管理層發言
Good afternoon everyone and welcome to Associated Banc-Corp's First Quarter 2025 Earnings Conference Call. My name is Kevin, and I'll be your operator today. At this time, all participants are in a listen-only mode. We will be conducting a question-and-answer session at the end of the 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 1, during the course of the discussion today, management may make statements that constitute projections, expectations, beliefs, or similar forward-looking statements. Associated's 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-K and subsequent SEC filings.
These factors are incorporated herein by reference. For a reconciliation of the non-GAAP financial measures to the GAAP financial measures mentioned in this conference call, please refer to Pages 28 through 30 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 Q&A session. At this time, I'd like to turn the conference over to Andy Harmening, President and CEO, for opening remarks. Please go ahead, sir.
Well, good afternoon everyone. This is Andy Harmening, and in addition to this being our first quarter earnings call, it is also opening night of the Draft here in Green Bay. So, pretty exciting time for us. I'm joined on our call by our Chief Financial Officer, Derek Meyer; and our Chief Credit Officer, Pat Ahern. I'll start off by sharing some highlights from the quarter. From there, Derek will cover the income statement and capital trends, and Pat will share an update on credit. While the macro picture has been clouded by talk of tariffs and trade negotiations, we've continued to see stability in our home Midwestern markets. Unemployment in Wisconsin, Minnesota, and several other Midwestern states remains below the national average of 4.2%. Our largely super-prime consumer business has remained resilient, and our commercial customers continue to plan for the long term while taking steps to protect their businesses against short-term volatility in the market.
During the first quarter, we hit several key milestones in Phase 2 of our strategic plan, and the hiring, product launches, and all other major investments of Phase 2 have now been completed. In Q1, we completed the expansion of our commercial banking team and we entered a promising new market with the lift-out of three talented RMs in Kansas City. We continue to bolster our consumer value proposition that is quickly becoming best-in-class by adding family banking to our product suite. We completed the sale of $700 million in residential mortgage loans that we announced in late 2024 as part of a balance sheet repositioning. As we've continued to drive momentum with our strategic plan, that momentum has carried into our financial results. In Q1, we saw over $500 million in loan growth, over $500 million in core customer deposit growth, 16 basis points of margin expansion, and only 12 basis points of charge-offs.
In addition to growing our balance sheet in Q1, we also added 10 basis points of CET1 capital. Thanks to our enhanced profitability profile, we are now able to deliver balance sheet growth and capital accretion simultaneously. Looking ahead, there is no denying that tariffs have injected uncertainty into the economy. We're proactively meeting with customers and monitoring our portfolios on a daily basis to stay on top of any emerging concerns. But to date, we have not seen any material changes in customer activity, line utilization, or credit quality. With that being said, our focus has remained squarely on what we can control, and we feel well-positioned for 2025 regardless of the macro picture. We're positioned to play offense, thanks to momentum from our strategic plan, which has given us an industry-leading consumer value proposition, a growing and deepening customer household base, record high customer satisfaction scores, and an expanded commercial team poised to take market share and an enhanced profitability profile.
We are also well-positioned to play defense, if necessary, thanks to the stability of our markets, our foundational discipline on credit, strengthened capital profile, bolstered liquidity, and sharpened risk management focus. As we've done for over 160 years, we stand ready to serve the financial needs of our clients. With that, I'd like to walk through some highlights from the quarter, beginning on Slide 2. For the first quarter, we reported GAAP earnings of $0.59 per share. Total loans grew by $526 million during the quarter, highlighted by another $352 million in C&I loan growth as our middle market commercial growth strategy continued to take hold. Funding our loan growth primarily with core customer deposit growth continues to be a key priority of our plan. In Q1, we saw $502 million in core customer deposit growth. While our quarterly customer deposit flows are typically boosted by seasonality in Q1, core customer deposits were still up 4% compared to Q1 of 2024.
Shifting to the income statement, our net interest income increased by $16 million from Q4 to $286 million, while our margin increased 16 basis points to 2.97%. As anticipated, we realized most of the benefit from our balance sheet repositioning in Q1, but we've yet to realize roughly 3 basis points of incremental NIM impact due to the timing of the loan sale, which closed in late January. We expect a full quarterly benefit of repositioning to flow through in Q2. In Q1, we posted GAAP non-interest income of $59 million, inclusive of a $7 million loss recognized upon closing of the loan sale as we accounted for the FAS 91 impact and slight valuation adjustments. Total non-interest expense finished at $211 million for the quarter, but that number also includes the impact of a $4 million OREO write-down that we wouldn't expect to be a recurring item. Staying disciplined on expenses remains a foundational focus for our company.
