Earnings Call: Q3 2021

Oct 21, 2021

Afternoon, everyone, and welcome to Associated Bancorp's Third Quarter 2021 Earnings Conference Call. My name is Shamali, and I will be your operator today. At this time, all participants are in 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 1, during the course of the discussion today, management may make statements that constitute projections, Expectations, beliefs or similar forward looking statements associated 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 actual results to differ materially from the information discussed today is readily available on the SEC website in the Risk Factors section of Associated's most recent Form 10 ks and subsequent SEC filings. These factors are incorporated herein by a reference. For a reconciliation of the non GAAP financial measures to the GAAP financial measures mentioned in this conference call, Please refer to pages 20 21 of the slide presentation and to page 10 of the press release financial tables. Following today's presentation, instructions will be given for the question and answer session. At this time, I would like to turn the conference over to Andy Harmoni, President and CEO, for opening remarks. Please go ahead, sir. Well, thank you, Shamali. Good afternoon, everyone, Welcome to our Q3 2021 earnings call. I'm Andy Harmoni, and I'm joined today by Chris Niles, our Chief Financial Officer and Pat Ahern, our Chief Credit Officer. I want to kick things off by covering the macro highlights for the quarter and give you an update on the strategic initiatives We presented both internally and externally last month. Then Chris will walk you through where we are in margin, fees and expenses. And then finally, Pat will close us out with an update on credit. On a macro level, we continue to see signs of a strengthening economy in our markets. Unemployment rates in Wisconsin and Minnesota remained at or below 4% and manufacturing has been consistently expanding, which is reflected in the positive momentum we're seeing in the Midwestern footprint. While the Q3 news cycle is dominated by over concerns of surging delta variant and We do remain optimistic about growth in the latter part of this year and into next. Our customers are doing well. Sound credit performance continues to be foundational and associate is well positioned to participate in the coming expansion. Now let me touch on Q3 highlights as outlined on Slide 2. On the top line, We saw revenue expansion across all key areas of our business. Interest income grew, our fee businesses grew And we realized additional gains during the quarter. We also see signs of increasing customer confidence with spending activity, Deposit levels and capital market transactions all up from the Q2. On the liability side, Rising deposit levels have also allowed us to further moderate our funding costs. Now shifting to credit, We continue to benefit from improving credit backdrop as we work our way through 2021. Our customers have proven to be resilient And markets have continued to recover throughout the year. After posting reserve releases in each of quarter 1 and quarter 2, We posted another negative provision in the Q3 and further net reserve release. Our CECL reserves are now below our CECL day 1 levels. From an operating expense perspective, we continue to be disciplined even as we embark on our multiple initiatives. And aside from the $2,000,000 of facility exit costs we incurred in Q3, expenses were fairly flat. Taken together, these factors have helped us drive our year to date returns on average tangible common equity to over 13%. Moving to Slide 3, I want to dive a little deeper into loans. We shared back in Q2 that we're We're starting to see signs of increased lending activity and line utilization in our commercial portfolios, and I'm pleased to announce that this trend has carried over into the Q3. Average commercial and business lending loans excluding PPP grew by over 3% quarter over quarter, led by general commercial. Additionally, we continue to see growth in several specialized lending categories at CRE Construction. While certain aspects of the economy faced unexpected headwinds during the quarter due to the resurgence of COVID, we continue to be encouraged by the conversations we're having on the frontline and the numbers that are starting to merge in our pipelines. We're also encouraged by customer activity, consumer activity. We officially launched our auto finance vertical on September 30 and have already funded loans across 13 states. We are excited about the early returns in our auto business. This addition to our product set allows us to further diversify our consumer lending portfolio And earned slightly better spreads in our traditional mortgage origination activities. Consumer card spending activity Was also remarkably strong during the quarter. Outstanding credit card balances increased 6% quarter over quarter, A greater than 24% annualized rate suggesting a significant uptick in the confidence of our retail customers. And finally, our PPP and oil and gas portfolios continue to run off as expected. We expect the majority of our remaining PPP to be paid down in Q4 and we expect the oil and gas portfolio to be largely paid down over the coming year. Additional loan trends for the Q3 are highlighted on Slide 4. On a longer term trend, we're pleased