Prime cut kind of consumer borrowers it remained resilient and our.
Commercial customers are cautiously optimistic about their growth prospects in 2025.
This continued stability has enabled us to remain front footed, but the execution of our growth strategy in the fourth quarter was an active one for our company.
We added we added to our commercial capabilities through the launch of a new specialty deposit and payment solutions vertical we raised over $300 million of new capital through a common stock issuance and put a portion of that capital to work through our balance sheet repositioning signed approximately $700 million in low yielding mortgage.
Loans and $1 $3 billion worth in a F S securities.
We also purchased 55 million in existing customer credit customer credit card balances through an expansion of our participation agreement with a large financial services.
During the quarter. We also announced the addition of two widely respected business leaders to our board of directors and Kristen Ludgate and Owen Sullivan.
We elevated three senior business line leaders to our executive leadership team and the head of corporate and commercial banking felt Trier Deputy head of commercial real estate, Greg, we're sick and deputy head of consumer and business banking Steve's am for <unk>.
And we welcomed several high quality or adds to our growing commercial team.
Importantly, we also delivered strong financial results during the quarter as we've continued to benefit from our organic growth strategies here in Q4, we delivered adjusted loan growth of over $500 million and core customer deposit growth of nearly $900 million, while maintaining stability and disciplined with.
With regards to credit risk.
As we look to forward to 2025, we are positioned to play offense and we're entering the year with a consumer value proposition that stacks up with anyone in the industry.
Our growing customer count are considered a growing customer household base base with deepen relationships strong and improving customer satisfaction results and expanding commercial team with deep expertise and capabilities and an enhanced profitability profile from the balance sheet repositioning we have.
Announced in December.
Taken together these actions have positioned associated for strong performance in 'twenty five and beyond.
With that I'd like to walk through some additional financial highlights from the quarter and 2024 as a whole beginning on slide two.
Our fourth quarter results were impacted by nonrecurring items tied to the balance sheet repositioning we announced in December after excluding these nonrecurring items the emerging momentum of our core businesses was reflected through adjusted earnings per share of 57 cents.
Core customer deposits grew by nearly $900 million during the quarter.
And on the other side of the balance sheet. We grew total loans by over $500 million after adjusting for the mortgage loan sale announced in December.
Over $300 million of that growth came in our commercial and business lending segments and emerging growth story within our commercial business is starting to take hold.
We've said all along that our intention is to fund the majority of our loan growth with core customer deposits and in 'twenty 'twenty. Four we did just that for the year, we grew core customer deposits by $1.2 billion or four 3%.
And adjusted loans by $1.3 billion or four 4%. This will remain a point of emphasis for us in 2020 five.
Shifting to the income statement, our net interest income increased 8 million from Q3 and finished at $270 million or margin increased three basis points to 281.
Due to the timing of our balance sheet repositioning we expect to realize most of the margin benefit from the transaction here in Q1 of 'twenty 'twenty five.
Our GAAP noninterest income was impacted by nonrecurring items tied to our balance sheet repositioning during Q4.
But on an adjusted basis, we saw a thought we saw a $5 million quarterly increase.
Total adjusted noninterest expense finished at $210 million for the quarter and while we've continued to make strategic investments in support of our growth plan staying disciplined on expenses remains a foundational focus of our company.
Another foundational focus is managing credit risk here in Q4, our non accrual loans charge offs and provision all decreased versus the prior quarter and the same period last year and 2025, we remain committed to staying ahead of the curve by taking a disciplined consistent approach to loan risk ratings. So that we can better understand.
And credit risk in our portfolio by both segment and geography.
On slide three.
We provided detailed a detailed breakdown of E. P. S impact from several nonrecurring items impacted impacted our financial results in Q4 first the balance sheet repositioning we announced during the quarter impacted our income statement through a $130 million loss from the sale of mortgages and another $148 million net loss.
On the security sale, we completed combined these items reduced noninterest income by $279 million.