We also continue to closely manage credit risk. In Q1, our delinquencies, charge-offs, and provisions all decreased versus Q4. We remain committed to staying ahead of the curve by taking a disciplined, consistent approach to loan risk rating so we can better understand our credit risk in our portfolio by segment and by geography. Moving to Slide 3, our company is in a better position than ever to drive organic growth. We announced in March that we've completed the expansion of our commercial team through a lift-out of three talented RMs in the Kansas City market. That announcement marked the completion of all major investments in Phase 2 of our strategic plan. While we've already seen tailwinds start to emerge across the bank in the back half of 2024, 2025 is about monetizing our investments. We're in a great position to do so in commercial, where we've added top talent to our leadership team, increased commercial RMs by nearly 30%, and added specialty verticals that help us deepen relationships with our clients and diversify our business.
These actions position us to take market share in key metros like Milwaukee, Chicago, Minneapolis, St. Louis, and Kansas City, where we're underpenetrated while still holding serve in our important home market of Green Bay. We also have a consumer value proposition that competes with anyone in the industry, which has translated to record high customer satisfaction, positive household growth, and higher quality households. The investments we've made in talent, products, marketing, and technology have positioned us to attract and deepen customer households sustainably over time. As we mentioned last quarter, each percentage point increase in our household numbers represents approximately $150 million in incremental deposits. Ultimately, we expect our efforts to translate to growth in lower-cost core customer deposit categories that enable us to further decrease our reliance on wholesale funding sources.
We've also provided ourselves with additional capacity to grow in more profitable relation-driven lending categories as we take several actions to reduce our concentration of low-yielding non-customer residential mortgage loans. We've reduced our residential loan concentration from 29% in Q3 of 2023 to 23% in Q1 of this year. As we think about what comes next, we're going to continue to invest in our business and our leadership team has plans to sit down together later this quarter to align on what the next wave of investments might look like. In the meantime, Phase 2 has put us in a position of strength for 2025 and beyond, and we look forward to building on that momentum. On Slide 4, we highlight our loan trends through the first quarter. Total average quarterly loans decreased slightly during the quarter with the decrease primarily driven by the recognition of the $695 million mortgage loan sale that settled in January.
Total period-end loans, which exclude the impact of the loan sale, increased by 2% or $526 million point-to-point. Segment growth was led by the CRE investor category, but this was once again heavily influenced by the completion of construction projects during the quarter. As a whole, the commercial real estate category increased by $196 million. The limited production we've seen is lower risk, underwritten at today's higher interest rates and expenses and lower leverage with highly experienced and tested CRE clients. We continue to expect elevated payoffs in the coming quarters, but payoff activity remained limited in Q1. As mentioned previously, the commercial and industrial category continued to perform strongly, adding another $352 million in Q1. We do not have reason to believe this number is inflated meaningfully by preemptive inventory builds, line draws, or other activity tied to tariffs.
Line utilization levels held steady in Q1 and have remained below pre-COVID levels. Finally, auto finance balances grew by $69 million in Q1 as we've continued to diversify our consumer portfolio. We expect auto to continue growing at a decreasing rate in future quarters as the portfolio matures. We also continue to expect commercial and industrial loan growth of $1.2 billion and total bank loan growth of 5% to 6% for the year. Moving to Slide 5, total deposits and core customer deposits both increased 2% for the quarter, while wholesale funding sources, including network and broker deposits, decreased 2%. After adding over $600 million of core customer deposits in Q3 and nearly $900 million in Q4, we added another $500 million in Q1. As was the case in prior years, I'll remind you that our first quarter deposit flows are impacted by some seasonal customer inflows that typically flow back out in Q2.
With that being said, core customer deposits were up 4% in Q1 of 2025 as compared to Q1 of 2024. Over that time, we've added commercial RMs, and we've grown our customer base. These trends give us confidence in our growth outlook for the year. As such, we continue to expect core customer deposits to grow by 4% to 5% in 2025. With that, I'll pass it to Derek to discuss our income statement and capital trends.