to see Commercial and business lending rebound during the quarter, reflecting our first expansion in more than 5 quarters. Line utilization was a contributor to the rebound. Commercial line utilization numbers continue to close the gap relative to our historical levels. In April, our commercial customers were funding About 12.5 percentage points below our historic line utilization levels. By September, this gap had narrowed to 8.5 percentage points. And while we still remain well below our pre COVID monthly averages, our September line utilization was the highest we've seen since July of 2020 Our momentum coming out of the August lull we experienced seems to be establishing a positive trend. Construction lending was also a bright spot for the quarter as our proactive commercial real estate team continued to grow both outstanding and commitments on a year over year basis. And given our substantial back book and construction commitments, We're confident outstandings will continue to grow well until late 2022. As we look to the 4th quarter, We remain optimistic around loan growth, but are adjusting our expectation in response to the economic headwinds that played out in the Q3. Specifically, We now expect full year commercial growth that is CRE and C and I combined, excluding PPP, of approximately 2%. On Slide 5, we've provided a walk forward of our quarterly pretax Pre provision income from the Q2 to Q3. And while our pre tax income was essentially flat for the quarter, This masks the $9,000,000 improvement in our pre tax pre provision results and our positive operating leverage. Looking past the $11,000,000 drop in provisioning, both interest income and fee income items were significant contributors to our quarter over quarter improvement. I mentioned last quarter that we expected expansion in pre tax pre provision income over the second half 2021 to more than cover the incremental costs contemplated for our newly announced initiatives. We remain committed to these targets as we head into Q4. Now turning to Slide 6, I'd like to highlight that we announced our strategic vision back in September. We said we'd start executing on our strategies immediately, And we have. Slide 6 shows some of the steps we've taken to make real progress against the 4 key pillars of our strategic plan. We continue to expand our lending capabilities. Our auto finance business is up and running with book loans and nearly 7 50 dealer partners signed up. We're currently originating loans in a pilot mode across 13 states and 60 dealers. Origination activity to date Has been in line with our expectations and we'll be looking to ramp up our volumes as we move through Q4 and roll out our program to our broader dealer network. In addition, we have rounded out the executive leadership team for both our equipment finance and our asset based lending initiatives. We continue to add experienced relationship managers and lending specialists into our core markets to better serve the needs of commercial and small business customers. And we brought increased focus to our wealth management areas, while targeting new opportunities across our footprint. On the digital front, we're on track to transform our consumer digital banking experience in the Q1 with the launch of a new platform, Bringing increased customization and architecture that will more easily allow us to integrate FinTech partners to improve the customer experience. This is our first big step in a plan that will transition spending towards our digital channels and technology over the next several years. And finally, we're always looking for ways to optimize our capital and balance sheet. And in the Q3 alone, We redeemed $100,000,000 of preferred stock, repurchased $60,000,000 of common stock and increased our common dividend by 11%. Simply put, we are full steam ahead on our efforts, and we look forward to building on this momentum as we head into 2022. So let me pause there and hand it over to Chris Niles, our Chief Financial Officer, to provide further detail on our margin and income statement trends for the quarter. Chris? Thanks, Andy. Turning to Slide 7. Our net interest income increased $4,000,000 from the prior quarter or 2%, driven by higher interest income across the board And lower funding and time deposit costs. Our quarterly net interest margin increased slightly expanding 1 basis point quarter over quarter. We've seen slowing refinance activity, which has stabilized our mortgage yields and a steady decline in liability costs. NIM continues to be pressured by high liquidity levels and compressed commercial loan yields. Moving to Slide 8, we continue to see record average deposit levels. 