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spk05: Good afternoon, everyone, and welcome to Associated Bank Corp's fourth quarter 2020 earnings conference call. My name is Diego, and I will be your operator today. At this time, all participants are in the listen-only mode. We will be conducting a question and answer session at the end of this conference. Copies of the slides that will be referenced during today's call are available on the company's website at investor.associatedbank.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 factor section of Associated's most recent Form 10-K and subsequent SEC filings. These factors are incorporated herein by reference. For reconciliation of the non-GAAP financial measures to the GAAP financial measures mentioned in this conference call, please refer to pages 22 and 23 of the slide presentation and to pages 10 and 11 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 Philip Flynn, President and CEO, for opening remarks. Please go ahead, sir.
spk03: Thanks, Diego, and welcome to our fourth quarter 2020 earnings call. Joining me today are Chris Niles, our CFO, and Pat Ahern, our Chief Credit Officer. Before discussing our results for the fourth quarter and full year, I'd like to say a few words about the CEO transition we also just announced. After 11 years with Associated, I announced my plans today to retire at the end of 2021. I've been thinking about this for some time, and in consultation with the Board, we agreed this is the right time to initiate our succession process. As noted in the press release, I will continue as President and CEO until my successor is in place, at which time I'll step down from both of those roles and from the board. I'll be available to the new CEO in an advisory capacity thereafter to assure a smooth transition for our customers and colleagues. The board has commenced a search for a permanent successor and will consider our internal as well as external candidates. As you can appreciate, we cannot speculate on the timeline for that search, but the board and I are highly confident that we'll name a strong successor it will take associated to its next phase of success, continue our profitable growth trajectory. I look forward to working with my successor to ensure a smooth and seamless transition. But now let me turn to our fourth quarter and full year results. This was a year unlike any of us has experienced. In the midst of incredible challenges and uncertainty, the commitment of our colleagues shone through. COVID-19 changed every aspect of life, including how people and businesses bank. In navigating the unknown, it was essential that our customers were able to count on us and that our teams were safe and well-positioned to provide their support. As businesses and schools shut down, we found new ways to support both the health and financial well-being of our customers and communities. Through the efforts of our colleagues, we were able to support our customers with over a billion dollars of PPP loans and adapt our branch services as our customers shifted to remote banking. It goes without saying that 2021 will have many challenges. However, the arrival of the COVID-19 vaccines promise a return to normality. Perhaps it's only fitting this year we will celebrate our 160th year as a company and our rich history of supporting our customers and communities in their times of need. As we have through the decades, we stand eager to help build a stronger economy and better society. During 2020, we took several actions to prepare for the recovery we expect to see in 2021. On slide two, you can see the improving trends for a number of key items. With the sudden decline in interest rates this past year, we quickly moved to reduce funding costs and implement strategies to stabilize and increase our asset yields. Together, these actions helped drive margins higher during the fourth quarter. In addition, beginning in the second quarter, we took several steps to increase the efficiency of our organization. Included was the sale of associated benefits and risk consulting, the third quarter efficiency initiatives, reducing branches and personnel costs, and the recently announced sale of Whitnell, our family office subsidiary. Taken together, These actions will help drive further improvement in our efficiency and expense run rate as we move into 2021. We adopted CECL on January 1st, and as the pandemic began to unfold, we moved swiftly to increase our allowance in contemplation of the economy we saw through the middle of the year. As we moved further through the back half of the year, we were encouraged by the positive emerging trajectory of the economy. And as we closed out the year, we were very pleased with the low levels of deferrals and new problem loans, which allowed us to bring down our provisioning over the back half of 2020. Notably, we posted a net reserve release of $11 million during the fourth quarter. Collectively, these positive trends drove the EPS improvement we saw in the fourth