Thanks Andy. I'll start with our asset and liability yield trends on Slide 6. In Q1, earning asset yields decreased by just 1 basis point during the quarter with anticipated decreases in our floating rate CRE and C&I portfolios, largely being offset by an increase in investment yields following the securities repositioning that was completed at the end of Q4. On the other side of the balance sheet, total interest-bearing liability costs decreased by 23 basis points. We remain pleased by our ability to reprice deposits downwards each of the past two quarters. After seeing interest-bearing deposit costs decrease by 23 basis points in Q4, they fell by another 19 basis points in Q1, landing at 2.91% for the quarter. One area we benefit is time deposits. Cost on time deposits decreased by 23 basis points in Q4 and by another 27 basis points in Q1. With nearly $8 billion in CDs scheduled to mature over the next 12 months, we expect additional repricing opportunities in 2025.
Moving to Slide 7, our total net interest income grew to $286 million in Q1, a $16 million increase versus the prior quarter and a $28 million increase versus Q1 of 2024. Our net interest margin expanded by 16 basis points to 2.97%. Both increases were largely driven by the balance sheet repositioning announced in December. However, we also saw approximately 2 basis points of organic NIM expansion during Q1. Due to the timing of the loan sale, which settled in late January, we have not yet fully recognized the benefit of the balance sheet repositioning. On a pro forma basis, we estimate that the loan sale would have added approximately 3 more basis points to our Q1 net interest margin had the transaction settled on December 31st, 2024. 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 continue to expect to drive net interest income growth of between 12% and 13% in 2025.
This forecast assumes four rate cuts in 2025 versus two rate cuts previously. On Slide 8, we provided a reminder of the proactive steps we've taken to achieve a more neutral asset sensitivity position to protect our balance sheet in a falling-rate environment. Our auto book provides a solid base of fixed-rate assets with low prepayment risk and strong credit characteristics. We've maintained received fixed notional swap balances of approximately $2.85 billion, and we have emphasized shorter-duration contractual funding obligations to maintain repricing flexibility. Taken together, these actions have reduced our asset sensitivity over time with a down 100 ramp scenario representing about a 0.6% impact to our NII as of Q1. This is reduced from the 2.3% impact we had been modeling in Q1 of 2023. Our goal is to maintain this modestly asset-sensitive position going forward. Shifting to Slide 9, our securities book increased to $8.7 billion on a period-end basis as we continue to modestly build AFS securities in proportion to asset growth.
We also bolstered our liquidity position during the quarter, bringing our securities plus cash to total asset ratio to 23% for the quarter. We expect to manage the ratio in the 22% to 24% range throughout 2025. On Slide 10, we highlight our non-interest income trends for the quarter. As Andy mentioned, our first quarter GAAP results included a $7 million pre-tax loss, primarily driven by the FAS 91 impact from the loan sale that settled in January. Aside from that non-recurring item, our first quarter non-interest income trends were largely consistent with the same period a year ago. On a quarterly basis, capital markets fees were $5 million lower due to elevated syndication revenue recognized in the prior quarter. Wealth, service charges, and card-based fees also ticked down from the prior quarter, but these quarterly decreases were partially offset by a $3 million increase in BOLI income.
In 2025, we continue to expect non-interest income to grow by 0% to 1% after excluding the non-recurring items that impacted our fourth quarter 2024 and our first quarter 2025 results from the balance sheet repositioning we announced in December. Moving to Slide 5, first quarter expenses of $211 million were impacted by a $4 million OREO write-down recognized during the quarter. This is not something we'd expect to impact our run rate going forward. Within our core expense base, quarterly decreases of $2 million in personnel costs, $1 million in business and development and advertising, and $1 million in legal and professional fees were partially offset by a $1 million quarterly increase in occupancy, FDIC, and loan and foreclosure costs, respectively. 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 continue to expect total non-interest expense growth of between 3% and 4% in 2025 off of our adjusted 2024 base of $804 million. On Slide 12, we once again saw capital ratios increase across the board in Q1. Our TCE ratio increased to 7.9% in Q4, which represents a 14 basis point increase relative to Q4 and an 88 basis point increase relative to Q1 of 2024. After climbing steadily in 2024, our CET1 ratio now sits at 10.11% as of Q1, a 10 basis point increase relative to the prior quarter and a 68 basis point increase versus the same period a year ago. Also in Q1, we continue to see a reduction in the AOCI impact during the quarter with our CET1 plus AOCI ratio coming in at 10.01%, representing just a 10 basis point gap versus our standard CET1 ratio. Based on our expectations for growth in 2025 and current market conditions, we continue to expect to manage CET1 within a range of 10% to 10.5% for the year. I will now hand it over to our Chief Credit Officer, Pat Ahern, to provide an update on credit quality.
