Good evening, everyone, and welcome to Associated Banc-Corp strategic update conference call. My name is Paul, and I will be your operator this evening. At this time, all participants are in a listen-only mode. We will be conducting a question-and-answer session at the end of this conference. Copies of the slides that will be referenced during today's call are available on the company's website at investor.associatedbank.com. As a reminder, this conference call is being recorded. As outlined on slide one, during the course of the discussion today, management may make statements that constitute projections, expectations, beliefs, or similar forward-looking statements. Associated'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 page 29 of the slide presentation. Following today's presentation, instruction will be given for the question-and-answer session. At this time, I would like to turn the conference over to Andy Harmening, President and CEO, for opening remarks. Please go ahead, sir.
Well, good evening, everyone. I'm Andy Harmening, and I am joined by Derek Meyer, our CFO, here tonight. I appreciate you joining us tonight after hours to share an update on our strategic, strategic direction of the bank. We are not going to do a page flip, but I'm going to give an overview of what's occurred in phase I that leads up to phase II and what actions we've actually already taken. We've come a long way over the past two years since announcing our initial plan in September of 2021, and the team has been very hard at work in recent months to identify opportunities to build on that plan. So if I take you back, at the time of launch in 2021, we were oversized relative to peers in low-yielding, non-core customer residential real estate loans, almost twice as much.
We had an opportunity to deepen our customer base on both the consumer side and commercial sides of our business, and we had an opportunity to grow our customer base. But importantly, we'd spent a decade cementing our strong risk profile. That includes both the credit risk viewpoint and our operational risk perspective. So phase I of our plan started with expanding our lending verticals and started to provide optionality beyond residential real estate. The expansion of our commercial team by 34%, the launch of our equipment finance vertical, the launch of our asset-based lending vertical, and the launch of our auto finance vertical, all of this led to a 28% loan growth from Q3 of 2021 to Q3 of 2023.
But importantly, what it really did is it set the table for us to begin to de-emphasize some of our non-core customer-related residential real estate businesses. On the consumer side, we launched initiatives that have improved customer retention, improved acquisition, and have deepened relationships. The digital platform launch served customers in the highest transact volume area of our bank, just under 100 million visitors a year, and this platform has hit three-year highs in customer satisfaction. After its launch, we've experienced double-digit decrease in customer attrition. We launched a branding campaign in multiple consumer products that led to double-digit increases in household acquisition. We have changed a seven-year trend of - 1%-2% annual household losses to a forecasted break even in 2023, with a clear path for growth in 2024, 2025, and 2026.
This should, on the go-forward basis, serve as a tailwind for us. We launched our mass affluent segment strategy and have seen a lift in deposits measures in the hundreds of millions. This lift was clouded by the challenged deposit market in 2023, but has been a major factor in our outperformance to market and customer deposit growth in 2023, a market that has seen a forecasted 7%-8% decrease, where our number will be approximately 3%-4% down. Finally, as we enter phase II of our strategic plan, we have record-high customer satisfaction and record-high employee engagement. So with that as a backdrop, we've already moved to execution on phase II of the plan. Phase II includes three primary areas. Number one, disciplined expense control.
As a means of funding revenue-generating initiatives, we have made and largely executed tough but necessary decisions around expenses. Number two, an organic plan that helps us transition the asset side of our balance sheet from lower yielding to higher yielding segments, and continued emphasis on funding the majority of our growth through our core customer deposit franchise. Both of these areas of the strategy have been made possible by the foundation laid in phase I. Number three, a non-organic action. This action will provide additional liquidity. It will accelerate the restructure of our balance sheet away from lower-yielding, non-core residential real estate loans and improve many of our near-term and mid-term financial metrics. So going back to the first area, the expense actions are largely completed.
It did include a 3% reduction in force that was worked on over the past few months and executed earlier this week. As a result of this action and several others, we're forecasting a 3%-4% increase in expenses in 2024, above a run rate that does not include 2023 material one-time expenses. As always, our goal is to drive operating leverage, and we will flex our expenses within that 3%-4% range in accordance with revenue growth. Secondly, our expense actions have put us in a position to fund an organic growth plan focused on people, products, and technology. On the people front, we are well underway. Neil Riegelman joined the bank in October and will cover middle-market banking for Milwaukee and Madison after a 20-year career with BMO Harris.