quarter. We recorded $1.86 of GAAP earnings per share for the full year 2020, or $1.19 when adjusted for the gain on sale of associated benefits and risk consulting. Turning to slide three, let's drill further into some of these positive trends for the quarter. Our fourth quarter EPS was 40 cents, up more than 50 percent from the third quarter. We saw our net interest margin expand 18 basis points to 2.49 percent, driven by expanding commercial and industrial loan yields and PPP accretion from forgiveness. We ended the year with fourth quarter 2020 over fourth quarter 2019 average loan growth of 1.9 billion or 8%. Mortgage warehouse and CRE lending continued to be strong performers during the quarter. We continue to grow our lowest cost deposits, which accounted for 64% of total deposits at the end of 2020. The cost of interest-bearing deposits declined significantly throughout the year. During the fourth quarter, the cost of interest-bearing deposits, excluding time deposits, was just seven basis points. The provision for credit losses was $17 million during the quarter, down from $43 million in the third quarter. Loan deferrals fell to less than $80 million, and both non-accruals and potential problem loans declined. Our allowance reserve covered 1.76% of loans at the end of the year. We finished the year on a strong capital note, Tangible book value per share increased to $16.67, and all our regulatory capital ratios were higher year over year. On slide four, we've provided a summary of our 2020 pretax pre-provision income. We've also highlighted several significant initiatives which we executed over the year and their impact on PTPP. Adjusted for these significant items, PTPP was $393 million for the year. On slide five, we provide a similar view for the fourth quarter. Excluding the gain on sale of branches, fourth quarter PTPP was 94 million. Average annual loan balance trends are shown on slide six. Total average loans came in at 24.5 billion, up 1.4 billion or 6% for the year. PPP lending and CRE activity accounted for most of the year's growth. Commercial and business lending increased 983 million, or 12%, from 2019. This was driven by PPP lending and mortgage warehouse financing. We also continued to reduce our oil and gas exposure to only 296 million at the end of the year. Oil and gas outstandings now represent just a little more than 1% of our total loans. Average commercial real estate loans grew over 660 million as customers continue to build projects particularly industrial and distribution center projects, across our footprint. Construction lending has been particularly resilient in the upper Midwest, and our unfunded commercial real estate commitments stood at $1.9 billion at year end, reflecting a healthy amount of expected further growth as we move into 21. We originated a record $4.5 billion of mortgages during the year, driven by the lower mortgage rate environment. Despite this, Average consumer loans finished the year at $9.3 billion, down $230 million. The low rate environment encouraged refinancing activity across our markets and contributed to the further rundown in our home equity book. We've been reluctant to add low rate mortgages to our balance sheet, but we have benefited from the sale of originated mortgage loans in the form of mortgage banking fees. Turning to slide seven, we highlight changes in the quarterly loan trend. Compared to Q4 of 2019, average fourth quarter loans increased $1.9 billion. Commercial real estate loans increased $963 million, and commercial and business lending increased $1.2 billion, including PPP loans. On a sequential quarter basis, fourth quarter average loans fell $281 million from the third quarter. This decline was mostly attributable to PPP forgiveness, which we began to see in the fourth quarter, through year end, about 25% of our PPP loans have been repaid or forgiven. Looking out to 21, outstanding 2020 PPP Round 1 and 2 loans should be largely paid off or forgiven during the first half. We are currently originating new 2021 Round 3 PPP loans and expect these to peak in Q2 and then decline toward year end. With respect to residential mortgages, we project balances to be flattish throughout the year as new mortgage portfolio production and increasing home equity production and utilization are more or less offset by the negative impacts of the ongoing refi market on these categories. We are optimistic about commercial loan demand in 21. Specifically, we expect commercial real estate growth to continue at a strong pace and to increase average CRE balances by 4% to 6% during the year. We're also anticipating commercial line utilization expansion that should add 1 to 2% to outstandings, particularly as we move into the back half of this year. Taken together, we expect full year commercial loan growth, that is commercial real estate and commercial and industrial combined, of 2 to 4%. On slide 8, we've summarized our COVID-19 relief efforts for the year. During the second quarter, deferrals peaked at