Thanks Derek. I'll start with an allowance update on Slide 13. We utilized the Moody's February 2025 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 ongoing market developments under review. Our ACLL increased by another $4 million in Q1 to finish the quarter at $407 million, with increases in the commercial and business lending, CRE investor, and mortgage categories, partially offset by decreases in the CRE construction and other consumer categories. The uptick in commercial stemmed from a combination of loan growth plus normal movement within risk-rating categories. Overall, our reserves to loan ratio decreased by 1 basis point from the prior quarter and increased 3 basis points from the same period a year ago to 1.34%.
Moving to Slide 14, we maintain a high degree of confidence in the quality of our loan portfolio, but continue to review our portfolios closely given the emerging uncertainty in the macro picture and recent trade policy announcements. In Q1, our portfolio continued to perform well. Total delinquencies decreased to $47 million in Q1, a $33 million decrease from the prior quarter, and $4 million lower than the same period a year ago. Total criticized and classified loans increased slightly from the prior quarter. The majority of this increase was driven by migration within the CRE and C&I categories. Similar to the past couple of quarters, we do not feel that this increase is indicative of a significant shift in the credit profile of the portfolio nor does it represent an increased risk of loss, but rather is a reflection of conforming to industry guidance and our proactive and conservative approach regarding credit changes.
We continue our ongoing portfolio deep dives and don't see a systemic shift in our commercial portfolios. We continue to see resolution with some of our more stressed credits and liquidity remains present in the market in terms of both payoffs and loan re-margin. After three consecutive quarterly decreases, total non-accrual balances increased slightly to $135 million in Q1, with increases in CRE and consumer, partially offset by a decrease in C&I. We remain comfortable with this level of non-accrual loans, which reflects the normal course of business activity. To that point, Q1 non-accruals were down $43 million or 24% from the same period a year ago. Finally, we booked just $3 million in net charge-offs during the quarter and $13 million in provision. Both numbers have continued to trend downward for the past several quarters. Our net charge-off ratio decreased by 4 basis points to 0.12%.
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 with the normalized level of activity we've seen across the bank. Finally, I'd like to provide a few reminders as to why we feel well-positioned as a company in the face of an uncertain macro backdrop on Slide 15. We've discussed CRE in detail in recent quarters, but our consumer book is strong as well. In fact, 94% of our $10.8 billion consumer portfolio is prime or better. Mortgage represents our largest category with $7 billion in balances at a weighted average FICO of 787 as of Q1. In auto, 99% of loans that have been booked have prime or super-prime FICOs and the origination FICO in March was 796.
Credit cards are a small part of our business at less than 1% of total loans, but those customers also have FICOs north of 790. Simply put, we do business with people who pay you back. In response specifically to tariffs and ongoing trade policy negotiations, we have completed targeted portfolio reviews, contacting a significant portion of clients with any potential impact from new or increased tariffs. While it remains too early to come to any final conclusions, clients have been planning for tariff changes for some time, and we feel comfortable with their positioning and strategies and their ability to execute once more clarity exists. Going forward, we remain diligent on monitoring other credit stresses in the macro economy to ensure current underwriting reflects the impact of ongoing 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 in the portfolio, including ongoing interest rate sensitivity analysis bank-wide.
We expect any future provision adjustments will continue to reflect changes to risk ratings, economic conditions, loan volumes, and other indications of credit quality. With that, I will now pass it back to Andy for closing remarks.
Thank you, Pat. In summary, we will continue to closely monitor impacts to the economy and our customers as trade negotiations evolve, but we feel well-positioned as a company, thanks to the emerging momentum of our strategic plan. Based on a good start to the year, growing commercial pipelines, stable credit trends, appropriate expense management, and emerging impacts on the economy in the second half of the year, we've affirmed our forward-looking guidance for balance sheet and income statement expectations in 2025. With that, let's open it up for questions.
分析師問答
Certainly. We'll now be conducting a question-and-answer session. Our first question today is coming from Timur Braziler from Wells Fargo Securities. Your line is now live.