By the way, Neil was very recently named a 40 Under 40 honoree. Jayne Hladio joined us in October as the President of Private Wealth. She had a 12-year career with U.S. Bank, ultimately leading as a national wealth management executive across 26 states. She joined us directly from Midland Wealth Management, where she served as the president of that group. Her expertise in both mass affluent and wealth will certainly help accelerate our existing plans in that space. Gus Hernandez was named Director of Business Banking. This is an important growth area for our bank, and Gus will help us create a bridge from the branch network to business banking to commercial. And finally, we expect to announce the new head of commercial, the group leader for commercial banking, by December 1st of this year.
On the commercial plan. Our commercial plan has an emphasis in existing footprint markets like Milwaukee and Madison, the Twin Cities, Chicago, and St. Louis. We intend to hire 20 RMs by the end of 2024, operating under the balanced scorecard model that emphasizes holistic relationships. In fact, as has been our custom, we already have a running head start on the recruiting and placement of some RMs in this quarter. By the end of 2025, we expect these commercial, these commercial expansion efforts alone to generate cumulative incremental loan growth of $750 million and deposit growth of $475 million. Now, as we've discussed, investments in one area of the business typically require offsets in another. Our efforts to expand our lending capabilities over the past two years have given us additional levers to drive balanced growth.
This growth has given us the flexibility to decrease our reliance on low-yielding, long-duration assets like mortgage loans, which made up nearly 30% of our loan portfolio in the third quarter. After exiting the TPO mortgage business earlier this year, we made several additional changes to our mortgage strategy that are expected to reduce outstanding mortgage balances by $600 million by the end of 2025 through pay downs and production decreases. And finally, the commercial expansion mentioned previously is just one of several initiatives we have in place to attract, deepen, and retain relationships and drive sustained core deposit growth over time. All across the bank, we're making investments that contribute to increased customer acquisition rates, decreased attrition rates, and steadily improving customer satisfaction scores.
We're dedicating additional resources to grow our mass affluent segment, which is expected to attract and deepen high-value customer relationships and create an upstream opportunity into wealth. We're modernizing our product and marketing approach. We're leveraging customer data and analytics to drive decisions on product enhancements, marketing tactics, and channels. We're continuing to make major upgrades to the digital banking experience for our customers. After deploying 11 major customer-facing upgrades over the past 13 months, we plan to continue with a quarterly cadence of additional enhancements in 2024. One of the clearest signs to me that our initiatives are working is when I look at our customer growth trends. As mentioned previously, we've seen net negative annual household growth for the past several years.
That trend has improved to flat here in 2023, and we expect to see net annual growth of 3% by 2025. As a correlation to these customer growth trends and the initiatives highlighted, we also expect to see cumulative incremental deposit balance growth of $2.5 billion by year-end 2025. In summary, the organic initiatives within our plan are iterative by design. We're building on a plan that was created two years ago, while staying true to the foundational strength that got us here in the first place. We are funding our balance sheet with lower-cost core customer deposits and decreasing our reliance on higher-cost, non-relationship funding sources. We're decreasing our reliance on low-yielding loan portfolios and growing into higher return asset classes. And we're transforming into a franchise that can grow customer households sustainably.
All of this while staying disciplined on expenses and credit. Now, while we're excited about the organic aspects of our plan, we also want to discuss an inorganic transaction that accelerates the financial impacts of our efforts. Earlier today, we announced a one-time balance sheet repositioning transaction to offload low-yielding assets and high-cost funding. As a part of this repositioning, we've sold approximately $800 million in securities and have agreed to sell approximately $1 billion in mortgage loans, primarily from single- product relationships at our TPO book. The proceeds of this transaction will be used to pay down the FHLB advances and reinvest in securities at higher rates. The transaction provides several attractive benefits. First, it reduces our reliance on wholesale funding and enhances our liquidity position. Secondly, it enhances our ability to generate capital and improves our profitability profile.
Third, it reduces our exposure to low yield, long-duration assets. Fourth, it enables us to improve our overall yields on earning assets. And finally, it unlocks the benefits of our organic plan by providing added capacity to drive more profitable loan growth on our balance sheet. So in summary, I'm pleased with the foundation that's been built as a company since I started 2.5 years ago, particularly in the face of a challenging operating environment here in 2023. While we're continuing to realize the benefits from the initial plan we rolled out in 2021, this update provides us with an opportunity to accelerate our efforts to grow our customer base, improve our profitability profile, and enhance returns to shareholders. With that, I'll open it up to any questions that we might have.