Second our <unk>, our total noninterest expense was impacted by a $14 million loss on prepayment of FH L. B advance is tied to the repositioning.
And finally, our provision increased slightly due to the net impact of a release from the sale of mortgage loans and a build from their credit card balances we purchased during the quarter.
Net of tax our adjusted EPS came in at a positive 57 cents for the quarter. This adjusted number underscores the strength of our core businesses and it gives us confidence that we're on the right path with our strategic plan as we move into 2020 five.
Shifting to slide four.
Speaker Change: We've made significant progress as a company since I joined in 2021, and thanks to several tailwind that have started to emerge I'm more confident than ever that we're on the right track first we've made several key leadership hires over the course of the past 12 to 24 months and those hires are having an impact.
Speaker Change: This includes the three recent executive leadership team members added in Q4, but it also includes Jane Lauder Ya, who stepped into her role as president of our private private wealth business in late 'twenty three in.
Speaker Change: In the short time she's been here, we've already we're already seeing more new relationships increased referrals and higher sales activity for retirement plans and other services second we now have a consumer value proposition that can compete with just about anyone in the industry, which is better equipped us to deepen relationships with existing customers and attract new ones.
Speaker Change: The results can be seen in our record high customer satisfaction scores positive household growth trends and improved quality of those households, given current market dynamics, we've tweaked our net household growth expectations for 2025, but we but we continue to be encouraged by the momentum we've seen to date.
Speaker Change: Third.
Speaker Change: We've continued to make progress on our efforts to diversify our consumer loan portfolio without abandoning our conservative approach to credit.
Speaker Change: By getting out of T. P O lending shifting to an originate to sell model and repositioning our balance sheet, we've reduced our <unk> loan concentration from a high of 36% of total long before I got here to 24% of total loans as of year end, which has provided capacity to grow and more profitable lending categories and.
Speaker Change: Finally, commercial banking is a central component of our growth strategy. We've added 21 of 26 planned hires and expect to have hiring fully completed by the end of Q1 as mentioned previously we expect the balance sheet impact of these new hires to increase throughout 2025 has a new arms across our footprint.
Speaker Change: It'll in and build their respective pipelines.
Speaker Change: On slide five.
Speaker Change: We highlight our loan trends through the quarter after excluding mortgage loans sold as part of the balance sheet repositioning total loans increased by $501 million. In Q4. This growth was led once again by C&I, which grew by over $300 million in Q4.
Speaker Change: We also saw $157 million in CRE investor growth during the quarter, which was largely driven by the completion of construction projects in Q4, while we continue to expect elevated payoff activity in the coming quarters payoffs were limited in the fourth quarter.
Speaker Change: As we continue diversifying our consumer portfolio, we saw auto finance balances grow by $101 million here in Q4, and other consumer categories grow by $69 million. The led ladder was largely driven by the $55 million in credit card balances, we purchased during the quarter.
Speaker Change: On slide six we show we show loan trends on an annual basis and since 2020. The trend has been clear we've decreased our reliance on low yielding non customer residential mortgage loans and diversified into higher return categories, all while growing our loan total loan portfolio by.
Speaker Change: Over 20% and maintaining our conservative approach to credit.
Speaker Change: More recently total loans grew by $552 million from year end 'twenty three to year end 'twenty for this growth has been highlighted by emerging traction of our commercial business, particularly in the back half of 'twenty four.
Speaker Change: After growing C&I loans $230 million in the first half of the year. We grew we grew by over $600 million in the back half of the year as he our Ams we've hired are steadily accelerating their production.
We have clear momentum in the commercial space, we have the leaders in place our hiring is largely complete and pipelines continue to build as such we expect C&I loan growth of $1.2 billion in 2025.
Speaker Change: More broadly we continue to seek selective growth that emphasizes full banking relationships quality credit profiles and diversification to deliver improved returns with this in mind, we expect total bank loan growth a part.
Speaker Change: 5% to 6% for the year.
Speaker Change: Moving to slide seven.
