Associated Banc Q4 2024 Earnings Report

FMC EPS Results

• Actual EPS: $0.57
• Consensus EPS: $0.53
• Beat/Miss: Beat by +$0.04
• One Year Ago EPS: N/A

FMC Revenue Results

• Actual Revenue: N/A
• Expected Revenue: $341.57 million
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

FMC Announcement Details

• Quarter: Q4 2024
• Date: 1/23/2025
• Time: After Market Closes
• Conference Call Date: Thursday, January 23, 2025
• Conference Call Time: 5:00PM ET

FMC (NYSE:FMC), an agricultural sciences company, provides crop protection, plant health, and professional pest and turf management products. It develops, markets, and sells crop protection chemicals that includes insecticides, herbicides, and fungicides; and biologicals, crop nutrition, and seed treatment products, which are used in agriculture to enhance crop yield and quality by controlling a range of insects, weeds, and diseases, as well as in non-agricultural markets for pest control. The company markets its products through its own sales organization and through alliance partners, independent distributors, and sales representatives. It operates in North America, Latin America, Europe, the Middle East, Africa, and Asia. The company was founded in 1883 and is headquartered in Philadelphia, Pennsylvania.

FMC Q4 2024 Earnings Call Transcript

Presentation

[Operator]

Good afternoon, everyone, and welcome to the Associated Bancorp's 4th Quarter 20 24 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. We'll 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.

[Operator]

Associatedbank.com. As a reminder, this conference call is being recorded. As outlined on Slide 1, during the course of the discussion today, management may make statements that constitute projections, expectations, beliefs or similar forward looking statements. Associated with 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's actual results to differ materially from the information discussed today is readily available on the SEC website in the Risk Factors section of Associated's most recent Form 10 ks and subsequent SEC filings.

[Operator]

Factors are incorporated herein by reference. For 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 and to Pages 1011 of the press release financial tables. Following today's presentation, instructions will be given for the question and answer session. President and CEO for opening remarks. Please go ahead, sir.

[Andrew Harmening, President & CEO at Associated Banc-Corp]

Well, good afternoon, everyone, and welcome to our Q4 earnings call. I'm Andy Harmening. I'm joined once again by our Chief Financial Officer, Derek Meyer and our Chief Credit Officer, Pat Ahern. I want to start off by sharing some highlights from the Q4 of 2024. From there, Derek will cover margin, income statement and capital trends, and Pat will provide an update on credit.

[Andrew Harmening, President & CEO at Associated Banc-Corp]

We continue to see signs of strength in the U. S. The U. S. Economy and closer to home in the Midwest, the situation has remained remarkably stable.

[Andrew Harmening, President & CEO at Associated Banc-Corp]

Unemployment rates in Wisconsin, Minnesota and several other Midwestern states remain well below the national average of 4.1%. Our prime and super prime consumer borrowers have 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 with the execution of our growth strategy and the Q4 was an active one for our company. We added to our commercial capabilities through the launch of a new specialty deposit and payment solutions vertical. We raised over $300,000,000 of new capital through a common stock issuance and put a portion of that capital work through a balance sheet repositioning, selling approximately $700,000,000 in low yielding mortgage loans and $1,300,000,000 in AFS securities.

[Andrew Harmening, President & CEO at Associated Banc-Corp]

We also purchased $55,000,000 in existing customer credit card balances through expansion of our participation agreement with Allon Financial Services. During the quarter, we also announced the addition of 2 widely respected business leaders to our Board of Directors in Kristen Ludgate and Owen Sullivan. We elevated 3 senior business line leaders to our executive leadership team in the Head of Corporate and Commercial Banking, Phil Trier Deputy Head of Commercial Real Estate, Greg Worsick and Deputy Head of Consumer and Business Banking, Steve Zampour. And we welcomed several high quality RMs 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.

[Andrew Harmening, President & CEO at Associated Banc-Corp]

Here in Q4, we delivered adjusted loan growth of over $500,000,000 and core customer deposit growth of nearly $900,000,000 while maintaining stability with and discipline with regards to credit risk. As we look 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. A growing customer household base with deepened 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 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 2.