Thank you. We'll now be conducting a question and answer session. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Thank you. Our first question is from Scott Siefers with Piper Sandler. Please proceed with your question.
Good afternoon. Thanks for taking the question. I guess the first question just relates to the anticipated NII pickup from the balance sheet restructuring. I guess, just so everyone's on the same page, maybe I was hoping you could detail the planned pickup. It looks like you get about 16 basis points to the margin, which is, which is great, but will lose about $1 billion in average earning assets. So I, I think if I'm doing the math correctly, you pick up about $32 million a year in NII. So one, maybe if you could help me make sure I'm okay on the math. And then, if that's correct, just curious how you're thinking about the payback.
I guess it costs nearly $200 million pre-tax to do these, but, you know, if that NII pickup is correct, it looks like the year-end back might take a little time. So just curious how you're thinking about those dynamics.
Do you want to touch on that, Derek?
Yeah. So the only guidance that we're giving on the pickup in NII is on slide 24, where we do a pro forma against third quarter. I think that captures all of it, and you can use that to roll forward and whatever rate assumptions you're using. You are right on the pre-tax assumption. The way we've thought about the earn back was really on against CET1, which is about a three and half year earn back with the about $600 million reduction in RWA.
Okay. All right. Perfect. And then I guess just broadly, you know, Andy, positive operating leverage has always been important to you all. I guess with all the balls in the air, do you expect to generate positive operating leverage in 2024? And, you know, I guess if so, maybe just some further clarity on how you would get there, and if not, you know, when would you think about being in a position to generate positive operating leverage?
Well, you know, I've been advised by my friend Derek, not to commit to that yet for 2024. But you heard it in my comments, and you can see it in the final page of midterm guidance. I mean, that's the plan. And so we had a lot of pieces that we wanted to execute on. We wanted to make sure we got the expense piece right. That's hard, and we wanted to be there early, so we had a, you know, kind of a clear runway going into the year, and we didn't hold that over people's heads going into the year. Secondly, we wanted to start hiring people in key positions, and not just anybody. We wanted to hire game changers, and so far, that's what we've been able to do. Those game changers generate business.
That's the way that will work, and some of it's formulaic, but when you get the right people, it certainly accelerates the timeframe on that. So what we're taking a look at right now is very closely gonna monitor October, November, December financials, look and see if we've hit that bottom on margin compression, see what impact that has for the year. Do we continue to see the progress on growing customers? Which I think we will. And then fortify the timing of each key player that we have coming on board right now. So when we do that, my expectation is we're fighting to get to a positive operating leverage in 2024.
We haven't committed to that yet because we haven't finalized the budget, but certainly we get a tailwind in many things that we've already done in the past that are happening, and we get a tailwind from the inorganic action that we're taking as well. So, more to come on that specifically, but that is going to be the push for us right now.
Okay. Perfect. All right. Thank you guys very much.
Thank you. See you, Scott.
Thank you. Our next question is from Daniel Tamayo with Raymond James. Please proceed with your question.
Hey, good afternoon, guys. I guess first, just on the, I guess, clarifying on the medium- term, you talked a little bit about it in your previous answer, Andy, but the 3% margin, just curious on what your guys' assumptions in terms of when you may get back to that?
You want to take that or you want me to take it?
Yeah, well, I think the first thing is we see that over the next three years as the rise and we looked at for medium-term guidance. I'll point back to the answer I think I just gave Scott, which is we think this transaction itself captures, accelerates 16 basis points of that. But to get back to Andy's earlier answer, we haven't declared victory on has the bottom happened last quarter or this quarter? And how this rolls together with all the strategic plans we just laid out, rolled up into a 2024 outlook. And we think we try and incorporate a little more visibility in when we lay out that guidance in January.
But Daniel, I'll also say it's definitely a place where we see a clear path too. When you can fund yourself at a little bit lesser cost in big dollars, and when you can start to take the mix shift of what you have as a high return business in our commercial bank, versus a low return business in our single- product mortgage lending business, that just chips away at the balance sheet. So each year that one runs off and one gets added, you continue to flip that return profile. So a little bit depends on the market and how fast loan growth is able to happen over the next six to nine months. But to me, it feels more like a when than an if.
Okay, great. And my next question is just on credit, actually. You gave some guidance on net charge-offs. Just curious, actually, on reserves, the kind of impact of the loan sale on reserves, and then how you expect that relative to loans to trend going forward, given the change in mix?