Speaker Change: We had mentioned back in the summer that we expected customer deposit growth to pick up in the back half of the year and that trend is large trend largely played out as we expected after adding over $600 million in core customer deposits in Q3, we added nearly $900 million here in Q4.
Speaker Change: Unlike Q3, which saw heavy C D N plus N plus growth in Q4 was driven primarily by interest bearing demand money market and savings categories.
Speaker Change: The inflow of core customer deposits during the quarter once again enabled us to work down our wholesale funding reliance total wholesale funding sources were down 3% in Q4.
Speaker Change: On slide eight we show deposit trends on an annual basis, we have consistently grown our average annual deposits as our balance sheet has expanded over the years and the impacts of our efforts to grow core customer deposits have emerged more clearly in 2024 on a spot basis core customer deposits grew by one.
Speaker Change: Point $2 billion or four 3% versus 2023 as.
Speaker Change: As we looked at 2025, our intention is to continue funding our loan growth, primarily with core customer deposits and progress progress against our strategic initiative or strategic initiatives has provided several promising tailwind as we look to continue attracting deepening and retaining customer relationships.
Speaker Change: As such we expect core customer deposits to grow by four 4% to 5% for the year with that I'll pass it to Derek to walk through the income statement and capital trends.
Derek Meyer: Thanks, Andy I'll start on slide nine with our asset and liability yield trends. Following the 50 basis point fed rate cut in September and subsequent 25 basis point cuts in November and December, earning asset yields and interest bearing liability costs, both fell meaningfully during the fourth quarter.
Derek Meyer: Total bank, earning asset yields decreased by 22 basis points during the quarter led by 43 basis point decrease in CRE loans, and a 53 basis point decrease in commercial and business lending both of which were largely floating rate portfolio doesn't respond more quickly to changes in market rates. These decreases were partially offset by relative stability in our large.
Derek Meyer: Fixed rate auto, whereas he and securities books on.
Derek Meyer: On the other side of the balance sheet total liability costs decreased by 30 basis points. During the quarter. This larger decrease was a function of our ability to decrease interest rate interest bearing deposit costs by 22 basis points during the quarter, along with our efforts to pay down wholesale funding.
Derek Meyer: Moving to slide 10, our total net interest income grew by $8 million versus the prior quarter and 17 million versus Q4 of 2023 landing at $270 million for the quarter. Our net interest margin expanded by three basis points to eight 1%.
Derek Meyer: During the quarter due to the timing of the securities reinvestment, which closed at the end of the year and the timing of the loan sale, which is expected to be settled by the end of the month the.
Derek Meyer: The NII benefit we saw in Q4 was largely driven by initial security sale and the refinancing of our high cost <unk> advances.
Derek Meyer: On a pro forma basis, we estimate that our balance sheet repositioning, including the credit card balance acquisition. We made in December would have added approximately 17 more basis points to our net interest margin have you received a full quarters benefit from the transactions.
Derek Meyer: Based on our latest expectations for balance sheet growth deposit betas are fed action, along with the enhanced profitability from our balance sheet repositioning we expect to drive net interest income growth of between 12 and 13% in 2025.
Derek Meyer: On Slide 11, we've provided a reminder of the proactive steps, we've taken to get them more neutral asset sensitivity position.
Derek Meyer: Our auto book has grown to $2 8 billion as of year end, providing a solid base of fixed rate assets with low prepayment risk and strong credit characteristics.
Derek Meyer: In addition, as of December 31, we maintained notional swap balances of approximately $2 7 billion.
Derek Meyer: And finally, we had $10 3 billion in contractual funding obligations set to mature in one year or less as of Q4, which is over 90% of the total taken.
Derek Meyer: Taken together these actions that reduce our asset sensitivity over time with a down 100 ramp scenario, representing about a 5% impact to our NII. In Q4. This was reduced from the three 4% impact we were modeling in Q4 of 2022. Our goal is to maintain this modestly asset sensitive position going forward.