approximately $1.6 billion. At year end, Deferrals were just $79 million. We saw very positive trends throughout the year and are very pleased with where we ended. Most customers who received deferrals have not needed additional assistance and have been able to resume making normal payments. Total deferrals make up just 32 basis points of our total loans at year end. The remaining deferrals are primarily residential mortgage borrowers that are still in their initial six-month deferral period. We expect substantially all of these consumer deferrals to be cured or expire without any credit implications in the coming quarter. Our allowance update is shown on slide nine. We utilize Moody's December 2020 baseline forecast for our CECL forward-looking assumptions. The baseline forecast assumes additional stimulus, continuing low rates through 2023, and a COVID vaccine that becomes widely available late in this quarter. We had previously indicated that we expected to taper our reserving as we move through the year, and in fact, our fourth quarter reflects a net reserve release of $11 million. While we set aside $17 million as a provision for the quarter, we also charged off $28 million, resulting in a net lower quarter-over-quarter total allowance. This net release was driven by a $27 million gross reduction in our allowance related to our general commercial and business lending portfolios, This gross release was partially offset by $15 million of additional reserves set aside for commercial real estate loans. The commercial real estate reserves are driven by the fact that our construction loan portfolio has grown by over 30% year-to-date and that we reserve for the full committed amount on a construction loan at inception. As of December 31st, our total allowance was $431 million, down from $442 million at the end of the third quarter to Similarly, our ratio of reserves to loans was about flat, 1.76% to 1.77%. Our credit metrics are presented on slide 10. Potential problem loans, non-accrual loans, and net charge-offs all declined during the quarter. Our key COVID commercial exposures also continued to decline, and notably our oil and gas, retail, and restaurant exposure all declined during the quarter. We'd also note that we had no oil and gas net charge-offs this quarter, and we're comforted that with oil prices currently holding above $50 a barrel, we are well-reserved going into 2021. Assuming the positive credit dynamics continue, we expect our full-year 2021 provision to be no more than $70 million with some quarterly variability. Turning to slide 11, Annual average deposits were $26 billion, up nearly $1.3 billion, or 5% over 2019. At the end of 2020, low-cost deposits grew approximately $3.6 billion compared to the end of 2019. At the same time, we reduced high-cost time deposits and network deposits by over $1 billion. These are all-time record deposit levels for associated customers and are a testament to the resiliency of our systems and our ability to continue to attract and retain core customers in a low-rate and largely remote banking environment. We're also happy to report our customer satisfaction ratings have never been higher. Our customer interaction and call center survey data suggest our customers have been well served despite many of our branch lobbies being closed for part of this year. Further, our mobile applications continue to be refreshed and have been very well received by our customers. who've given us a 4.8-star rating out of five on the most popular mobile platform. Turning to slide 12, fourth quarter average deposits were $26.7 billion. Low-cost non-interest bearing and savings were up from the third quarter, while network and time deposits declined yet again. Low-cost deposits accounted for nearly 64% of our balances at the end of the year. Turning to slide 13, Fourth quarter net interest income was $188 million, up $6 million from the third quarter, and net interest margin of 2.49% was up 18 basis points from the third quarter. We had previously guided that net interest margin would bottom out during the third quarter and pick up in Q4. As expected, margin hit bottom in July and August and then rebounded to 2.56% in December. Asset yields benefited from our implementation of LIBOR floors, reduced investment activity, and generally widening spreads on new loans. On the liability side, we benefited from lower levels of borrowings driven by the influx of customer deposits, which drove our funding costs down. This persistent customer liquidity encouraged us to repay $1 billion of PPP loan fund funding in November. We also aggressively repriced our consumer deposit book, yet still have $288 million in 1% plus CDs, which will mature in the first half of 21. We expect spreads to widen on our LIBOR-based commercial loans as we continue to implement new LIBOR floors into our new and renewing loans. This will happen over time or in conjunction with other repricing or credit actions, including the anticipated migration to SOFR and other indices away from