So again, we'll try to not preempt 2024 guidance, but I, I will tell you, these, these loans are all very clean, so the ACL release on these would be low relative to our total ACL. So all things being equal, the ACL ratio would go up a little bit, although we would expect the dollars to be released with this.
Okay, that's helpful. Lastly, this is more high level. Just curious, Andy, on your thought for the reason of the loss in households in prior years, and then kind of what's driving your confidence in the forecasts for the growth going forward?
You know, it's a little-known fact in consumer banking that a lot of people aren't growing their households. It turns out that there's a disruptor called digital banks, and they've taken 25%-30% of new accounts that are open in the marketplace. So, there are many regional banks that have probably been flat to slightly down. There are many banks that have been flat to slightly down because of that new competition. So in order to compete with them, you have to be strong in digital. You have to be strong in how you communicate. You have to have products that are relevant, and the way you find out those products' relevancy is by testing them.
When I brought in Bryan Carson, his expertise was granular acquisition based on testing products and a customer's willingness and wanting-ness to buy that. So as we've tested that, as we've launched it, we've seen a correlation through all the levels of the funnel of what we do. So it is not an easy thing to do. I very rarely celebrate breakeven. I'm celebrating this breakeven because I know the platform and where it goes from here is growth. So you have to do a lot of things right. If you look on page 18 of our document, you'll see all the things that need to happen in order to, in my view, to grow your household number. So if somebody's just starting that now, I can promise you it's a two-year project.
We've got that behind us, which gives me a lot of joy as we head into 2024, and with regards to our ability to grow our foundation.
Great. Thank you for all the color.
Thank you, Daniel. Have a good night.
Thank you. Our next question is from Chris McGratty with KBW. Please proceed with your question.
Oh, great. Thanks. Andy, I'm trying to just kind of walk from your current ROE to the mid-teens. Appreciate the, the comments on the 3% NIM over a couple years, two to three years. Is there a capital, is there another capital action to get, to help bridge the ROE gap, meaning buybacks, since you talked about the RWA reduction as the motivation versus the earn back? Just Scott's question.
I mean, if it's a specific question on buybacks, that's a no. That, that's not a plan. We feel like we have a lot of good things that we can invest in our own company, and we've seen that those give us a nice return. We're going to keep a capital base that makes us comfortable. So trying to deteriorate capital in some way is definitely not the goal. In fact, this will give us good earnings power and good earn back. The thing that could happen is, if you have slightly lower loan growth, you actually will accrete capital even faster. So, for us, you know, as we head into a downturn, one thing that made me confident in doing this is I see the trends in our credit portfolio. I know what we have.
I know one of our weaknesses on a return basis is residential mortgage, but I also know it's a strength from a quality standpoint. So—and we have a lot of it. So we're in a pretty good place with an expected downturn, but capital matters and liquidity matters, and in this case, we're able to harvest quite a bit of liquidity. But no, on the buyback front, that is not in the cards, and as long as we have good ideas that we can grow organically, it, it probably won't be for a little while.
Okay. I totally appreciate that. The related to this decision to go the securities route sale, you know, the $157, was there ever a discussion about let's use that similar amount of capital to buy back the stock at 90% of book, or is it purely let's improve the earnings, balance sheet set up?
Well, this is Derek. So I think one of the things that's important from our standpoint is to focus on the organic strategy. So what we think the transaction does is actually accelerate the balance sheet profile that makes it more consistent with our go-forward strategy, vis-a-vis funding our our growth with relationship banking and not doing third party or non-relationship, low return assets. So we could get there more slowly without doing this transaction. This transaction gets us there more quickly and then gives us more wholesale funding capacity. So that was the lens we looked at it through. Wasn't looking at how inexpensive our stock price is and what to do with capital from that standpoint.
And if you look at just the run rate payback over the next two years, you know, we're pulling a lot of levers to bring that down. As you saw, our production level go significantly down on residential real estate, but payback is at historic lows. So we shrink that only $600 million in two years. In one quarter, we'll shrink it $1 billion to go along with that. So that will materially change the way that we're structured.
Yeah, I don't want to. I'm probably repeating myself, but a buyback would not have given us the upgraded liquidity posture that we were trying to get with the improved profitability.
Right.
Got it. Thank you.
Thank you, Chris.
Thank you. Thank you. Our next question is from Brody Preston with UBS. Please proceed with your question.
Hey, guys. Good evening. How are you?
Great.