Derek Meyer: Shifting to slide 12, our securities book increased to $8 5 billion on a period end basis with the increase largely driven by the settlement of securities purchased purchases as part of the balance sheet repositioning we announced in December.
Derek Meyer: During the quarter, we saw a pickup in our CET one ratio thanks to capital raised from our common stock offering we announced in December and after putting a portion of that capital to work in the balance sheet repositioning we announced in December CET, one landed at an even 10% at year end.
Derek Meyer: We also saw a reduction in our OCI impact due to our security sale and as such the gap between our regulatory CET, one ratio and our CET, one plus a OCI ratio decreased to just 22 basis points in Q4.
Derek Meyer: Following the transaction our securities plus cash to total assets ratio rose to 22% for the fourth quarter and we would expect to manage the ratio in the 22% to 24% range in 2025.
Speaker Change: Our noninterest income trends are highlighted on slide 13, as Andy mentioned, our GAAP results reflected a net loss for the fourth quarter and this loss was driven by nonrecurring items tied to the balance sheet repositioning that we announced in December.
Speaker Change: Adjusting for these results our core noninterest income came in at 72 million in Q4, representing a $5 million increase versus the prior quarter and a 2 million dollar increase versus our adjusted Q4 2023 figure.
Speaker Change: The quarterly increase was primarily driven by increases in capital markets and mortgage banking income, partially offset by a decrease in bully income.
Speaker Change: Compared to the same period last year at wealth management fees grew by $3 million, while deposit fees and mortgage banking income both grew by $2 million.
Speaker Change: In 2025, we expect noninterest income to grow by zero to 1% as compared to our adjusted 2024 base of 269 million.
Speaker Change: Moving to slide 14, our fourth quarter expenses were impacted by a $14 million loss on the prepayment of <unk> advances as part of our balance sheet repositioning excuse.
Speaker Change: Excluding this nonrecurring item our adjusted noninterest expense came in at $210 million in Q4. This adjusted number represents a $9 million increase from the third quarter, but just a $1 million increase from our adjusted Q4 2023 expenses.
Speaker Change: The bulk of the quarterly increase stemmed from investments in our organic initiatives, including an acceleration of hiring that increased our personnel expense in Q4.
Speaker Change: For the full year, our noninterest expense came in at 804 million after adjusting to exclude the nonrecurring loss on the S. H L B prepayment.
Speaker Change: While we've continued to invest in people and strategies to support our growth plans. We've also remains squarely focused on managing our overall expense run rate on an ongoing basis.
Speaker Change: With that in mind, we expect the total noninterest expense growth of between three and 4% in 2025 off of our adjusted 2024 base of $804 million.
Speaker Change: On slide 15, we once again saw key capital ratios increased across the board here in Q4, after raising $331 million of capital with our November common stock offering.
Speaker Change: While we did put a portion of this capital to work with the balance sheet repositioning we announced in December we still expect to maintain a high level of capital than we did pre transaction.
Speaker Change: Our TCE ratio increased to 782% in Q4, which represents a 32 basis point increase relative to Q3, and a 71 basis point increase relative to Q4 of 2023.
Our CET one ratio has steadily climbed throughout 2024 and currently sits at 10% as of Q4, a 28 basis point increase relative to Q3 with that said, we expect to see an incremental seven basis points of benefit to see E. G. One once our loan sale closes here in Q1.
Speaker Change: Following the actions we took in Q4, our expectations for growth in 2025, and the current market conditions. We expect demand is C. T. One within a range of 10 to 10, 5% in 2025.
Derek Meyer: Now I'll hand, it over to Chief Credit Officer, Patty her and to provide an update on credit quality.
Patty: Thanks, Derrick I'll start with an allowance update on slide 16, we utilized the Moody's November 'twenty 'twenty four baseline forecast for Cecil forward looking assumptions the Moody's baseline forecast remains consistent with a resilient economy. Despite the high interest rate environment.
Patty: The baseline forecast contains no additional rate hikes slower, but positive GDP growth rates are cooling labor market and continued deceleration of inflation with continued monitoring of ongoing market developments.