[Andrew Harmening, President & CEO at Associated Banc-Corp]

Our 4th quarter results were impacted by non recurring items tied to the balance sheet repositioning we announced in December. After excluding these non recurring items, the emerging momentum of our core businesses was reflected through adjusted earnings per share of $0.57 Pork customer deposits grew by nearly $900,000,000 during the quarter. And on the other side of the balance sheet, we grew total loans by over $500,000,000 after adjusting for the mortgage loan sale announced in December. Over $300,000,000 of that growth came in our commercial and business lending segments. An emerging growth story within our commercial business is starting to take hold.

[Andrew Harmening, President & CEO at Associated Banc-Corp]

We've said all along that our intention is to fund the majority of our loan growth with core customer deposits. And in 2024, we did just that. For the year, we grew core customer deposits by $1,200,000,000 or 4.3 percent and adjusted loans by $1,300,000,000 or 4.4 percent. This will remain a point of emphasis for us in 2025. Shifting to the income statement.

[Andrew Harmening, President & CEO at Associated Banc-Corp]

Our net interest income increased $8,000,000 from Q3 and finished at $270,000,000 Our margin increased 3 basis points to $281,000,000 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 2025. Our GAAP non interest income was impacted by non recurring items tied to our balance sheet repositioning during Q4. But on an adjusted basis, we saw a $5,000,000 quarterly increase. Total adjusted non interest expense finished at $210,000,000 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.

[Andrew Harmening, President & CEO at Associated Banc-Corp]

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. In 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 credit risk in our portfolio by both segment and geography. On slide 3, we provide a detailed breakdown of EPS impacts from several non recurring items impacted our financial results in Q4. 1st, the balance sheet repositioning we announced during the quarter impacted our income statement through a $130,000,000 loss from the sale of mortgages and another $148,000,000 net loss on the securities sale we completed.

[Andrew Harmening, President & CEO at Associated Banc-Corp]

Combined, these items reduced non interest income by $279,000,000 2nd, our total non interest expense was impacted by $14,000,000 loss on prepayment of FHLB advances 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 the credit card balances we purchased during the quarter. Net of tax, our adjusted EPS came in at a positive $0.57 for the quarter. This adjusted number underscores the strength of our core businesses and gives us confidence that we're on the right path with our strategic plan as we move into 2025. Shifting to slide 4.

[Andrew Harmening, President & CEO at Associated Banc-Corp]

We made significant progress as a company since I joined in 2021. And thanks to several tailwinds 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. This includes the 3 recent executive leadership team members added in Q4, but it also includes Jane Laudio, who stepped into her role as President of our Private Wealth business in late 2023. In the short time she's been here, we've already seen more new relationships, increased referrals and higher sales activity for retirement plans and other services.

[Andrew Harmening, President & CEO at Associated Banc-Corp]

2nd, we now have a consumer value proposition that can compete with just about anyone in the industry, which has better equipped us to deepen relationships with existing customers and attract new ones. 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 continue to be encouraged by the momentum we've seen to date. 3rd, we've continued to make progress on our efforts to diversify our consumer loan portfolio without abandoning our conservative approach to credit. By getting out of TPO lending, shifting to an originate to sell model and repositioning our balance sheet, we've reduced our resi loan concentration from a high of 36% of total loans before I got here to 24% of total loans as of year end, which has provided capacity to grow in more profitable lending categories.

[Andrew Harmening, President & CEO at Associated Banc-Corp]

And 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 as the new RMs across our footprint settle in and build their respective pipelines. On slide 5, we highlight our loan trends through the quarter. After excluding mortgage loans sold as part of the balance sheet repositioning, total loans increased by $501,000,000 in Q4.

[Andrew Harmening, President & CEO at Associated Banc-Corp]

This growth was led once again by C and I, which grew by over $300,000,000 in Q4. We also saw $157,000,000 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 Q4. As we continue diversifying our consumer portfolio, we saw auto finance balances grow by $101,000,000 here in Q4 and other consumer categories grow by $69,000,000 The latter was largely driven by the $55,000,000 in credit card balances we purchased during the quarter. On slide 6, we show loan trends on an annual basis.

[Andrew Harmening, President & CEO at Associated Banc-Corp]

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 total loan portfolio by over 20% and maintaining our conservative approach to credit. More recently, total loans grew by $552,000,000 from year end 2023 to year end 20 24. This growth has been highlighted by emerging traction in our commercial business, particularly in the back half of twenty twenty four. After growing C and I loans $230,000,000 in the first half of the year, we grew by over $600,000,000 in the back half of the year as the RMs we've hired are steadily accelerating their production.