So I just wanted to clarify the last, the last point on the buyback before I ask my other question. So if I'm understanding, so there's a 5% hit to tangible book value on, you know, using the number that you, the 157, and the, the decision tree was, we can use that capital to improve the liquidity and improve the go-forward profitability and, you know, maybe enhance our ability to generate capital going forward versus buying back, you know, like, I think it was like 6.5% of the float and maybe seeing a mild improvement in tangible book value. So it was more about structurally improving the balance sheet versus just using the capital, correct?
Yeah. I mean, said a different way, we're betting on ourselves.
Got it.
But yeah.
Okay.
You're correct.
The medium-term targets, I just wanted to clarify what I thought earlier. That's like a, that's like a two to three year kind of, you know, goal, is, is the targets that are laid out on page 27?
I think it is a three year, yes.
Three year. Okay, cool. Thank you for the clarification.
Although I reserve the right to come back on positive operating leverage for 2024.
Oh, yeah, yeah. That's okay. Every day. That's an everyday goal.
Thank you.
Got it. Yeah. Well, we'll see who wins that arm wrestling match, I guess. Could I ask you just what the implied ROA is within that ROTCE target?
I haven't thought about it that way.
Okay. Would it be fair to assume that just based on the CET1 target that you already have out there, you know, that it's consistent with the range that you plan on operating in, I guess, the capital level associated with that ROTCE?
I, I think it sounds like the answer is yes, but not sure what else you might be looking for.
I just wanted to make sure I understood what level of capital you're planning on operating with going forward.
Yeah, I think.
Um.
I think, I think we gave the range, and we're not trying to hit the ROTCE target by leveraging up more, is how I'm thinking about what you're trying to get at.
Yeah. Yeah. I did want to ask, you know, just on the incremental deposit growth that you guys are looking to achieve, I guess, is that going to be driven predominantly from the commercial hires and are the RMs going to be meaningfully incentivized on the deposit side versus loan growth? I'm just trying to better understand how we get that incremental deposit growth.
Yeah, that's a really important question. I think if you look at two pages, page 15 shows that we expect $475 million from our commercial strategies. Now, Brody, we, we changed to a balanced scorecard approach in our commercial bank two years ago. What that means is they get incented for bringing in full relationships, treasury management, fee income, deposits and loans. So that is a fundamental of how we're doing business, and it has improved our acquisition. We know what we get per commercial RM based on the time they start. We think that, you know, about $500 million out of the $2.5 billion would come from the commercial RMs. If you forward on to page 18, what I was saying earlier, you better have a lot of tactics. We do.
Mass affluent has brought in $several hundred million above BAU. We will invest specifically in mass affluent bankers in multiple branches. That will bring in additional balances for us as we continue with that strategy. In addition to that, Jayne Hladio brings in expertise, literally expertise, in transitioning from mass affluent to wealth. I don't know if it's serendipity or I did something nice recently, but she happened to live in Milwaukee, have experience in doing this across multiple states. We expect that we're going to get $50 million-$100 million just in that alone. We then look at what we do in our product enhancements and what we do on acquisition. When you acquire 1%-2% growth, those people bring deposits with them.
We've changed our data and analytics approach and team, so we know what works and where it works in each funnel. That brings tens of million dollars in with it. We shifted our focus on marketing from a little heavier on sponsorship to acquisition. That brings more dollars with it. So when I said it is hard to put this together, we didn't just put this together in 90 days. This has been put together over the last two years, and now we're starting to reap the benefits of that. Plus, when we, when we went for a cost savings, which we did, we immediately look at this reinvestment in a at a time when we think a lot of others maybe aren't thinking of it that way. But we think of it that way from a deposit gathering and a loan standpoint of significance.
That's a long way of saying it's a lot of pieces. The commercial piece of it will be about one-fifth of it.
Got it. Thank you for that. I just had two clarifying questions that I wanted to ask. When I go through kind of the math of the repositioning, I wind up with about a $35 million positive impact to net interest income. Does that feel right to you, Derek?
I'll trust your math. It depends on your rate assumptions. I think we try—again, we try to be clear on what we thought this does, which is, which comes through margin, and that's the 16 basis points on page 24.
Got it. And so if I'm doing the math correctly, that equates to about a 5.5-6-year earn back. Does that sound—you know, does that feel right to you when you did the math?
We're looking at the earn back based on regulatory capital, which is, as I said earlier, a little under 3.5 years. It is longer dollar earn back on income.
Got it.
So directionally, yeah.
