Associated Banc-Corp (NYSE:ASB) Q4 2024 Earnings Call Transcript

Associated Banc-Corp (NYSE:ASB) Q4 2024 Earnings Call Transcript January 23, 2025

Associated Banc-Corp beats earnings expectations. Reported EPS is $0.57, expectations were $0.53.

Andrew Harmening: 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, Pat Ahern. I want to start off by sharing some highlights from the fourth quarter of 2024. From there, Derek will cover margin, income statement and capital trends, and Pat will provide an update on credit. We continue to see signs of strength in the US economy and 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%. 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 fourth quarter was an active one for our Company. We added our — 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 a balance sheet repositioning, selling approximately $700 million in low-yielding mortgage loans and $1.3 billion worth in AFS securities. We also purchased $55 million in existing customer credit — customer credit card balances through an expansion of our participation agreement with Elan Financial Services. During the quarter, we also announced the addition of two widely respected business leaders to our Board of Directors in Kristen Ludgate and Owen Sullivan.

We elevated three 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 Warsek; and Deputy Head of Consumer and Business Banking, Steve Zandpour. 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. Here in Q4, we delivered adjusted loan growth of over $500 million and core customer deposit growth of nearly $900 million, 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 — a growing customer household base with deepened relationships, strong and improving customer satisfaction results, an 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 2025 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. Our fourth 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.

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. An 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 2024, we did just that. For the year, we grew core customer deposits by $1.2 billion or 4.3% and adjusted loans by $1.3 billion or 4.4%. This will remain a point of emphasis for us in 2025. Shifting to the income statement, our net interest income increased $8 million from Q3 and finished at $270 million.

Our margin increased 3 basis points to $281 million. 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 million quarterly increase. Total adjusted non-interest 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.

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 provided a detailed breakdown of EPS impacts from several non-recurring 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 securities sale we completed. Combined, these items reduced non-interest income by $279 million. Second, our total non-interest expense was impacted by a $14 million 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. 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 three recent executive leadership team members added in Q4, but it also includes Jayne Hladio, who stepped into her role as President of our private wealth business in late 2023. In the short time she’s been here, 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 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.

Third, 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. 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 million in Q4. This growth was led once again by C&I, which grew by over $300 million in Q4. 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. 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 latter was largely driven by the $55 million in credit card balances we purchased during the quarter.

On Slide 6, 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 total loan portfolio by over 20% and maintaining our conservative approach to credit. More recently, total loans grew by $552 million from year-end 2023 to year-end 2024. This growth has been highlighted by emerging traction in our commercial business, particularly in the back half of 2024. After growing C&I loans $230 million in the first half of the year, we grew by over $600 million in the back half of the year as the RMs 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. 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 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 million in core customer deposits in Q3, we added nearly $900 million 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.

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. 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 $1.2 billion or 4.3% versus 2023. 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 — 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: 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 and December, earning asset yields and interest-bearing liability costs both fell meaningfully during the fourth quarter. 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. 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. 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 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.

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 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% and 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 $2.8 billion 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 31st, we maintain notional swap balances of approximately $2.7 billion. 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 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 has 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 $8.5 billion on a period-end basis with the increase largely driven by the settlement of securities purchase — 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. 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 fourth quarter 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. As Andy mentioned, our GAAP results reflected a net loss for the fourth quarter, 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 million in Q4, representing a $5 million increase versus the prior quarter and a $2 million 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 million, while deposit fees and mortgage banking income both grew by $2 million. In 2025, we expect noninterest income to grow by 0% to 1% as compared to our adjusted 2024 base of $269 million. Moving to Slide 14. Our fourth quarter expenses were impacted by a $14 million 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 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. 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 million after adjusting to exclude the non-recurring 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% and 4% in 2025 off of our adjusted 2024 base of $804 million.

On Slide 15, we once again saw key capital ratios increase across the board here in Q4 after raising $331 million of capital with our November common stock offering. 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% in 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. I’ll now hand it over to Chief Credit Officer, Pat Ahern to provide an update on credit quality.

Patrick Ahern: Thanks, Derek. I’ll start with an allowance update on Slide 16. We utilized the Moody’s November 2024 baseline forecast for our 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. Our ACLL increased 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.

The uptick in commercial largely stem 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%. 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.