[Andrew Harmening, President & CEO at Associated Banc-Corp]

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 and I loan growth of $1,200,000,000 in 2025. More broadly, we continue to seek selective growth that emphasizes full banking relationships, quality credit profiles and diversification to deliver improved returns.

[Andrew Harmening, President & CEO at Associated Banc-Corp]

With this in mind, we expect total bank loan growth of 5% to 6% for the year. Moving to slide 7. 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 largely played out as we expected. After adding over $600,000,000 in core customer deposits in Q3, we added nearly $900,000,000 here in Q4. Unlike Q3, which saw heavy CD inflows, growth in Q4 was driven primarily by interest bearing demand, money market and savings categories.

[Andrew Harmening, President & CEO at Associated Banc-Corp]

The inflow of core to 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. On slide 8, we show deposit trends on an annual basis. We've 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 $1,200,000,000 or 4.3 percent versus 2023.

[Andrew Harmening, President & CEO at Associated Banc-Corp]

As we look to 2025, our intention is to continue funding our loan growth primarily with core customer deposits and progress against our strategic initiatives has provided several promising tailwinds as we look to continue attracting, deepening and retaining customer relationships. As such, we expect core customer deposits to grow by 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, EVP & CFO at Associated Banc-Corp]

Thanks, Andy. I'll start on slide 9 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 December, earning asset yields and interest bearing liability costs both fell meaningfully during the Q4. Total bank earning asset yields decreased by 22 basis points during the quarter, led by a 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 portfolios that respond more quickly to changes in market rates. These decreases were partially offset by relative stability in our large fixed rate auto, resi and securities books.

[Derek Meyer, EVP & CFO at Associated Banc-Corp]

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 20 2 basis points during the quarter along with our efforts to pay down wholesale funding. Moving to Slide 10, our total net interest income grew by $8,000,000 versus the prior quarter and $17,000,000 versus Q4 of 2023, landing at $270,000,000 for the quarter. Our net interest margin expanded by 3 basis points to 2.81%. 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 NII benefit we saw in Q4 was largely driven by initial securities sale and a refinancing of our high cost FHLB advances.

[Derek Meyer, EVP & CFO at Associated Banc-Corp]

On a pro form a 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 had we received a full quarter's benefit from the transactions. Based on our latest expectations for balance sheet growth, deposit betas and Fed action, along with the enhanced profitability from our balance sheet repositioning, we expect to drive net interest income growth of between 12% 13% in 2025. On Slide 11, we provided a reminder of the proactive steps we've taken to get a more neutral asset sensitivity position. Our auto book has grown to $2,800,000,000 as of year end, providing a solid base of fixed rate assets with low prepayment risk and strong credit characteristics. In addition, as of December 31, we maintained notional swap balances of approximately $2,700,000,000 And finally, we had $10,300,000,000 in contractual funding obligations set to mature in 1 year or less as of Q4, which is over 90% of the total.

[Derek Meyer, EVP & CFO at Associated Banc-Corp]

Taken together, these actions have reduced our asset sensitivity over time with a down 100 ramp scenario representing about a 0.5% impact to our NII as of Q4. This is reduced from the 3.4% impact we were modeling in Q4 of 2022. Our goal is to maintain this modestly asset sensitive position going forward. Shifting to Slide 12, our securities book increased to 8 point $5,000,000,000 on a period end basis, with the increase largely driven by the settlement of securities purchases as part of the balance sheet repositioning we announced in December. During the quarter, we saw a pickup in our CET1 ratio, thanks to capital raised from the common stock offering we announced in December.

[Derek Meyer, EVP & CFO at Associated Banc-Corp]

And after putting a portion of that capital to work in the balance sheet repositioning we announced in December, CET1 landed at an even 10% at year end. We also saw a reduction in our AOCI impact due to our securities sale. And as such, the gap between our regulatory CET1 ratio and our CET1 plus AOCI ratio decreased to just 22 basis points in Q4. Following the transaction, our securities plus cash to total assets ratio rose to 22% for the Q4 and we would expect to manage the ratio in the 22% to 24% range in 2025. Our non interest income trends are highlighted on Slide 13.