LIBOR later in 21. We continue to expect to see our margin expand as we move throughout the year. We expect our net interest margin to be relatively flat in the first quarter and to gradually expand over the course of the second through fourth quarters. We expect the full year's margin to be between 2.55% and 2.65%. Turning to slide 14, fourth quarter non-interest income came in at $86 million. Mortgage banking, service charges, and wealth management fees all contributed to this quarter's growth. We also recorded $7 million of deposit premiums on our previously announced branch sales. Our mortgage banking activity remained strong this quarter, with nearly $340 million of mortgages sold to the agencies, generating $14 million in net fee revenue. We also picked up nearly $1 million of MSR recovery during the fourth quarter and still have over $17 million in temporarily impaired MSR at year end. We expect mortgage banking activity to remain somewhat elevated as we move into the year. Service charges and deposit account fees came in at $15 million, an increase of $1 million quarter over quarter. Wealth fees also increased nearly $1 million, reflecting the strong equity market dynamics. On January 5th, we announced the sale of our Whitnell Family Office subsidiary, which constitutes a little less than 10% of the wealth management revenues and is focused on the ultra-high net worth market. Pro forma for the sale, we retain approximately $12 billion of assets under management. As we look forward and net of the pending Wittenell sale, we expect non-interest income of $280 to $300 million in 2021. On slide 15, we highlight our expenses. The third quarter came in at $173 million inside of the $175 million level we were targeting. Core expenses continue to trend lower, largely driven by the reduction of expense following the sale of ABRC and the branch sales, which mostly closed in December. We expect expense initiatives to provide further savings as we move into 2021. As you can see from the charts on the right, our efficiency trends continue to improve, and our adjusted expenses to average assets ratio is already trending to 2%. Given these positive dynamics and the pending sale of Whitnell, we're revising our full year 2021 expense guidance down to approximately $675 million. As shown on slide 16, our regulatory capital levels remain strong. Our common equity tier one ratio increased 23 basis points from the third quarter and has grown 109 basis points from the first quarter as we conserved capital in light of economic uncertainty. Our TCE ratio grew 44 basis points from the third quarter, benefiting from solid earnings. and lower asset levels as we used excess cash to reduce higher cost deposits and our PPP loans began to be forgiven. As we look forward into 21, we expect to resume opportunistic share repurchases this quarter. We will continue to target TCE levels at or above 7.5% and CET1 at or above 9.5%. So to wrap up on slide 17, we're providing guidance for 2021. We expect full year net interest margin of 255 to 265 basis points. We expect mortgage banking revenue to moderate, but non-interest income still to come in between 280 to 300 million. We're revising our 2021 expense guidance down to approximately 675 million from the 685 million previously guided. Our provision for credit losses has trended down since the second quarter to an annualized fourth-quarter run rate of about $70 million. With the positive credit trends we're seeing and assuming the economy behaves positively, as is generally expected, we believe our 2021 full-year provision will be at or better than $70 million with some quarterly variability. And we expect our annual tax rate to normalize in the 18% to 21% range. With that, we'd be happy to take any of your questions.
spk05: Thank you. At this time, we'll be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press the star key followed by the number 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we pull for questions. Our first question comes from Jared Shaw with Wells Fargo Securities. Please state your question.
spk06: Hi, good afternoon, everybody. Can you hear me? How are you? Great. Thanks, Bill. Congratulations. I hope you get to really enjoy your last full winter up in Green Bay and get the most out of it. Congratulations on the next step, and we look forward to working with the rest of the team. I guess maybe starting with the margin, I think that your guidance is pretty good. It's better than what we're seeing out of most, and we'd love to hear, I guess, where are you seeing the new loan yield? You talked about getting better spreads and putting in some LIBOR floors. Where are we seeing new loans coming on right now, and do you think that that's going to be sustainable for the next quarter or so?
spk03: Yeah, thanks for the question, Jared. I'll let Chris answer that, but just to what you said, yes, winter is cooperating. It was eight degrees here yesterday, so I am still enjoying that. Chris, you want to take the NIM question? Yeah.