Hi, good afternoon.
Hi Timur.
Trying to gauge the second quarter NII, it looks like there's quite a few tailwinds that you guys are benefiting from, whether it's the end-of-period loans versus the average or the DDA end-of-period versus average. Can you just help frame kind of beyond the 3 basis point recognition on the mortgage book, just how second quarter is shaping up from some of these late 1Q actions?
Sure. So, when we think about the second quarter, I agree there are some clear tailwinds going into it, whether that's the sale of the portfolio part of the way through and the increase that we've seen through the quarter. We've benefited, as have many, from a deposit market that we've been able to reprice. I would think that the repricing you'll be able to continue that, but there will be a little bit lesser gain on that across the industry as those CDs that come due come in at a little bit lower rate, even though you're pricing down at a little bit lower rate, the mix is just slightly different, similar volume. For us, we've seen cyclical growth on the deposit side, but we have a lot of deposit levers that we can pull overall. So, we feel good about deposits, but we won't have as big of an uptake possibly in the second quarter. So all-in-all, we do have momentum going into the second quarter. We do think that translates into NII for the second quarter, and we think we're in a relatively good position when you balance loan growth, deposit growth, margin, repositioning of pricing, and customer growth. When you add all that together, we think we're in a relatively good position heading into Q2.
Okay. And then I guess just in terms of deposits, can you maybe box in the magnitude of the seasonal outflows that you're expecting in Q2? And are most of those coming out of that DDA bucket?
No. The non-interest-bearing balances appear to have stabilized for us. Regarding the impact on deposits, it's important to consider several factors coming together. If I focus solely on deposits, we are expanding our customer base, currently experiencing strong growth in our HSA business. Our commercial team has significantly increased in size, adding over 25 people, and we have expanded our mass affluent offering and expertise in branches and private wealth. While we don't provide quarter-by-quarter growth numbers on deposits in advance, I am confident in our ability to grow deposits primarily from our customer base due to our efforts. Moreover, we are seeing improvements in customer retention. Our Net Promoter Score reached 55 in the first quarter, the highest in our company's history, driven by our product offerings and service quality, leading to better customer retention. Therefore, I believe we are in a strong position as we head into Q2, and I expect this to continue throughout the year.
Great. Thanks for that. And then just looking at the commercial loan growth in particular, how much of that is somewhat insulated from the macro just given the hiring and bringing over the backlogs? I guess just on the thought of loan growth, just talk to us about building out and accelerating some of that growth into some of this macro uncertainty?
Yes, that's a great question. We initiated our efforts in the fourth quarter of 2023, and now, 15 to 18 months later, we have gained significant momentum. We have brought new people on board without depending heavily on a strong GDP. We are confident in our ability to grow commercial loans even in a low GDP environment by capturing market share. It typically takes six to 12 months to onboard new hires, and the non-solicitation agreements last for a year. We monitor the expiration of these agreements quarterly, and we are seeing more individuals falling off with each passing quarter, with all of them set to expire by the first quarter of 2026. For instance, four people's non-solicitations expired in the fourth quarter of 2024, with four more in the first half of 2025 and six in the second half. We remain optimistic about our commercial growth because we have a stronger team of quality lenders who understand the market. Even with a potential decrease in GDP, which we consider somewhat probable, we believe we can still grow by increasing our market share.
Great. Thank you for the color.
Thank you.
Thank you. Next question today is coming from Daniel Tamayo from Raymond James. Your line is now live.
Thank you. Good afternoon, guys.
Hey, Daniel.
Yes, I guess my first question, you guys talked about it. It's in the slide deck, but the balance sheet looks like it's really close to neutral now. We've talked about the impact being relatively muted, but should we think about NIM impact from each 25 basis point cut at this point to be mostly hedged out?
Well, I'll start that and pass it to Derek. The first simple answer is yes, we are way more neutral than we've been in the past, certainly when I got here four years ago. Derek, do you want to speak to what that looks like then?
Yes. So, a 125 basis point cut would cost us about $500,000 per quarter. So, it really is very neutral. The deposit mix, the CD repricing and the asset growth, all of which to the earlier set of questions, looks really strong are bigger drivers than how many rate cuts are left in the year.