Patty: R E C O L increase by another $5 million in Q4 to finish the quarter at $402 million with increases in the commercial and business lending and other consumer categories, partially offset by decreases in CRE and residential mortgage.
Patty: The uptick in commercial largely stemmed from some migration into criticized loans. During Q4 similar to last quarter. We do not feel that this increase is an indication of a significant shift in credit stress, but rather it is a reflection of our assurance to risk rating definition guidance acknowledging shifts and credit profiles.
Patty: The bank does not view these correct. These credits representing risk of loss at this time as reflected in our stable E C. L.
Patty: Altogether, our reserve to loan ratio increased by two basis points from the prior quarter and three basis points from the same period, a year ago to 1.35%.
Patty: Okay.
Patty: Moving to slide 17, we maintain a high degree of confidence in the quality of our loan portfolio with continued solid performance in our core credit quality trends.
Patty: Total bank wide delinquencies increased to $80 million for the quarter, representing a $24 million increase from the prior quarter, but a $4 million decrease from Q4 of 2023.
Patty: We continue to believe these trends are in line with our normal course of business and not necessarily something that's indicative of future credit stress importantly, the quarterly increase was limited to the 30 to 89 day bucket reflected reflecting some timing and completion of recent credit actions.
Patty: 90, plus day delinquencies have decreased both quarter over quarter and year over year coming in at just $3 million in Q4.
Patty: Further down the line total criticized and classified loans increased from the prior quarter.
Patty: A majority of this increase was driven by migration within C&I and CRE categories. Similar to Q3, we do not feel this increase as an indication of a significant shift in the credit profile of the portfolio, but rather a reflection of conforming to industry guidance and a proactive and conservative approach relative to credit changes.
Patty: We continue our ongoing portfolio deep dives and don't see a systemic shift in our commercial portfolios.
Patty: In fact, we see potential near term resolution in many of the noted downgrades as liquidity remains present in the market.
Patty: Underpinning our confidence in the portfolio is the continued positive trends, we're seeing in non accruals. We continue to see a steady pace of resolution within the stress credits with total nonaccrual balances decreasing for the third consecutive quarter to 130, <unk> hundred $23 million.
Patty: Importantly, we saw decreases in both commercial and business lending and CRE non accruals in Q4 as well.
Patty: Finally, we booked $12 million and net charge offs during the quarter and $17 million and provision both of which represented the lowest numbers we've seen in the past several quarters.
Patty: As Andy mentioned, our Q4 provision included a $3 million release for the sale of residential mortgage loans, we announced in December and a $4 million provision build for purchase of $55 million in credit card balances during the quarter.
Patty: Our net charge off ratio decreased by two basis points to one 6%.
In summary, our credit metrics continued to give us confidence that what we've seen to date is a handful of credits migrating with an a rating system and not necessarily a sign of broader issues coming down the road in future quarters overall outside of these specific situations, we remain comfortable in the normalized level of activity we've seen across the bank.
Patty: Going forward, we remain diligent in monitoring credit stressors in the macro economy to ensure current underwriting reflects both inflation pressures and shifting labor market to name just a few economic concerns.
Patty: In addition, we continue to maintain specific attention to the effects of elevated interest rates on the portfolio, including ongoing interest rate sensitivity analysis bank wide.
Patty: We expect any future provision adjustments will continue to reflect changes to risk grades economic conditions loan volumes and other indications of credit quality.
Andy Harmening: With that I will now pass it back to Andy for closing remarks.
Patty: Pat.
Derek Meyer: I'll wrap up by reiterating a couple of key points from our presentation on slide 18, starting with the balance sheet. We continue to seek selective growth that emphasizes full banking relationships quality credit profiles and diversification to deliver improved returns with this in mind, we expect total loan growth of 5% to 6%.
In 2025.
Derek Meyer: On the other side of the balance sheet, we continue to expect to fund a majority of our loan growth with growth in our core customer deposits as such we expect core customer deposits to grow by 4% to 5% in 2025.