3rd quarter average deposits were up over $1,200,000,000 or 5% on a year over year basis. This growth continues to be concentrated in our low cost deposit categories. Low cost deposits have grown approximately $2,000,000,000 from a year ago and at quarter end accounted for 67% of our total deposits. During the quarter, we continued to work down our high cost network and time cost balances. These decreased by approximately $1,300,000,000 in the third Meanwhile, our agate and wholesale funding levels have continued to steadily decrease over the past 5 quarters And have decreased by nearly $2,000,000,000 year over year. Looking forward, the deposit pricing and funding actions we have Taken are anticipated to help improve our margins in Q4 and into 2022. Turning to Slide 9, Given the high levels of liquidity, we began investing in securities late in Q3. We anticipate deploying additional cash balances into investment securities The next 9 months, reinvestment yields are expected to be approximately 2% or better and accretive to our current portfolio earnings. We continue to target investment to total assets ratio of between 17% 19% for 2021 and expect to rebuild the investment portfolio to somewhere north of 20% of assets by year end 2022. Looking forward, We expect our full year margin to end this year at approximately $240,000,000 for the full year. Now turning to Slide 10, we'll comment on non interest income trends. Fee income grew nicely during the quarter. We saw Growth across several key categories including our mortgage banking unit where net income grew $3,000,000 from the prior quarter assisted by MSR recoveries. We also saw solid growth in our fee based revenues where service charges on deposits and account fees were up 9% for the quarter and up 19% year over year. Card based fees were also up 9%. Taken together, we view these trends as encouraging indicators of growth, growing consumer confidence as we emerge from the pandemic. Our non interest income for the quarter also included $5,000,000 in asset gains tied to private equity distributions. But even excluding this impact, Income grew by nearly 5% in the previous quarter. Reflecting this continued strength in our core fee businesses, we now expect to finish 2021 at the upper end of our most recent key guidance range. On Slide 11, we highlight our expenses. The 3rd quarter came in at $178,000,000 a $3,000,000 increase from the prior quarter, Including $2,000,000 of facilities exit costs, excluding these exit costs, expenses were up about 1,000,000 As we continue to roll out our new strategic initiatives, we remain committed to maintaining our expense management discipline. Taking into consideration all the pending initiative actions, We continue to expect our total 2021 non interest expense to come in consistent with our prior guidance range. Lastly, let me comment on capital. As shown on Slide 12, our tangible book value per share continues to grow quarter over quarter and has increased 7% year over year To $17.58 Associated regulatory capital levels are all remain strong. Our common equity Tier 1 ratio has grown from the 3rd 2020 even as we refer to shares, redeem preferred and increase the dividend. We will continue to target TCE levels atorabove7.5% And CET1 at or above 9.5%. With that, let me turn it over to our Chief Credit Officer, Patty Hearns, to give you an update on the credit portfolio. Thanks, Chris. I want to start by providing an update on our allowance as shown on Slide 13. We utilized the Moody's September 2021 baseline forecast for our CECL forward looking assumptions. The Moody's baseline forecast assumes additional fiscal support, Continuing low interest rate environment, the recent acceleration in consumer prices to be transitory and relatively localized COVID cases. Following net reserve releases of $28,000,000 $40,000,000 in the 1st and second quarters of 2021, respectively, We posted a further net release of $32,000,000 in the Q3. This net release was driven by gross reductions Our allowance for all of our core commercial and CRE business units, there's a $3,000,000 gross reduction in our allowance Related to our general and commercial and business lending portfolio, a $12,000,000 reduction in our CRE allowance, A $14,000,000 reduction in oil and gas and a $2,000,000 reduction in retail lending. As of September 30, our total ACLL was $332,000,000 down from $364,000,000 in the prior quarter. Furthermore, our ratio of reserves to loans declined to 1.41% from 1.52% during the quarter. We have previously guided that we expected ACL to loans to drop back down to CECL Day 1 levels by the end of 2021. And 3 quarters of the way through the year, we've dropped comfortably below that mark. Turning to our quarterly credit trends presented on Slide 14. Most of our key credit metrics continued to improve over the course of the quarter. Our key COVID commercial exposures continued to decline for the quarter, led by declines in our retailer and shopping center exposures. Non accrual loans also decreased in Q3 and were down 42% year over year. Net charge offs increased slightly from the quarter and were tied to only one credit. Potential problem loans also increased The increase is tied to continued pressure in some select COVID related industries. We expect these trends to normalize as we get into 2022. For the Q4, we expect to adjust provision to reflect changes to risk ratings, economic conditions, other indications of credit quality in loan volume. With that, I will now pass it back to Andy to share some closing thoughts as we look to round out the final quarter of 2021. Thanks, Pat. On Slide 15, we recap our updated guidance for 2021. Amid the economic headwinds we faced in the back half of the year, We are expecting full year commercial loan growth, excluding PPP, to come in at approximately 2%. We expect our full year net interest margin to land at approximately 2.4% due to elevated liquidity levels and compressed commercial loan yields. And we expect to finish 2021 at the upper end of the $315,000,000 to $325,000,000 range We gave for non interest income back in September, reflecting continued strength in our core fee businesses over the remainder of the year. And lastly, as I mentioned, we continue to experience positive credit trends due to economic conditions as we And as such, we expect Q4 provision to be adjusted to reflect changes to risk grade, economic conditions and other indications of credit quality and loan volume. And with that, we'd be happy to take any of your questions. And at this time, we'll be conducting a question and answer session. And our first question is from Scott Siefers with Piper Sandler. Please proceed with your question. Good afternoon, guys. Thanks for taking the questions. Let's see. Chris, wanted to maybe start with you just on the plan to deploy the 1,000,000,000 The composition of the portfolio and sort of what the interest rate assumptions are or what kind of rate environment will be necessary to be able to hit those sort of targeted reinvestment rates? Sure. So I think the mix overall, Scott, will look a lot like what you see in our current portfolio and won't be a fundamental change from what we've been doing for the last couple of years, Just adding a little more volume. And from a yield perspective, we've called out that we think the reinvestment portfolio yields will be in the 2% plus range, Which is consistent with what we purchased in September. Okay. Perfect. Excellent. So it doesn't depend Further increases in the long end of the curve or anything like that, just sort of static environment would be great. At static environment, we can achieve and deliver on And if rates move higher, that will be even better. Wonderful. Okay, good. And then can you Let us know what the remaining PPP pardon me PPP fees are that will flow through NII and margin? Sure. So I think we detailed those out on Slide 4 in the materials and so at the end, sorry, The press release table is what I meant, sorry. The $7,000,000 and again, we think the majority of that will come off. That doesn't mean all of it, but just for clarity, something probably more than half of it. Okay, perfect. Yes, sorry I missed That and I think I missed that last quarter as well. So appreciate you, I appreciate you, hearing me. So good. All right. Thank you very much. Sure. And our next question is from Michael Young with Chua Securities. Please proceed with your question. Hey, good afternoon. Good afternoon, Michael. Good morning, Michael. I wanted to just touch base on the commercial loan growth. I think you've highlighted a lot of positives in terms of utilization rates moving higher, good demand in construction Funding moving forward, etcetera. But then on the flip side, maybe moving down to kind of the lower end of the targeted range from a month or 2 ago. So could you just talk about what's driving that? Is that payoffs or competition in the market or demand? Any color would be helpful. Yes, this is Andy. I'll take that one. As we look at the Q4, we have a few things. We've had very modest increase On line utilization so far has not been a major driver. When you look at the Q4, you have to look at mortgage warehouse and The impact of rates will be to that part of the portfolio. And then we have oil and gas, which we expect to run down and is running down. So when you look at all those pieces together and you see that little bit of a lull in the Q3, we believe that drives us down to the lower end of the range. But at the same time, what I would say is our commercial pipelines remain strong. So We feel good about the fundamental business heading in the Q4, and we feel very good about the state of our initiatives heading into the 1st quarter as we get new relationship managers up and running and they're already taking looks at deals, folks we didn't have in the field before. So That's the primary driver down for the Q4. Okay, great. That's helpful. And then just as my follow-up, Curious, as rates started to move up, especially on the long end of the curve, does that change how you're looking at any loan As it pertains to kind of the capital allocation model that you're bringing to bear? Yes. So what I would say is, I don't think it changes what we're looking at Differently, we had already strategically begun to reposition ourselves in expectation of rising rates generally over time Away from mortgage, which we've seen less volume and less applications on and which we've said we would hold the balance of their static going forward And shifting towards more shorter duration, but still fixed rate assets such as the auto, such as the equipment finance, Which are going to come online and are poised to benefit from the repricing and we continue to expect to participate as our customers will In general, C and I repricing and CRE repricing over time. Okay, great. Shamali, do we have the next question in queue? Shamali, have we lost you? We lost Mitch. Do you need that one? I'm not sure if my line is This is Andy Harmoni. I have some skills as moderator as well. And I'd be happy to take the next question. If you've got it on for us, happy to answer it. I'll throw it out there, nothing else Just on the network deposits as a factor kind of moving forward into a higher rate environment, Historically been kind of a nice buffer for you guys to pull on when you needed the funding. But can you just talk about that again, maybe