Okay, great. And then second question on capital. I know you're utilizing capital for growth and you've still got plenty of growth here, and you just kind of entered the bottom of the range for your stated target capital CET1. But given the level of the share price, the depressed level, just curious if there have been any thoughts to kind of capitalizing on that with buybacks in the near-term?
Derek doesn't usually let me answer that, but I'm going to. This is Andy. The answer is that we feel pretty strongly about the use of capital to help build this company. We think that's the best use right now. For us, when we grow, and when we think about balance sheet shifts, we're going to continue on with that. We believe that we can continue to expand our margin over time by adding assets that have a little bit better return. We don't want to slow that. We're talking about a balance sheet that at its height had 36% residential in it and today has 23%. And now we have the commercial engine moving for us, albeit a little challenged like everyone else with the economy, but still moving quite well for us. That gives us a position to continue that mix shift each quarter and each year, and we think that's the best thing for long-term investors.
Understood. Yes. If I could ask one more question regarding the reserves. In the event of a more recessionary environment, I'm curious if there are any existing qualitative reserves that could be utilized to offset the need to build new reserves in such a scenario where the economy is deteriorating.
Pat, why don't you speak to the overlay that we use on the model?
Sure. Right now, I'd say we're really comfortable with our coverage. We've taken a conservative approach and we've included overlays for economic uncertainty for several quarters. I think that gives us a strong starting position to handle changes within the market. Obviously, we'll watch for more clarity as we get into the balance of the year and decide what steps are appropriate, whether it's Q2 or beyond.
Okay, I appreciate the color, guys.
Thank you. Thanks for the questions.
Thank you. Next question today is coming from Scott Siefers from Piper Sandler. Your line is now live.
Good afternoon guys. Thanks for taking the questions. So, Andy, you had suggested customer activity hasn't really changed in the first quarter. Do you have any sort of updated thoughts just based on conversations through April? In other words, after all this tariff uncertainty really started and has been ebbing and flowing. What broadly are your customers thinking as they deal with this stuff?
Yes. That's a constant day-by-day, as you probably know. The important thing is that we're in that mix every day. We've changed conversations to include every standard renewal has a discussion of that. Every outbound call has a discussion of it. What we've found is a lot of preparation. On the CRE side, people had already looked for alternatives to China. When we go line-by-line on a credit deal or a construction deal, they understand if they have a 20% tariff, what that translates into overall project costs. That was heartening for us. They're ahead of the game. They anticipated this in some respects, maybe not the magnitude, but they certainly had planned for it. There's no question that it brings to light the idea of do we go forward? However, what we've seen is a very steady production number for us, and we've seen the overall pipeline has grown. The question is how that translates into how it comes back based on confidence. But I wouldn't say there's a lack of confidence as much as a cautious view right now. I've been pleased with what we've heard. In fact, I'll be with customers tonight and asking the same question. I know they do like to talk about what's going on with their business, and we get really good insights. I'd say it's cautious, however, very aware and, in many cases, planful.
Perfect. Okay, I appreciate that color. Thank you very much. And then I guess just a broader question. You added the Kansas City commercial talent, I think, another branch in St. Louis as well. Maybe if you can just sort of speak to the top-level aspirations in the lower part of the Midwest kind of outside that upper part that you're known for so well?
Thank you. I view Green Bay as a significant strength for us. Our customers have remained loyal for many years, and we aim to maintain our presence there. We’ve been striving to expand our business in Milwaukee, which is a key metropolitan area. Currently, we’re experiencing faster household growth in Milwaukee than in any other location within our reach. This growth is propelled by our product offerings, marketing initiatives, digital strategies, and commercial tactics. We plan to replicate this success in Chicago, following our efforts in Minneapolis. These are important markets, and if we succeed there, it will pave the way for success in other areas. We are confident that our approach to product, marketing, digital, and commercial strategies will translate well to other major metropolises. Looking ahead, we aim for organic growth and to successfully implement Phase 2 while also aiming to monetize it. If we can enter markets that have quicker population or economic growth, we believe that will position us favorably, especially as we are currently growing in areas that are experiencing slower growth compared to regions further West or South.
Yes, okay. Perfect. Good. Thanks again for the details.
Thank you.
Thank you. The next question is coming from Jared Shaw from Barclays. Your line is now live.
Hey, good afternoon.
Hey, Jared.