spk07: So, Jared, we would point you to both the slides and the margin page in the deck, page seven in the table. And we say that the core commercial and business lending spreads have widened. And it's a combination of the strategy to have floors inserted in loans. So years ago, they started to sort of phase those out. And we've been reinserting them through the course of the year. And that started to basically lift our core business. yield on the loans. The spread, in fact, doesn't change. Just the baseline goes from LIBOR and the teens to something like LIBOR at 50 basis points or 100, depending upon the type of loan. And we're seeing a good maintenance of the spreads in commercial real estate with lending. So not necessarily widening, but not compressing either. And the new loans aren't resulting in material shift to that. And so the combination of the new stuff coming on, at reasonable spreads in commercial real estate, the slightly better mix of construction to total real estate and the LIBOR floor strategy is really contributing factors to the expansion you've seen in that commercial loan yield. And then as we mentioned or still mentioned on residential mortgages, we've really been holding the line and we're not terribly excited about putting two-handle mortgages into the portfolio. And so we've been selling most of that production to the agencies. And so the book that we're left with isn't growing, but at least it has something in the neighborhood of a percent yield.
spk06: Okay, that's great. And then I'm assuming that that margin guidance assumes the benefit from, you know, those initial PPP loans, but anything coming out of the newest round is not included in that. Is that correct?
spk07: So we've given a full year guidance for the 255 to 265. That's sort of a good indicator for the entire year. But, yeah, what I just walked you through on our spreads is all excluding PPP. We break out commercial PPP as a balance and as a yield and a spread independently for you in all of our tables and materials.
spk06: With the newest round that's coming out, I guess what should we be thinking volume could look like on that compared to what we saw? earlier and call it third quarter peak.
spk03: I'll take that, Chris. As we sit right now, we've already received more than 1,000 applications for $150-ish million. I don't know. It's hard to prognosticate how much there's going to be. We did $1 billion in the first two rounds last year. The rules are a little bit more difficult. this time around. So it'll certainly be something less than that, but it's kind of hard to hazard a guess.
spk06: Okay. All right. Totally get that. And then just shifting to the core loan growth, you know, looking at your guidance, expecting 1% to 2% increase in C&I. You also talked about utilization improving and giving that 1% to 2% benefit. So is that really, you know, you're not expecting a lot of necessarily core C&I growth other than an improvement in utilization. Is that the right way to look at it?
spk03: Yeah, I think you're going to see most of our growth from the big backlog of commercial real estate fundings that will come. We're sitting at the end of the year at almost $2 billion. And there's additional new business there. Commercial utilization, as you know from looking at other banks and across the industry, is very low. So we certainly think as the economy picks up, we'll get more utilization. 1% to 2% may be a little bit conservative. It's hard to know what the general commercial borrower or when the general commercial borrower is going to feel comfortable stepping up. I think growth will be perhaps stronger in the second half.
spk06: Okay. And then I guess just finally for me, looking at the allowance and the CECL impact, you know, looking at the allowance XPPP of 182 is really strong, I guess, given the overall quality backdrop. How much did you have to rely on qualitative overlays this quarter to get there, and is that, you know, maybe a reduction of qualitative overlay is going to be the driving factor behind the provision guidance, or is that not a change?
spk03: Chris, do you want to take that one?
spk07: Yes.
spk03: That's a good question. No, I think...
spk07: Yeah, Jerry, in our modeling, it's not so much the qualitative overlays. I'd say the qualitative overlays have kept the reserve level because we try to think about the reserve as being counter-cyclical. And so with an improving forecast, that captured and driven some of the numbers here in our modeling. I think your question is, as you think about that level of provision guidance that we've given you, Does that imply perhaps that the total reserve level is coming down over time? I think the answer to that is yes.
spk06: Great. Thank you.
spk05: Thank you. Our next question comes from Terry McEvoy with Stevens.
spk08: Please go ahead. Hi. Good evening, and Phil, congratulations on the retirement news. I can't believe it's been 11 years, but congratulations.
spk03: Thanks, Terry.
spk08: I'll start just on page two. I'm looking at the personnel expenses, which have come down all year, and we've seen that in the expense line. My question is, how much of that kind of fell to the bottom line last year, and how much of it was kind of reinvested in the business? I know in the past, and maybe I missed it, there was kind of a technology spend slide and maybe a few others.