Derek Meyer: On the revenue front, we've adjusted our most recent forecast for balance sheet growth deposit betas and fed action along with the enhanced profitability from our balance sheet repositioning with all these factors incorporated we expect to drive net interest income growth between 12%, 13% in 2025, we are.
Derek Meyer: Also continue to feel encouraged by the durability of our noninterest income in a challenged environment over the past couple of years and we expect to grow noninterest income by zero to 1% and 25 relative to our adjusted 2024 base.
Derek Meyer: And finally, our disciplined approach to expenses remains a foundational focus we continued to strategically invest in our business to support growth with this in mind, we expect to hold noninterest expense growth to a range of 3% to 4% in 2025.
Derek Meyer: And with that I would like to open it up for questions.
Speaker Change: Great. Thank you so much will now be conducting a question and answer session. If you'd 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.
Derek Meyer: You May press star two to remove yourself from the queue.
Derek Meyer: Participants using speaker equipment, it may be necessary to pick up your handset before pressing the star.
Derek Meyer: One moment please poll for questions.
Speaker Change: First question is from Scott <unk> from Piper Sandler. Please go ahead.
Speaker Change: Good afternoon, everybody. Thanks for taking the question.
Speaker Change: Derek I was hoping you could just sort of discuss your thoughts on the trajectory of the margin from the fourth quarter is $2 81, it looks like I mean, we've got a good starting point given the disclosure on slide 10, with the 298 pro forma which you know presumably you get the full benefit from the the restructuring, but just curious about sort of the other moving parts, we see on the horizon.
Speaker Change: And then I guess within the response, if you could maybe discuss funding dynamics and a little more detail given that you'd expect to grow deposits at a lower clip than than loans. This year and I know, it's sort of funding with core deposits is always a key priority. So just curious on on those dynamics. Please.
Scott: Yeah. Thanks, Scott.
Scott: So I think we're largely looking for a stable outlook and margin.
Scott: Once we get the benefit of this.
Scott: There could be upside to that being that we're asset sensitive in the market bias right now seems to be fewer cuts than before.
Scott: But we are asset sensitive and with the rate curve in our assumption and our and our outlook includes two cuts.
Scott: Ah trial.
Scott: To drive improved profitability while.
Scott: Rates are going down exposes us to a little bit of that sensitivity. So what.
Scott: What we expect to help us aside from this transaction and lock and closer to that 3% is the benefits of the hedge the hedging. So we have the hedging details we put in back for the first time, you'll see that we continued to reduce our asset sensitivity going forward in the down rate scenario and that is the that's the scenario.
Scott: It's out there and the implied forwards and then the securities repositioning.
Scott: <unk> gives us upside to help lock that in and stay longer and then the auto book, which dropped for the first time.
Scott: We do expect that to stabilize and continue to modestly go up all.
Scott: But at a slower pace than it has been.
Scott: From the funding dynamics I think we when we put our guidance out from 'twenty to 'twenty. Four we are we had a gap. There also we managed to close that gap by the end of the year and predominantly fund our loan growth with deposit growth I think we do want to recognize.
Scott: That's still Oh take some build out from our side to support the new deposit vertical and closing that gap beyond what we've put in our guidance may start to accelerate towards the end of the year and into 2026.
Scott:
Scott: So we might see as you know we've got essentially a 1% GAAP that arent, we expect our wholesale funding to close and we've got that gap capacity.
Scott: As a result of continuing to pay down at <unk> funding from our current position.
Scott: Got it tried to answer all your questions Scott.
Scott: Yeah, Yeah, no I think that's perfect and thank you and I guess the final one was I Andy maybe you could talk about the $1 2 billion of C&I growth do you expect this year I think that compares to a $750 million number you had discussed previously I could be.
Scott: Comparing apples to oranges, but if I'm correct, maybe if you can just sort of walk through the main drivers of that that favorable delta.
