ASSOCIATED BANC-CORP Q4 FY2024 earnings call

Management Statement and Operational Highlights:

• Added commercial capabilities through launch of new specialty deposit and payment solutions vertical.
• Raised over $300 million via common stock issuance, repositioned balance sheet by selling $700 million in low-yielding mortgage loans and $1.3 billion in AFS securities, and purchased $55 million in credit card balances.
• Added 2 board directors and elevated 3 senior business line leaders.
• Delivered strong financial results: adjusted loan growth over $500 million, core customer deposit growth nearly $900 million in Q4, and adjusted EPS of $0.57.
• Consumer value proposition strengthened, commercial team expanded with 21 of 26 planned hires.
• Reduced residential loan concentration from 36% of total loans to 24% as of year-end 2024.

Segment Performance:

• Commercial and business lending: Grew by over $300 million in Q4. In 2024, C&I loans grew $230 million in the first half and over $600 million in the back half. Expected to grow $1.2 billion in 2025. Revenue contribution from commercial and business lending was significant, with over $300 million of loan growth in Q4 coming from this segment.
• CRE investor: Grew $157 million in Q4, largely driven by completion of construction projects.
• Auto-finance: Balances grew $101 million in Q4.
• Other consumer: Grew $69 million, including $55 million in credit card balances purchased during the quarter.
• Core customer deposits: Grew nearly $900 million in Q4, $1.2 billion (4.3% growth) in 2024. Expected to grow 4%-5% in 2025.

Guidance:

• Total loan growth expected 5%-6% in 2025.
• Core customer deposits expected 4%-5% growth in 2025.
• Net interest income expected to grow 12%-13% in 2025.
• Non-interest income expected 0%-1% growth in 2025.
• Non-interest expense expected 3%-4% growth in 2025.
• CET1 ratio expected to be within 10%-10.5% in 2025.

Risks:

• Asset sensitivity could impact margin if rate cuts differ from expectations.
• Potential pricing pressure in a competitive loan growth environment.
• Monitoring credit stressors in the macro-economy, including inflation and labor market shifts.

Q: Thoughts on margin trajectory and funding dynamics given expected lower deposit growth than loans.

A: Derek Meyer noted that margin has a stable outlook once the benefit of the balance sheet repositioning is realized, with potential upside due to asset sensitivity. Funding dynamics involve continuing to fund loan growth primarily with core customer deposits and closing the gap with wholesale funding.

Q: C&I growth expectation increase.

A: Andrew Harmening stated that C&I growth is driven by ramped-up production from high-quality relationship managers (RMs), with the commercial team largely complete and ABL and leasing business growth contributing.

Q: Credit portfolio deep dive and balance sheet changes.

A: Patrick Ahern mentioned ongoing deep dives into the credit portfolio as an ongoing process, and Andrew Harmening noted balance sheet changes mostly complete but with opportunistic opportunities possible.

Q: Customer satisfaction translating to growth.

A: Andrew Harmening explained that customer satisfaction drives household growth, quality accounts, new deposit vertical, and RM expansion, contributing to deposit growth.

Q: Competitive loan growth environment and expense guide.

A: Andrew Harmening stated no significant pricing pressure seen yet, and the non-interest expense guide remains at 3%-4% growth.