in the context of potentially rising rates going forward? And I think we're a long way From liquidity scarcity, but just as you think about that on a go forward basis? Well, we've been able to very I mean nicely maintain our core deposits. As you can see that we've maintained at a pretty low level. And our core deposits, as you can see that we've maintained at a pretty low level. Our customer satisfaction coming off of last year's, those Satisfaction scores remain pretty strong, which is also a key driver of retention. So we believe that the networks are a big positive for us, whether that's in community markets They play a very key factor or major metropolitan markets. Yes. And so just so we're all on the same page, the Core funding levels have reflected very positive dynamics in the low cost Sandy has articulated. The network deposits that come to us from the large Mutual fund complexes and the broker dealers, those deposits we've been working directly with those providers to manage those balances down and you see that on Slide 8 and how we've managed those balances down. But we've endeavored to keep relationships open with each of the large dealers So that should the market come back in a way that would require us to access incremental funding, we would still have good access there. And we've tried to manage the largest providers, to be the largest remaining components of our current outstanding so that We're active with them. We'll remain active in their flow. And when the market necessitates that we may need incremental funding, We hope we'll have ready and easy access to those same large providers to support us, as we grow in, say, 2023 or 2024 when liquidity perhaps starts to I think I was taking that from a different perspective, which is we have optionality, but we also have the strength of Branch network deposits outside of additional network deposits that are still available. I'd be happy as Andy Harmonic can take this next question. This is a first for me. Let me know if you get the operator back, but I guess I'll just continue. Just on share buyback, obviously, good to see some strong utilization this Order stocks a little bit higher than where it's probably been throughout 3Q. So just there's still pretty strong appetite there. At some point, Do you start to lean more heavily on escalating dividend? Or do you look at M and A? Kind of how are you walking through the capital allocation bucket? Yes, I'm going to this is Andy. I'll take the first part of that. And what I would say is our focus is on growth. We think that's the best most profitable way to And so as we head into 2022, we feel really good about the trajectory that we have of the initiatives And our core businesses where we've been able to add commercial bankers and small business bankers. We felt like we had an opportunity in the short term as we're getting that ramped up towards year end to maximize our capital position and we're in a position to buy back stock. If there is a situation where there is some slowdown in, We'll remain we'll give ourselves that optionality, but our number one priority is growth. Chris? You said it well. First, organic growth. 2nd, maintain a competitive dividend and we think with the actions we took in the Q3, we enhanced our competitive dividend positioning. 3rd, looking at inorganic opportunities, but the internal organic is the key focus there. So those are downplayed for the moment. And we'll always look at share repurchase as the use of incremental capital, but frankly with the plans we have for organic growth, we have a good use case to deploy our all capital in the near term towards those initiatives. Thank you. Again, if there's another question out there. Are other people connected? Are you guys able to open other lines? Or are we just I think that we've our moderator Shamali has been disconnected momentarily, so he can't reposition the line. So I think right now others can hear us, but you are going to be the proxy. Okay. Well, I'll step back so others can ask questions if they're able. Yes. So for our analysts that are online, feel free to send your e mail questions directly into benmccarbell. That's ben.mccarbellassociatedbank.com. I think most of you have his information handy, and we'll be sure to answer them in queue order as we come along. I hope you hear from this series of events that we're really better at operating a bank than we are at serving as moderators, but we're trying like heck So I will say We have a couple of questions that came through from Scott Sievers, additional questions that came through from Scott. Great. And I'll recite the first one here. So What will be the amount of strategic initiative charges in 4Q 2021? I think you took $2,000,000 in charges in the Q3, but I've been saying $8,000,000 for full year So $6,000,000 remaining and embedded in the full year 2021 guide? I think that's the right way to think about it, Scott, so we're changing our we're not changing our full guide. So that leaves us that amount that you've articulated there as a likely range of outcomes. We're obviously working through those and we'll be diligent and disciplined about managing those appropriately, but our total expense guide is unchanged. Okay. Next one from Scott. What was the 28% linked quarter increase in potential problem loans this quarter? Pat? So those were really, as I