Scott: Yeah of course, so I mean, you're you're pretty close to page six outlines a little bit of what the trend is right now and I think we're we're roughly at about $840 million in growth in 2024.
Scott: With about $1 $2 billion in 2025, so if you look at our forecast going from four plus percent growth in 'twenty four to five plus 5% to 6% and 25, you can see it's largely coming from commercial.
Scott: You can also see that there's a trend emerging we expected back half of 'twenty four to be stronger than.
Scott: The first half as we are ramping up.
Scott: We have largely concluded our hiring we will expect to announce a few more to close that out in the first quarter, but we don't intend to spend the whole. Your hiring this has been something that we announced in the fourth quarter of 'twenty three.
Scott: And not only build the number but we have gotten incredibly high quality R. M. So really the increase in commercial is just a function of them being here a full year in more on average than the full year, and then really doing a ramped up production. So we have a lot clearer visibility into what's possible in 'twenty.
Scott: 25, so we just kind of extrapolated that I would add to that that we have.
Scott: On the ABL and the leasing side, that's a business that we started about three years ago, and we've continued to grow and it now has about $1 2 billion in outstandings, but that can continue opportunity for us as well. So the commercial growth plan that we've had is is right on track and.
Scott: I'm very pleased with where we are heading into the year end and that is why we see that ramp up in growth in 2025.
Speaker Change: Perfect Alright, thank you very much.
Scott: Thank you Scott.
Speaker Change: Next question is from Daniel Tamayo from Raymond James. Please go ahead.
Scott: Thank you good afternoon guys.
Scott:
Scott: I guess first.
Speaker Change: Just on the credit side, one for Pat here, you you've talked about the the deep dive that you're you're doing on the loan portfolio and how that's impacting the the ratings on the loans I'm just curious how far along you are in that process and if we should expect to continue to see.
Speaker Change: Some migration just related to the the work that youre doing that.
Speaker Change: We're doing the deep dives just for clarity, we're doing on a constant basis and we've been doing it for the last couple of years so really.
Speaker Change: But you know what Youre seeing is kind of just early recognition of any changes in credit. So that's an ongoing process that we're constantly looking at and in I would say from quarter to quarter, There's certainly ins and outs that come with the normal course of business.
Speaker Change: Just trying to be a little more proactive in how we're doing the risk rating to kind of get ahead of it if there is going to be any stress, but the good news is we're not seeing any buildup in the non accrual. So we think we've we're kind of staying ahead of these things as they do pop up.
Speaker Change: Okay. Thank you.
Speaker Change: And then maybe one for you Andy.
Speaker Change: You know with the with these significant changes that you've been making kind of overall the you've talked a lot about and then kind of the balance sheet changes that you've made here in the fourth quarter do you think it's likely that the the major changes are over it sounds like you are through the majority of the hirings for on the commercial side, but as it relates to the balance sheet structure.
Speaker Change: Does it feel like the major changes are done or are there still some.
Speaker Change: Some changes that you'd you'd be interested in making in the future.
Speaker Change: Well, it's a great question. So what I would say is what we needed to prove out is that we can grow organically and we can shift the mix, we're proving that out right now.
Speaker Change: We saw an opportunity to inorganically take down our residential real estate concentration of non customer residential real estate and we've largely done that.
Speaker Change: Will there be other opportunities, where we don't have anything planned in 2020 for but there are always different opportunities that we look at from an.
Speaker Change: Ganic growth standpoint in right now because we have a business that is growing on the commercial side. It's growing its deposit base. It has household growth we have customer satisfaction. We've invested in digital we have the ability to scale at this point. So opportunistically if there's a deal in the next 12 months.
Speaker Change: 24 months, we have a team that's very stable and could move down that path, but right now for 2024, what I see is a really good opportunity to execute on the.
Speaker Change: On the organic side.
Speaker Change: Okay, great well I appreciate you taking my questions.
Speaker Change: Thank you thanks Daniel.
Speaker Change: Our next question is from Terry Mcevoy from Stephens. Please go ahead.