[Derek Meyer, EVP & CFO at Associated Banc-Corp]

As Andy mentioned, our GAAP results reflected a net loss for the Q4 and this loss was driven by non recurring items tied to the balance sheet repositioning we announced in December. Adjusting for these results, our core non interest income came in at $72,000,000 in Q4, representing a $5,000,000 increase versus the prior quarter and a $2,000,000 increase versus our adjusted Q4 2023 figure. The quarterly increase was primarily driven in increases in capital markets and mortgage banking income, partially offset by a decrease in BOLI income. Compared to the same period last year, wealth management fees grew by $3,000,000 while deposit fees and mortgage banking income both grew by $2,000,000 In 2025, we expect non interest income to grow by 0% to 1% as compared to our adjusted 2024 base of $269,000,000 Moving to Slide 14, our 4th quarter expenses were impacted by a $14,000,000 loss on the prepayment of FHLB advances as part of our balance sheet repositioning. Excluding this non recurring item, our adjusted non interest expense came in at $210,000,000 in Q4.

[Derek Meyer, EVP & CFO at Associated Banc-Corp]

This adjusted number represents a $9,000,000 increase from the 3rd quarter, but just a $1,000,000 increase from our adjusted Q4 2023 expenses. 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. For the full year, our non interest expense came in at $804,000,000 after adjusting to exclude the nonrecurring loss on the FHLB prepayment. While we've continued to invest in people and strategies to support our growth plans, we've also remained squarely focused on managing our overall expense run rate on an ongoing basis. With that in mind, we expect the total non interest expense growth of between 3% 4% in 2025 off of our adjusted 2024 base of $804,000,000 On Slide 15, we once again saw key capital ratios increase across the board here in Q4 after raising $331,000,000 of capital with our November common stock offering.

[Derek Meyer, EVP & CFO at Associated Banc-Corp]

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 higher level of capital than we did pre transaction. Our TCE ratio increased to 7.82 percent into Q4, which represents a 32 basis point increase relative to Q3 and a 71 basis point increase relative to Q4 of 2023. Our CET1 ratio 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 7 basis points of benefit to CET1 once our loan sale closes here in Q1. Following the actions we took in Q4, our expectations for growth in 2025 and the current market conditions, we expect to manage CET1 within a range of 10% to 10.5% in 2025.

[Derek Meyer, EVP & CFO at Associated Banc-Corp]

I'll now hand it over to Chief Credit Officer, Pat Ahern to provide an update on credit quality.

[Patrick Ahern, EVP & CCO at Associated Banc-Corp]

Thanks, Derek. I'll start with an allowance update on slide 16. We utilized the Moody's November 2024 baseline forecast for CECL forward looking assumptions. The Moody's baseline forecast remains consistent with a resilient economy despite the high interest rate environment. The baseline forecast contains no additional rate hikes, slower but positive GDP growth rates, a cooling labor market and continued deceleration of inflation with continued monitoring of ongoing market developments.

[Patrick Ahern, EVP & CCO at Associated Banc-Corp]

Our ACLL increased by another $5,000,000 in Q4 to finish the quarter at $402,000,000 with increases in the commercial and business lending and other consumer categories partially offset by decreases in CRE and residential mortgage. 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 adherence to risk rating definition guidance acknowledging shifts in credit profiles. The bank does not view these credits representing risk of loss at this time as reflected in our stable ACL. Altogether, our reserve to loan ratio increased by 2 basis points from the prior quarter and 3 basis points from the same period a year ago to 1.35%.

[Patrick Ahern, EVP & CCO at Associated Banc-Corp]

Moving to slide 17, we maintained a high degree of confidence in the quality of our loan portfolio with continued solid performance in our core credit quality trends. Total bank wide delinquencies increased to $80,000,000 for the quarter, representing a $24,000,000 increase from the prior quarter, but a $4,000,000 decrease from Q4 of 2023. 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, reflecting some timing and completion of recent credit actions. 90 plus day delinquencies have decreased both quarter over quarter and year over year coming in at just $3,000,000 in Q4.

[Patrick Ahern, EVP & CCO at Associated Banc-Corp]

Further down the line, total criticized and classified loans increased from the prior quarter. The majority of this increase was driven by migration within C and I and CRE categories. Similar to Q3, we do not feel this increase is 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. We continue our ongoing portfolio deep dives and don't see a systemic shift in our commercial portfolios. In fact, we see potential near term resolution in many of the noted downgrades as liquidity remains present in the market.