Maybe just on the commercial real estate, the investor commercial real estate growth there, how much more growth should we be expecting from that? Or how much should that be contributing to growth going forward? Was that more opportunistic this quarter? Or is there something more there that's going to sustain that for a little longer?
There are a couple of factors at play, and Pat will provide more specifics. We are seeing properties transition from construction to income-producing status, which offers some stability as they reach certain thresholds. Paydowns have been slightly slower than we anticipated due to market conditions, but this still opens the door for us to convert these into amortizing loans. Pat, would you like to elaborate further?
Yes, I think the positive point that Andy is bringing up is that the loans that are moving out of construction have met hurdles and have continued to meet the original underwriting, and they're staying with us in the income-producing investor bucket. We're comfortable with that. We like the sponsors have lived up to what we originally had both underwritten. I'm certain they would like to use the markets to secure long-term financing, but right now, they fit our underwriting criteria and they're solid loans that we want to keep.
Jared, it’s Derek. If you look at Slide 22, you can see the trends for our quarter-end loan mix. We don’t view this as a growth platform for us. While we feel very positive about it, we finished the first quarter last year at $7.3 billion, and it's $7.4 billion this year. When you add up all the categories in that bucket, it’s pretty flat.
Okay. All right. Good. Thanks. And then maybe shifting to C&I as a follow-up to the conversation you just mentioned about the strong markets. Where is the C&I growth coming from? Is that sort of mirroring what you're seeing on the household growth? Or are there certain markets that are outperforming others right now? And along that lines, what are you seeing in terms of spread compression and competition on middle market C&I?
Yes. So, the first answer, and this is the answer that makes me the happiest is we're not seeing it specifically in one market. We're seeing it, of course, in the major metropolitans, but we're also seeing it across our community banking markets where we have a Win Wisconsin Strategy, for instance. We're the largest bank headquartered here, and we are out in front of the communities. I'm really pleased that we're getting an uptick across the footprint. That's a good sign that we don't just need to win in one place. It's also a good sign for us because we continue to have these investments and these non-solicitations roll off. Those non-solicitations start in Milwaukee, Chicago, then expand into Minneapolis. Then when you go, of course, Kansas City, the farthest out. That bodes well for us as those start to expire and we're out in the market with quality people that have been in the market for a long time and know the key businesses in the market.
Regarding compression or competition, I would say probably the place that we've seen that a little versus 12 months ago, for instance, would be probably CRE. It's not a major area; we don't expect explosive growth in that particular area, but that's probably where there's been a little more compression because people have been on the sidelines in that business and have kind of gotten a renewed interest as they have a vision of what the market might look like. So far, so good. We like the balance sheet remix with the type of C&I business that we're bringing in. I'll also note that the thing I'm particularly excited about is the size of the deposit pipeline that corresponds with that, which frankly drives ROE for us.
Thank you.
Thank you.
Thank you. Next question today is coming from Jon Arfstrom from RBC Capital Markets. Your line is now live.
Thanks. Good afternoon.
Hey, Jon.
Yes. I think that's right.
Removing the loss from the mortgage portfolio and BOLI is likely difficult to predict, but it will probably decrease, which is a useful point to start from.
Yes, I think that's right.
No. We've seen some resolution in the C&I stuff. I think it's just generally normal course of business. For real estate, there's one particular deal, but not out of the ordinary, and we feel comfortable where we sit with it right now.
Okay.
To be clear, Jon, for clarification, Pat looks more closely at the Bears' draft pick than the Packers'.
You better be at Lambeau tonight, Andy. I wanted to ask you about the non-solicitations expiring and the completion of the commercial expansion. How do you measure the progress in that expansion, and how does its profitability compare to the rest of the company? It seems like the initial investment is made, but the revenues might not be there yet. What’s your perspective on that?
We believe it takes time in the first year of investment before seeing significant returns. Our existing relationship managers are still responsible for most of our production, and we're on track with our expectations. As we progress through the year, we'll see that individuals who have been in their roles for six to twelve months start to contribute. While 75% of our production currently comes from our existing base, that may decrease to 65% and then 50% as the year goes on. This gives us confidence in our growth momentum. We also need to consider the $1.3 billion growth target, as well as the associated deposits and the stickiness of our treasury management services. What excites me most for the upcoming quarters is our expectation of steady revenue growth from deposits, which will be a gradual process. Initially, we need to wait for the loans to begin yielding returns, then deposits will follow, along with ancillary business, and we are starting to see this trend take shape. Each step we take allows us to adjust our return profile.