spk03: Yeah, going forward, much of this is falling to the bottom line. We've been able to maintain a fairly stable tech spend, although we continue to spend significant dollars on that. So this change in personnel costs is really benefiting the bottom line.
spk08: And then as a follow-up, kind of your COVID watch list portfolio, slide 20 here, wondering if you could provide some updated thoughts on some of the larger portfolios, particularly kind of the retailers and the retail REITs that you've discussed in the past.
spk03: Sure. Pat, you want to take that?
spk00: Sure. Right now we're seeing, you know, some stabilization there. The issues we had in the past have all been kind of circled and in large part put behind us. So I think we're seeing in our portfolio a lot of these retail centers are collecting more. They're seeing an increase in rents. So that's been a positive. You know, the other one that stands out in terms of real estate is hotels. Obviously, we have a pretty small exposure there, relatively speaking. And I would say we've kind of, again, circled all the issues and we've kind of put, you know, actions in place to continue to monitor those and get those hopefully through the next, you know, 6 to 12, 18 months. Thank you.
spk05: Our next question comes from Scott Cyphers with Piper Sandler. Please, to your question.
spk09: Good afternoon, guys. And, Phil, I wanted to add my congratulations as well. I've enjoyed working with you and look forward to this final year, but wish you the best, and it's well-earned. Thank you, Scott.
spk03: I'm not done yet, though, so you probably haven't done – you're not done talking to me yet.
spk09: Yeah, no, fair enough. That's a good point. I guess just on the search and just sort of the timing on announcement, was there any thought to wait to announce until you'd kind of gone through the search? I mean, obviously it's a kind of dicey thing with disclosure and stuff, but any sense for why now? And then, you know, M&A has become another topic in the industry. It's gotten a lot more frothy more recently. Does the search for a new CEO, does that sort of, put you guys off from looking at any transactions yourself. And then I guess conversely, I guess one way to find a new CEO would be to partner with someone else and source the CEO that way. Just maybe any broader M&A thoughts you could offer.
spk03: Sure. So a bunch of questions in there. First of all, on timing, I've been discussing this with the board for some time. And as you point out, at some point, You know, this is material and should be disclosed, which is why we're doing it now. Secondly, I really think that we are very well positioned at this point with all the actions we took last year to really participate in the economic recovery. So making this announcement now in the face of what we think is an improving 21 and improving results for us makes some sense. As far as M&A... As you've seen us been active over the last few years in acquisitions, we will continue, whether it's me sitting here or perhaps someone else, to look at those kind of opportunities, and if we think they're in the interest of our shareholders, pursue them. And as always, as far as doing something more strategic, the board – with their responsibility to look out for shareholders, is always open to looking at something like that.
spk09: Okay. All right. Perfect. Thank you. And then switching gears a bit, I guess, for Chris, probably most appropriate for you, but as it relates to PPP, would you mind sort of trying to embed that into what total loan growth will look like for the year, you know, inclusive of the PPP ebbs and flows between all these you know, myriad rounds that are in there. And then same thing on the margin. How much will PPP forgiveness contribute in your existing guidance?
spk07: Sure. So I think, Scott, if you take a look at the transcript when you go back to what Phil articulated, that we really expect the bulk of the PPP that fares today to go away. So that's the better part of the remaining portion and the large portion of round three. So PPP on balance sheet will sort of be a non-material number probably by the time we get to the end of 21 in the grand scheme of things. The fees that are remaining for 2021 from the 2020 round we disclosed is $12 million. So there's $12 million of unamortized fees that we're largely assuming we're going to receive next year. And again, as I alluded to, we'll figure out how much the new is, but it's not going to be on the same order of magnitude as the round one and round twos, right? So it'll be a smaller number and it'll mostly run through the year. So it'll be a little over $12 million plus whatever happens to round three is what's basically assumed in the budget.
spk08: Terrific.
spk09: All right. Well, thank you both very much.
spk05: I appreciate it. Thanks, Scott. Our next question comes from John Armstrong with RBC Capital Markets. Please state your question.