[Patrick Ahern, EVP & CCO at Associated Banc-Corp]

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 these stress credits with total non accrual balances decreasing for the 3rd consecutive quarter to $123,000,000 Importantly, we saw decreases in both commercial and business lending and CRE non accruals in Q4 as well. Finally, we booked $12,000,000 in net charge offs during the quarter and $17,000,000 in provision, both of which represented the lowest numbers we've seen in the past several quarters. As Andy mentioned, our Q4 provision included a $3,000,000 release for the sale of residential mortgage loans we announced in December and a $4,000,000 provision build for purchase of $55,000,000 in credit card balances during the quarter. Our net charge off ratio decreased by 2 basis points to 0.16%.

[Patrick Ahern, EVP & CCO at Associated Banc-Corp]

In summary, our credit metrics continue to give us confidence that what we've seen to date is a handful of credits migrating within our 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. Going forward, we remain diligent on monitoring credit stressors in the macro economy to ensure current underwriting reflects both inflation pressures and shifting labor markets to name just a few economic concerns. 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. We expect any future provision adjustments will continue to reflect changes to risk rates, economic conditions, loan volumes and other indications of credit quality.

[Patrick Ahern, EVP & CCO at Associated Banc-Corp]

With that, I will now pass it back to Andy for closing remarks.

[Andrew Harmening, President & CEO at Associated Banc-Corp]

Thank you, Pat. 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. 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.

[Andrew Harmening, President & CEO at Associated Banc-Corp]

As such, we expect core customer deposits to grow by 4% to 5% in 2025. 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% to 13% in 2025. We also continue to feel encouraged by the durability of our non interest income in a challenged environment over the past couple of years, and we expect to grow non interest income by 0% to 1% in 2025 relative to our adjusted 2024 base. And finally, our disciplined approach to expenses remains a foundational focus.

[Andrew Harmening, President & CEO at Associated Banc-Corp]

We continue to strategically invest in our business to support growth. With this in mind, we expect to hold non interest expense growth to a range of 3% to 4% in 2025. And with that, I would like to open it up for questions.

[Operator]

Great. Thank you so much. We'll now be conducting a question and answer session. First question is from Scott Siefers from Piper Sandler. Please go ahead.

[Scott Siefers, Managing Director at Piper Sandler Companies]

Good afternoon, everybody. Thanks for taking the question. Let's see, Derek, I was hoping you could just sort of discuss your thoughts on the trajectory of the margin from the Q4's 281. It looks like I mean, we've got a good starting point given the disclosure on Slide 10 with the 298 pro form a, which presumably gets us the full benefit from the restructuring. But just curious about sort of the other moving parts you see on the horizon.

[Scott Siefers, Managing Director at Piper Sandler Companies]

And then I guess within the response, if you can maybe discuss, the funding dynamics in a little more detail given that you'd expect to grow deposits at a lower clip than loans this year? And I know sort of funding with core deposits is always a key priority. So just curious on those dynamics, please.

[Derek Meyer, EVP & CFO at Associated Banc-Corp]

Yes. Thanks, Scott. The so I think we're largely looking for a stable outlook in margin once we get the benefit of this. There could be upside to that, being that we're asset sensitive and the market bias right now seems to be fewer cuts than before. But we are asset sensitive and with the rate curve and our assumption and our outlook includes 2 cuts, continue to drive improved profitability while rates are going down exposes us to a little bit of that sensitivity.

[Derek Meyer, EVP & CFO at Associated Banc-Corp]

So what we expect to help us aside from this transaction and lock in 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 continue to reduce our asset sensitivity going forward in the down rate scenario and that is the scenario that's out there in the implied forwards. And then the securities repositioning gives us upside to help lock that in and stay longer. And then the auto book, which dropped for the first time, we do expect that to stabilize and continue to modestly go up, albeit at a slower pace than it has been.

[Derek Meyer, EVP & CFO at Associated Banc-Corp]

From the funding dynamics, I think we when we put our guidance out from 2024, 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 that that still takes 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. So we might see we've got essentially a 1% GAAP that we expect our wholesale funding to close and we've got that GAAP capacity as a result of continuing to pay down FHLB funding from our current position.

[Scott Siefers, Managing Director at Piper Sandler Companies]

Got it.

[Derek Meyer, EVP & CFO at Associated Banc-Corp]

Tried to answer all your questions, Scott.

[Scott Siefers, Managing Director at Piper Sandler Companies]

Yes. No, I think that's perfect. And thank you. And I guess the final one was, Andy, maybe you could talk about the $1,200,000,000 of C and I growth you expect this year. I think that compares to $750,000,000 number you had discussed previously.