Okay, all right. Fair enough. Thanks guys. Appreciate it.
Thank you.
Thank you. Next question today is coming from Casey Haire from Autonomous. Your line is now live.
Great. Thanks. Good afternoon, guys. I wanted to touch on loan growth. Apologies if I've missed this, but just wondering why the loan growth guide is still 4% to 6%? You guys are off to a pretty good start here. If I remember correctly, I think you were saying in January that the loan growth was going to be back half weighted in the second half of 2025. Just wondering what's keeping you at 4% to 6% here?
I think we're at 5% to 7%, or 5% to 6%, Derek?
5% to 6%.
Yes, we actually said we'd get out of the gates pretty well. We thought we would because we had additional hires. We thought we'd have a good first half of the year. Secondly, though, there are puts and takes to it. We think, with the quality of people we have and their long tenure, we also think there are questions about the economy in the second half. We also think that payoffs on CRE are likely to emerge at a little bit higher level than we've had, and we forecasted that in. So we forecasted low GDP. We forecasted an increase in CRE payoffs, and we forecasted in the effects of continued each quarter moving forward with more tenured people getting off their non-solicitation. That's how we think about the 5% to 6%, and we have some level of confidence in a market that is a little bit noisy right now.
Okay, fair enough. And then, Derek, on the CDs, the $8 billion that's coming due, I hear you that the benefit is going to flatten out a little bit. But just wondering what the new rates are versus that 4.33% level here in the first quarter?
Yes. Well, the CDs that matured in the first quarter were a lot higher. Most of them had a 5% handle on it. They go to the market rates that we were going out with, and the competitors were at were around 4%. But as you would expect, probably about halfway through this quarter for most of the industry who stayed short, at least where we're competing in our markets, about halfway through the quarter, the rates that are maturing will have dropped some. Depending on whether the Fed cuts or not this quarter, we would expect market rates to start dropping and we participate in that. But as Andy mentioned earlier, it's not clear that the difference between the maturing rates and the market rates will be the same, quite as wide as they were earlier this quarter. I hope they will. We feel optimistic about our guide, and we've seen rational pricing, and I hope that continues. It bodes well for us in a market where we've got superior loan growth and there might not be as much broad-based demand for deposits, which should help pricing.
Great. Thank you.
Thank you.
Thank you. Next question today is coming from Terry McEvoy from Stephens. Your line is now live.
Hi, thanks. Good afternoon. Just one question left on my list here. I didn't see the OREO expense in the release. I think you said it was $4 million. So, I guess my question is, is that included in the up 3% to 4% for the full year guide? If so, does that suggest kind of expenses flat to maybe even down a little bit on a quarterly basis?
Yes, sure. It is included in the guide, and it does suggest that this is a pretty high quarter relative to the guide.
Okay. And it was $4 million, the OREO expense?
Correct.
Yes.
Thank you. Next question is coming from Chris McGratty from KBW. Your line is now live.
Thanks, Derek. Regarding the guidance, it seems like the net interest income could trend towards the higher end. Is there any reason not to adjust everything else to the midpoint? That’s my first question. My second question is if there is some economic softening, can you discuss any flexibility you might have with expenses? Thank you.
Yes, I'll start with the expenses. I mean it's still early in the year. I think we've got pretty good line of sight into the expenses. You'll even see personnel expense dropped from fourth quarter to first quarter. Some of that you'd expect anyways with comp and benefits in the fourth quarter. I think we feel confident about that. I think the rest of the guidance, we really don't want to be too cute with it. We've got a lot of confidence about the first quarter and how that turned out. We've got a lot of confidence in the endpoints and what we brought to the table with regards to loan growth, deposit growth, and capturing the margin expansion from the repositioning. We have good pipelines. We hear some uncertainty from customers, but I think getting overly aggressive on the guidance above what we've had, given all the uncertainty, just doesn't seem plausible to talk about our expectations going forward. Our core performance feels really good while the macro environment feels really uncertain.
Understood. Thank you.
Thank you.
We reached the end of our question-and-answer session. I'd like to turn the floor back over for any further or closing comments.
Well, I'll be brief and just say thank you for your interest in Associated Bank. Your questions are all the things that we're thinking about, and we appreciate you following us.
Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.