spk01: Good afternoon. Hey, John. Bill, I'm more interested in the Lambeau weather report for Sunday.
spk03: Mid-20s and likelihood of light snow.
spk01: Okay.
spk03: All right. Brady won't care, but the rest of their team isn't going to like it.
spk01: I was just going to say, similar to Foxborough. Well, good luck with that. I'll congratulate you after probably Q3 earnings. But just a question back on the CNI piece of it. Those balances have been coming down over the last several quarters. And I'm curious if you're starting to see signs of life there. It sounds like you're a little more bullish on that later in the year. But are you starting to see some of those balances trough?
spk03: You know, we've had some really good success, particularly in the fourth quarter, with some new customers and some new closings. And the pipelines are encouraging. I mean, that said, you know, low utilization has kind of masked that. So I think it's still a little early yet, but, you know, we believe that, you know, vaccines are going to become much more widely available here. And as the population starts to be able to access that, it's going to have a pretty big impact on growth. So as I said, the 1% to 2% is our forecast now, but I would think that there's a decent likelihood that that's conservative. But you're probably going to see it more in later quarters, you know, after the first quarter.
spk01: Okay. Good. And then on the interest-bearing demand growth, If you guys had to put your finger on what's really driving that, is it environmental? Is it you? And how sticky do you think these balances are longer term?
spk03: Chris, you want to take that?
spk07: Sure. I mean, I would note that the rate on those is blending out at eight basis points. So they're not being attracted by rate. So it's not a rate opportunity. But I think it is generally the liquidity broadly. across our commercial customer base and across in particular for these accounts, the municipalities and various government entity level groups that have balances that have just nowhere else to go with their money in the short run. There aren't investment options that make too much sense either. And eight basis points is better than zero. And so I think that's generally the math that those customers are doing that are in these types of accounts. Okay. Okay.
spk01: And then, um, resuming the repurchase program, I'm just curious in your mind, how attractive, uh, is that for you and how aggressive would you like to be? Thanks.
spk03: Yeah. So all we can really say on that is, you know, we have, what do we have about a hundred plus million dollars of authorization right now. Um, and you know, Even though the stock has somewhat recovered, we're still trading at what would, to us, seem an attractive level to be purchasing stock at. So not going to signal too much about what we're going to do in the first quarter other than we're going to resume.
spk01: Okay. Okay. Well, you issued stock when you showed up, and now you're buying it back, right, 11 years later. So that's good.
spk03: Well, we've been buying it back for a while, so. Okay.
spk01: All right.
spk05: Thank you. Thanks, Chad. Our next question comes from Michael Young with Truist. Please state your question.
spk04: Thanks for the question. I'll, I'll follow up on, on John's, uh, well-wishing Phil with, uh, you know, Packers won a Superbowl back close to when you started there. So hopefully they'll bring one home for the Gipper, uh, late in.
spk03: That would be a good back. That would be a good bookend to this thing. Cause, uh, I got here at the end of nine and they won the 10 Superbowl. So yeah, that would be, that would be perfect.
spk04: Yeah. The timing could be, could be, uh, unique. Well, anyways, um, you know, maybe just following up on that, you know, kind of starting with just a high level question, you know, you've been, been here, um, you know, for 10, going on 11 years and, you know, just curious, you know, with, with what you've done in terms of credit cleanup and then, you know, efficiency improvement, technology adaptation and rollout, you know, for the, for the company. you know, through your career, and I'm sure I've missed some things that you accomplished along the way, but what do you see as kind of the core needs for the franchise going forward from here and, you know, just anything that we should be expecting maybe on a go-forward basis?