[Scott Siefers, Managing Director at Piper Sandler Companies]

I could be comparing apples to oranges. But if I'm correct, maybe if you can just sort of walk through the main drivers of that favorable delta?

[Andrew Harmening, President & CEO at Associated Banc-Corp]

Yes, of course. So I mean you're pretty close. Page 6 outlines a little bit of what the trend is right now. And I think we're roughly at about $840,000,000 in growth in 2024 with about $1,200,000,000 in 2025. So if you look at our forecast going from 4 plus percent growth in 2024 to 5 plus, 5% to 6% in 2025, you can see it's largely coming from commercial.

[Andrew Harmening, President & CEO at Associated Banc-Corp]

You can also see that there's a trend emerging. We expected back half of twenty twenty four to be stronger than the first half as we are ramping up. We have largely concluded our hiring. We will expect to announce a few more to close that out in the first we have largely concluded our hiring. We will expect to announce a few more to close that out in the Q1.

[Andrew Harmening, President & CEO at Associated Banc-Corp]

But we don't intend to spend the whole year hiring. This has been something that we announced in the Q4 of 2023. And not only build the number, but we have gotten incredibly high quality RM. So really the increase in commercial is just a function of them being here full year, I mean more on average in the full year and then really doing a ramped up production. So we have a lot clearer visibility into what's possible in 2025.

[Andrew Harmening, President & CEO at Associated Banc-Corp]

So we just kind of extrapolated that. I would add to that, that we have on the ABL and the leasing side, that's a business that we started about 3 years ago and we've continued to grow it. It now has about $1,200,000,000 in outstandings. But that continues to be the opportunity for us as well. So the commercial growth plan that we've had is right on track and 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.

[Scott Siefers, Managing Director at Piper Sandler Companies]

Perfect. All right. Thank you very much.

[Andrew Harmening, President & CEO at Associated Banc-Corp]

Thank you, Scott.

[Operator]

The next question is from Daniel Tamayo from Raymond James. Please go ahead.

[Daniel Tamayo, Vice President at Raymond James Financial]

Thank you. Good afternoon, guys. I guess first, just on the credit side, one for Pat here. You've talked about the deep dive that you're doing on the loan portfolio and how that's impacting 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 some migration just related to the work that you're doing in that?

[Patrick Ahern, EVP & CCO at Associated Banc-Corp]

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, what you're 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 I would say from quarter to quarter, there's certainly ins and outs that come with the normal course of business. We're just trying to be a little more proactive on how we're doing the risk rating to kind of get ahead of it, if there is going to be any stress.

[Patrick Ahern, EVP & CCO at Associated Banc-Corp]

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.

[Daniel Tamayo, Vice President at Raymond James Financial]

Okay. Thank you. And then maybe one for you, Andy. With these significant changes that you've been making kind of overall that you've talked a lot about and then kind of the balance sheet changes that you made here in the Q4, do you think it's likely that the major changes are over? It sounds like you're through the majority of the hirings on the commercial side, but as it relates to the balance sheet structure, does it feel like the major changes are done or are there still some changes that you'd be interested in making in the future?

[Andrew Harmening, President & CEO at Associated Banc-Corp]

Well, it's a great question. So what I would say is what we needed to prove out is that we could grow organically and we could shift the mix. We're proving that out right now. 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.

[Andrew Harmening, President & CEO at Associated Banc-Corp]

Will there be other opportunities? We don't have anything planned in 2024. But there are always different opportunities that we look at from an organic growth standpoint. And 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.

[Andrew Harmening, President & CEO at Associated Banc-Corp]

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 to 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 organic side.

[Daniel Tamayo, Vice President at Raymond James Financial]

Okay, great. Well, I appreciate you taking my questions.

[Andrew Harmening, President & CEO at Associated Banc-Corp]

Thank you.

[Patrick Ahern, EVP & CCO at Associated Banc-Corp]

Thanks, Daniel.

[Operator]

Our next question is from Terry McEvoy from Stephens. Please go ahead.

[Terry Mcevoy, MD & Research Analyst at Stephens Inc]

Hi, good afternoon. Thanks for taking my questions. Maybe a question for you. The record high customer satisfaction scores, the net promoter score is all moving in the right direction. My question is how and where does that translate into growth when we look at the balance sheet and the income statement?

[Terry Mcevoy, MD & Research Analyst at Stephens Inc]

And does that give you the confidence in the 6% core consumer deposit growth that you've talked about?