And then my last one is just on the moving parts of the mark on the securities and the loans. I just wanted to ask of the $157, you know, post-tax mark. So I think Chris said earlier, it's about $200 pre-tax. What was, I guess, how much of that was on the loans versus the securities? And then on the loan mark, you know, how much, you know, what was the interest rate mark and what was the credit mark? I'm assuming the credit mark was the minimal.
Yeah, we're not going to break it down that way. Our after-tax breakout is a hundred and. And this is estimates. We have executed trades on both of these, on both the loans and the securities. Securities settle tomorrow. The loans settle before the end of the year. So the estimate after tax on the loans is $106 million, and the estimated after tax on securities is $52 million. And that $52 million, theoretically is already in our TCE, as AOCI.
Got it. Awesome. Thank you very much for the help. I appreciate the question development.
Thanks for the interest, Brody.
Thank you. Our next question is from Timur Braziler with Wells Fargo. Please proceed with your question.
Hi, good evening. Just two questions on my end. Maybe looking at what Brody asked, but asking it from a loan side. 20 new RMs being added, there's good incremental capacity there over the next couple of years. I guess, how should we be thinking about the loan growth profile of Associated going forward once this is all implemented?
That sounds a lot like a 2024 guidance question.
No, just.
I think we.
I mean, beyond 2024, just how should we think about Associated on a go-forward, you know, annualized growth perspective? Is this a mid-single-digit bank, or are the initiatives that are being taken place today, is this something that can grow faster than that?
In terms of what? In terms of earnings, in terms of loans, in terms of.
Loan growth. Loan growth, with the RMs being higher, with 20 RMs.
Yeah. You know, my experience tells me that we have a really good path. The reason I say that, Timur, is not necessarily absolute loan growth, it's the mix and it's the shift. Excuse me. It's the mix shift. Excuse me. So if we grow 5%, for instance, but we go down $1 billion in something that has an 8% ROTCE, and we go up $1 billion in something that has an 18% ROTCE, we're not going to have the same economic profile as somebody that just grows 5%.
So one of the benefits of being so heavily weighted towards mortgage is as we run that down, which we are, and we run up other categories, whether that be equipment finance, commercial, ABL, small business, our 5%-6% should be a little bit more profitable and get us to a return improvement year-over-year in a little bit more significant way. That's how I would think of it, and I would be very hesitant to try to grow double digits on loans on a regular basis. I learned long ago that if you do that on a regular basis, you're going to probably run into troubles.
Okay. And then looking at the mortgage book specifically, I guess what portion today is of origination out of the private wealth, mass affluent and the CRA customers?
We don't, we don't break that out. I don't think we're prepared to do that right now.
Okay. I guess with, you know, that being the only component that's being put on the balance sheet but still continuing to service the remainder of the community, should we expect a material change in mortgage banking revenue as a result of some of these changes?
Are you talking about fee income?
Yeah.
Yeah, I don't think that's one, that's down, generally speaking, as you know, just because of the mortgage business is down. What we do see, and this is not as much guidance as is trying to illustrate the magnitude of change. We see us switching much more to a conventional originate-to-sell model when we were putting almost everything on the balance sheet before. Lots of banks started going that way when they were reaching for growth. We are committed to mortgage as an important part of our consumer business, but we expect to, all things being equal, originate more to sell. So, in the same scenario, you know, same rate environment before and after this, you would expect to have more fee income.
But it's hard to say we're gonna have lots more fee income, I don't think anyone's growing mortgage fee income a lot. But our strategy should generate more fee income and less balance sheet consumption out of the mortgage business than it did before this. It's a pretty big change.
I'd say the piece that probably rolls up pretty well for us is with the slow pace of pay downs and repayments in mortgage. That gives us time to continue to ramp up other lines of business. So, you know, as rates stay higher, that mortgage prepaid is very low. And, you know, if you assume that they're gonna be at some reasonably higher level through a portion or a lot of 2024, as those start to pay down even a little bit more, we'll be even in more solid footing on the commercial growth side of the business. Over time, of course, we'll make less money. We'll have a portfolio that is, you know, by the end of 2025, what?
$1.6 billion less than it is today, and originations that are half of what they were or less, from 2022 to 2024. So the short answer is yes, but we'll make that up in other areas.
We tried to outline a little bit of those dimensions on page 19.
Great. Thank you for the questions.
Thank you.
Thank you. There are no further questions at this time. This concludes our Q&A session.
Thank you all very much.
This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.