spk03: Yeah, that's a great question. Appreciate that. We've positioned ourselves well from a credit point of view, as you point out. We have a very disciplined credit culture. I think – If you look back to March of last year, it was very hard to forecast how this was going to turn out, but it appears at this point that this is going to be a very mild credit cycle. We charged off about 40 basis points of loans last year. We expect something in a similar zip code to that, and compared to what we were thinking in March, it's pretty mild. Now, perhaps not every bank will have those results, but We have relatively modest and broadly diversified exposure. So, yes, I think we're in good shape on credit. We've invested a lot in tech. Thank goodness we did that because when we had to handle our customers remotely, we've had a mobile app that works, online works. We've invested a lot of money in this. And importantly, we still have 3,000 people working from home, and we've been able to do things like handle a record amount of mortgage volume and such. Going forward, the challenge for us is the same challenge as the whole industry faces. We've got a basically zero interest rate environment stretching out for a couple, three years. So it behooves us to continue to work hard on finding efficiency so that we can grow our bottom line in that very difficult macro environment. Fortunately, the economy to us looks like it's going to improve, and that will give us some tailwind as we get into the year. But doing things well, doing them efficiently is the biggest challenge we have in this rate environment.
spk04: Okay. I appreciate that perspective, Phil. And, you know, maybe just following up on kind of the loan growth outlook, you know, I think you mentioned, you know, still – uh resi is not super attractive at these yields although you know maybe better than securities but you know it seems like the the swing factor and kind of growth for 2021 outside of just the macro uh list and commercial is is the ability to start you know stabilizing or and or growing kind of the residential book so at what point you know with the long end of the curve kind of ticking up would you would you be interested in putting that paper on the balance sheet
spk03: Chris, what do you think? I mean, security will get a little more attractive, hopefully, right?
spk07: We would hope so, yeah. And the resi mortgage book, we've been sort of focused in, you know, if you look at this quarter's yields for the fourth quarter, the resi book had an effective yield of 3%, and that's probably – a reasonable level that for us to be adding to that book and certainly a much better yield relative to other security choices that might be available. And it wouldn't require much of a backup in some products to get back to those levels. So that would certainly be a level we'd probably start to add stuff back to the balance sheet.
spk06: Okay. Thank you. I appreciate it.
spk05: Thank you. Just a reminder to ask a question, press star one on your telephone. Our next question comes from Chris McGrady with KBW. Please state your question.
spk02: Hi. This is actually Kelly Mata for Chris. Thanks so much for the questions. Most of what I had has been asked and answered already, but maybe on liquidity and liquidity management, we've heard that there will, from a lot of banks, that there's still going to be a a drag from an influx as PPP is forgiven and potentially we get more stimulus. How should we be thinking about that over the course of 2021 and the size of the balance sheet? Thank you.
spk03: Sure, I'll take that, Chris. If you notice the quarterly trend, you know, obviously we and everyone have been awash in liquidity. But you'll also notice that we've taken some actions to reduce that liquidity. So we prepaid, as you know, in the third quarter, the FHLB advance. That took a significant amount of cash off the balance sheet. And this past quarter, we decided to go ahead and repay the Fed PPP facility. That took another billion dollars off. So we've done some significant things to improve, i.e., reduce the amount of cash we've had. Now, as the next round of stimulus rolls out and customers get PPP loans, liquidity perhaps will build, but we'll continue to look for opportunities to manage the cash on our balance sheet. Do you want to add anything to that, Chris?
spk07: No, I think you covered it. I think we've reduced, as Phil alluded to, not only the $950 million of FHLB advances that we repaid in the third quarter, but year over year, over a billion and a half. So we've really put a lot of that, you know, if we look at the total year over year, deposits are up 2.7 billion, and we repaid a billion and a half of Federal Home Loan Bank, and it still leads to another billion dollars of PPPLF. So we really sort of put the money out to offset other liabilities in an effective way.
spk02: Thanks a lot.
spk07: Looking for those opportunities.
spk05: Thank you. If there are no further questions at this time, I'll turn it back to management for closing remarks.
spk03: Great. Hey, thank you, and thanks for the kind words. I appreciate it, but I do look forward to talking to you in April, which is most likely. If you have any questions in the meantime, give us a call as always, and thanks again for your interest in Associated Bank, and go PAC on Sunday.
spk05: Thank you. This concludes today's conference. All parties may disconnect. Have a great day. Thank you.
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