[Andrew Harmening, President & CEO at Associated Banc-Corp]

Yes, Terry, I think if I were at a town hall, I think that was a planted question because that is right in our wheelhouse. And I've talked a lot about customer satisfaction. We've talked about household growth. 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.

[Andrew Harmening, President & CEO at Associated Banc-Corp]

In 'twenty two, we shrunk our customer base 1%. In 'twenty three, we grew at 0%. In 2024, we grew at 1% and now we're forecasting 2%. The reason that matters is because between 2022 2024, the quality of account in dollars increased 23%. So the number that we have now for growth, every time we grow by 1% that equates to about $150,000,000 in additional balances.

[Andrew Harmening, President & CEO at Associated Banc-Corp]

So this is the first time we've had a tailwind coming into the year in over a decade. And that tailwind and that productivity expectation now goes from $150,000,000 to at 2% growth it goes to $300,000,000 So we look at that. Then we add on top of that, we add a deposit 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 there's no doubt that they're experts in what they do.

[Andrew Harmening, President & CEO at Associated Banc-Corp]

We add on top of that, effective. But there's no doubt that they're experts in what they do. We add on to that, 20 plus RMs going into the year with a balanced scorecard that incents them to bring in full relationships. We that is just an accelerator of everything we've done. And then we don't talk about it a whole lot, but we've invested in our HSA business, which is also a deposit heavy business.

[Andrew Harmening, President & CEO at Associated Banc-Corp]

So when I add household growth with quality accounts, when we add new deposit vertical, when we add increase in our balance scorecard and HSA, we're not just hoping that we grow faster than the marketplace. We've invested in the strategies to do that. And so that's where I get a confidence on where I see the deposit growth come

[Andrew Harmening, President & CEO at Associated Banc-Corp]

in.

[Terry Mcevoy, MD & Research Analyst at Stephens Inc]

I swear Ben didn't e mail me that question, I swear. And then just as a follow-up, I think we all

[Terry Mcevoy, MD & Research Analyst at Stephens Inc]

would agree you're positioned to

[Terry Mcevoy, MD & Research Analyst at Stephens Inc]

play offense in 2025. Some of the larger banks are now committing to loan growth this year and maybe it's more of your metro market. So how did you think about your expense guide for the year and what might be a more competitive environment, especially as what Scott brought up on the C and I side where you had a lot of success in the second half of the year?

[Andrew Harmening, President & CEO at Associated Banc-Corp]

Maybe I'll translate that question. Is it can we stay in the 3% to 4%? Or do we have pressure on the upside? Is that what you mean on the expense number?

[Terry Mcevoy, MD & Research Analyst at Stephens Inc]

No, I was talking on the loan growth and large banks being more competitive.

[Andrew Harmening, President & CEO at Associated Banc-Corp]

I see. I see.

[Andrew Harmening, President & CEO at Associated Banc-Corp]

Yes, on the pricing side. And so what I've actually been asking this question this week, whether that 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 on the deals that we've been putting on the books. And as you can see, we've been putting an increased amount on the books. And so when you get quality relationship managers that have market knowledge and long term relationships, that's the primary driver.

[Andrew Harmening, President & CEO at Associated Banc-Corp]

We would not be immune, of course, if the marketplace created that pressure on pricing on new deals, but we just haven't seen it at this point.

[Terry Mcevoy, MD & Research Analyst at Stephens Inc]

Thanks for taking my questions.

[Andrew Harmening, President & CEO at Associated Banc-Corp]

Thank you, Terry.

[Operator]

And if there are no further questions, I'd like to turn the floor back to management for any closing comments.

[Andrew Harmening, President & CEO at Associated Banc-Corp]

Well, what I will say in closing is we have as much momentum heading into the years we've had in the 4 years that I've been here. We appreciate your interest in the Associated Bank story and we look forward to providing updates as the year goes along. Thank you.

[Operator]

This concludes today's teleconference. You may disconnect your lines at this time. Thank you again for your participation.

Participants

Analysts

• Andrew Harmening, President & CEO at Associated Banc-Corp
• Derek Meyer, EVP & CFO at Associated Banc-Corp
• Patrick Ahern, EVP & CCO at Associated Banc-Corp
• Scott Siefers, Managing Director at Piper Sandler Companies
• Daniel Tamayo, Vice President at Raymond James Financial
• Terry Mcevoy, MD & Research Analyst at Stephens Inc