Terry Mcevoy: Hi, good afternoon. Thanks for taking my questions. Maybe a question for you that's direct.
Terry Mcevoy: Record high customer satisfaction scores net promoter score scores all moving in the right direction, but my question is how and where does that translate into growth. When we look at the balance sheet and the income statement and does that give you the confidence in the 6% core consumer deposit growth I E that you've talked about.
Terry Mcevoy: Yeah, Terry I think if I were at a town Hall I think that was a planted question because that.
Terry Mcevoy: That is right in our wheelhouse.
Terry Mcevoy: I've talked a lot about customer satisfaction, and we've talked about household growth and we want to make that a question. That's on the road to somewhere and so I'll break it down like this in 'twenty, two we shrunk our customer base, 1% in 'twenty three we grew at zero percent in 'twenty four we grew at 1% and now.
Terry Mcevoy: We're forecasting 2% the reason that matters is because between 'twenty, two and 'twenty for the quality of account in dollars increased 23%. So the number that we have now four growth every time, we grow by 1% that equates to about $150 million in additional balances.
Terry Mcevoy: So that's the first time, we've had a tailwind coming into the year in over a decade and that tailwind in that productivity expectation now goes from $150 million two at 2% growth. It goes to $300 million. So we look at that then we add on top of that we added a pause.
Terry Mcevoy: That vertical that's just getting started we've hired really talented people and we're accelerating whatever technology expectations. We have to make sure that they are effective but theres no doubt that they are experts in what they do we add on to that 20.
Terry Mcevoy: 20, plus our Ams go into the year with a balanced scorecard that incent them to bring in full relationships. We that is just an accelerant of everything we've done and then we we don't talk about it a whole lot, but we've invested in our H S. HSA business, which is also a deposit heavy business. So when I add household growth with quality.
Terry Mcevoy: Accounts, when we add new deposit vertical when we had increase in our M. A balanced scorecard in HSA.
Terry Mcevoy: Were not just hoping that we grow faster than the marketplace. We've invested in the strategies to do that and so that that's where I get a confidence on where I see the deposit growth coming.
Speaker Change: I swear Ben didn't email email me that question I swear.
Speaker Change: [laughter] and then just as a follow up you know I think we all would agree you're positioned to play offense in 'twenty five some of the larger banks are now committing to grow loan growth this year and maybe some more of your metro market. So how do you. How did you think about your expense guide for the year and what might be.
Speaker Change: More competitive environment, especially as what Scott brought up on the C&I side, where you you had a lot of success in the second half of the year.
Speaker Change: Maybe maybe I'll translate that question do you is it can we stay in the 3% to 4% or do you do we have pressure on the upside is that what you mean on the expense number.
Speaker Change: No I was talking on the loan growth and large banks being more.
Speaker Change: Oh, great can I see yeah on the on the pricing side.
Speaker Change: And and so what I've actually been asking this question. This week, whether that'd be from our Chief Credit Officer, who sees every deal or our head of commercial and across the markets that we're in with the verticals that we're in we have not experienced the pricing pressure.
Speaker Change: On the deals that we've been putting on the books and as you can see we've been put in an increased amount on the books and so when you get quality relationship managers that that have market knowledge and long term relationships. That's the primary driver we would not be immune of course, if the marketplace created that pressure.
Speaker Change: On on pricing on new deals, but we just haven't seen it at this point.
Speaker Change: Yeah.
Speaker Change: Thanks for taking my questions.
Speaker Change: Thank you Terry.
Speaker Change: Once again, if you'd like to ask a question. It is star one.
Speaker Change: And if there are no further questions I'd like to turn the floor back to management for any closing comments.
Speaker Change: Well, what I will say in closing as we have as much momentum heading into the year as we've had in the four years that I've been here. We appreciate your interest and the associated Bank story, and we look forward to providing updates as the year goes along thank you.
Speaker Change: This concludes today's teleconference. You may disconnect your lines at this time. Thank you again for your participation.
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