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. 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 million in Q4. 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&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. 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 third consecutive quarter to $130 million — $123 million.

Importantly, we saw decreases in both commercial and business lending and CRE non-accruals in Q4 as well. Finally, we booked $12 million in net charge-offs during the quarter and $17 million 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 million release for the sale of residential mortgage loans we announced in December and a $4 million provision build for a purchase of $55 million in credit card balances during the quarter. Our net charge-off ratio decreased by 2 basis points to 0.16%. 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 grades, economic conditions, loan volumes, and other indications of credit quality. With that, I will now pass it back to Andy for closing remarks.

Andrew Harmening: 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. 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 noninterest income by 0% to 1% in 2025 relative to our adjusted 2024 base. And finally, our disciplined approach to expenses remains a foundational focus. 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. [Operator Instructions] First question is from Scott Siefers from Piper Sandler. Please go ahead.

Q&A Session

Scott Siefers: 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 fourth quarter is 281. It looks like — I mean, we’ve got a good starting point given the disclosure on Slide 10 with the 298 pro forma, 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. And then I guess within the response, if you could 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: Yes. Thanks, Scott. 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 in our outlook includes two cuts try — continuing to drive improved profitability while the rates are going down exposes us to a little bit of that sensitivity. 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. 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 take some build-out from our side to support the new deposit vertical and closing that gap beyond what we 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% gap that we expect our wholesale funding to close and we’ve got that gap capacity as a result of continuing to pay down FHLB funding from our current position.

I tried to answer all your questions, Scott. Yeah.

Scott Siefers: Yes. No, I think that’s perfect. And thank you. And I guess the final one was, Andy, maybe you could talk about the $1.2 billion of C&I growth you expect this year? I think that compares to $750 million number you had discussed previously. 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: 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 million in growth in 2024 with about $1.2 billion in 2025. So if you look at our forecast going from 4% plus growth in 2024 to 5% plus 5% to 6% in 2025, you can see it’s largely coming from commercial. We — you can also see that there’s a trend emerging. We expected back half of 2024 to be stronger than the first half as we are ramping up. We have largely concluded our hiring. We’ll expect to announce a few more to close that out in the first quarter, but we don’t intend to spend the whole year hiring. This has been something that we announced in the fourth quarter of 2023 and we 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 a full year, being more on average in the full year, and then really doing a ramped up production. So we have a lot clear visibility into what’s possible in 2025. 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 three years ago and we’ve continued to grow it. It now has about $1.2 billion in outstandings, but that continues 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: Perfect. All right. Thank you very much.

Andrew Harmening: Thank you, Scott.

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

Daniel Tamayo: 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: We’re doing that 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 we’re — 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. But the good news is we’re not seeing any buildup in the non-accrual. So we think we’re kind of staying ahead of these things as they do pop up.

Daniel Tamayo: Okay, thank you. And then maybe one for you, Andy. You know, 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 fourth quarter, 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: Well, that’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. 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, 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: Okay, great. Well, I appreciate you taking my questions.

Andrew Harmening: Thank you. Thanks, Daniel.

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

Terry McEvoy: Hi, good afternoon. Thanks for taking my questions. Maybe Andy, 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. And does that give you the confidence in that the 6% core consumer deposit growth that you’ve talked about?

Andrew Harmening: 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 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 2022 we shrunk our customer base 1%. In 2023 we grew at 0%. In 2024 we grew at 1% and now we’re forecasting 2%. The reason that matters is because between 2022 and 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 million in additional balances. 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 million to at 2% growth, it goes to $300 million. 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. 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. So when I add household growth with quality accounts, when we add new deposit vertical, when we add increase in RM, balanced scorecard in 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 coming.

Terry McEvoy: I swear, Ben didn’t email me that question, I swear. And then just as a follow-up, I think we all would agree your position to play offense in 2025, some of the larger banks are now committing to grow loan growth this year and maybe it’s more of your metro market. So how do you — 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&I side where you had a lot of success in the second half of the year?

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

Andrew Harmening: I see. I see. 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. 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: Thanks for taking my questions.

Andrew Harmening: Thank you, Terry.

Operator: [Operator Instructions] And if there are no further questions, I would like to turn the floor back to management for any closing comments.

Andrew Harmening: Well, what I will say in closing is 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 in the Associated Banc 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.