mentioned, tied to what we call COVID related industries, some movie theater exposure, hospitality, Transportation, etcetera, it's really a handful of select deals that we don't see as a systemic increase over the portfolio. It was just really very select credits. Also from Scott, what type of wage inflation are you seeing? And can you absorb it within your existing efficiency Yes. Great question. It's something we're all seeing. As you probably noticed last week, we noticed we announced a wage increase across our entire footprint effective November 21. That wage increase has already been budgeted for, and we believe we have appropriate plans in place for 2020 So we can absorb what we see as increases going forward pretty effectively. And the good news is we've had very nice success That's on turnover year over year relative to other what we're hearing in the marketplace. Okay. Last question from Scott. The provision guidance is less specific than usual. Your 1.41% reserve is below the CECL Day 1 of 1.55 percent and I know energy was a portion of that. Are we done with the negative provisions? Should we assume that without meaningful economic changes, we'll keep the 1.4 So this is Chris Niles. Let me give a first response to that. So we've given the More broad guidance because we think going forward our provision will be more economic and portfolio factor driven. That having been said, we feel very comfortable with where we are at the end of the quarter if we think the reserve is appropriate, but we also see some good overall dynamics All right. Our next question comes from Chris McGratty with KBW. So our expense guidance is for the full year on a total basis. So you can take our total guidance, subtract the 1st 3 quarters, and that'll be the 4th quarter guidance. I think the other thing to state there is as we launch multiple initiatives, what we committed to is having positive operating leverage above the 2nd quarter. We clearly did that in Q3 and we expect to do that again in Q4. Yes. Positive pretax pre provision above And then we have a few here from Jon Arfstrom with RBC Capital Markets. So the first question is, when do you think commercial loan yields can bottom out? Well, John, I'd like to think they already have. Now that's a bit over my skis, but the reality is we're Beginning to see market yields generally rise and we take comfort in what we've seen as some of the larger bank Syndicated transactions that have come out where they've started to build in software adjustments and other factors that perhaps The compression in spreads that we've been experiencing that's driven absolute yields to the bottoms, we hope is perhaps behind us. And while spreads may not expand, absolute yield will continue to rise if market levels rise. I think the other thing that's a tailwind As we see the slow steady increase in utilization, that typically comes with an improved margin as well. So It's impossible to say on the forward looking exactly what bottom looks like, but more to come. All right. So next up from John. Greg, are you still planning on $1,000,000,000 in auto outstanding budget in 2022? We're very much believing we're on track to be able to achieve that. We are 3 weeks into it. We at the writing of this presentation, we are at 60 dealers. Since then, I had a call yesterday Afternoon, and it looks like we've raised that to 211 dealers in the pilot. So, we are on track for that number. And we expect incremental increases in November December, and that will really hit the ground running very well in January. Also from John, if you exclude warehouse and energy, are you more bullish on commercial lending for 2022? Yes. I mean, the simple answer is yes. We've brought over some talented relationship managers across Wisconsin and Chicago so far in a pretty short period of time. In addition to that, when you think about the markets that we're in, they're tailor made for Asset Based Lending and Equipment Finance. We are looking at deals already in Asset Based Lending, having had the leader in that join us in the Q3. Equipment Finance, we're ramping up quickly. In fact, I met with our Head of Equipment Finance this afternoon on his first day in the office, Talk about how we bring a team around ramping that up as quickly as possible. And it's a seasoned veteran, Scott Denise, comes to us from Wells Fargo and GE Capital. So those are pieces that we don't have in our numbers today in the Q3 that we expect Heading into Q1, we will have and in spite of that, we continue to see a really nice pipeline. We saw commercial increase of 3% In the Q3, and we maintained a very nice pipeline in commercial even with the closings that we had there. So feeling very bullish on our commercial business Heading into Q1, 10, 2022. All right. So a couple of you that I might blend together on John's path. It seems like the margin should be up nicely in 2022. And more broadly, when are you willing to talk about your outlook for 2022 Well, John, we've historically given our 2022 guidance in our January 2022 call, so you can expect to hear from us then. But obviously, we will be presenting at a conference later this quarter, and we'll perhaps give you a little more update on our strategic initiatives at that time. All right. So next up, we have a couple of questions from Terry McEvoy with Stephens. So first of all, How will the FTE count change from the day Andy joined until the day that your hardings are done for new initiatives? Sure. When you think about the overall FTE counts, we're roughly at 4,000 in the second quarter, 3,990 in the press release tables. We're just over 4,010 now, so they really haven't changed much. But the new hires And the additional staff to support all of our initiatives will raise the overall count by a couple of 100 including some backfill of positions that we need to work on as well. So you can expect the overall count to go up by several 100. Next from Terry, what markets have you hired commercial bankers in? And what markets are still on the drawing board? Well, we've hired lenders in Chicago. We've hired lenders in Milwaukee. We've hired a couple in Northeast Wisconsin, which we thought were very strong. So primarily so far in Chicago, Milwaukee and In Northeast Wisconsin and Central Wisconsin, we think there's still the opportunity in Minneapolis On the hiring front, we intend to keep moving forward on that front. The next question that we have is from Daniel Tamayo with Raymond James. With the reduction in NIM guidance, offset by the balance in balance sheet growth Also by the balance sheet growth, excuse me. How do you think about overall net interest income growth now relative to a quarter ago? Can You provide more details from the new improvement comments you made. Sure. So I think we refer you to the guidance slide where we also highlighted that not only do We're at the upper end of our fee range, but we expect to be within the total revenue range that we had previously provided at the Barclays Presentation Conference. And so the difference obviously between the total revenue and the fee guidance is the net interest income. So it's a fairly robust number. I think you'll find it Pretty easy to write. Our next question comes from Jonathan Rall with Wells Fargo. What is the duration on the securities you're purchasing as you build the investment portfolio? Also what would the duration go to in a 200 basis point plus rate to Sure. So, Todd, as I mentioned, the mix of securities that we're purchasing is very similar to the mix of our current portfolio. There'll be a little bit longer duration on the new mortgages purchased than the existing book obviously, but similar duration on the new lease. And so that will be a little lengthening, a little bit beyond sort of the 5 year that you've seen from historically, but not much. And with regard to what that would do in an up 200 rate shock, I don't have the immediate number at my hands, but suffice it to say With a 5 year duration, a 200 basis point shock is mathematically about a 10 point swing in value. That having been said, I'm not seeing anything in the 10 year yield profile or the forwards that would indicate that's a consensus view. All right. I have a few more questions here in my inbox. But if you have any others, feel free to send them along here. Moving on, we have a follow-up from Terry McEvoy with Stephens. According to other banks, mortgage yields are less than auto yields, but auto is a non relationship business. How would you respond to that? What I would say right now is our mortgage book consists of both originated and third party originations. And so the 3rd party origination expansion is not necessary for us, and There's an opportunity on the indirect auto portion of that to get a yield that is better than what we have before. So from an associated bank standpoint, it puts us in a really good position in a market that It's seen a downturn probably in mortgage origination across the industry in 2022, to quickly transpose that. But I would point out We have pretty significant expectations in very customer friendly relationship businesses of Small Business and Commercial Banking, and that was on purpose. We believe those are massive deposit engines. In addition to that, we have an initiative that we haven't talked as much about, and that's a massive fluid initiative, which provides typically 70% to 75% of a retail bank's deposit base. So we have an upside in gathering deposits from those customers as well. So In terms of what it means for us, it's a bit of a mix switch out and a trend on mortgage, while simultaneously having a plan around deposits on mass affluent And entering very heavy deposit industries of small business and commercial banking middle market. Great. All right. And then we have 2 remaining questions. Next one from Scott Siefers with Piper Sandler. So you had suggested a 2.75% Steady state NIM over 3 plus years with your September strategic initiative announcement. Do you still feel comfortable with that expectation in light of how long excess liquidity is sticking around? Well, I think the question on excess liquidity, look, there's some indications that typically when you see some spend and you see some account fee increases, That's typically a leading indicator that's something that there may be a decrease in deposits over time. We're seeing that. So absent Stimulus, while those have been sticky, for us through 3 quarters and happened through the whole entire in the entire industry, Heading into 2022, I think there's some signs of that being a decrease. So overall, right now, I would say that we are still committed The margin that we laid out in our midterm plan. Okay. And that actually was the final So if there are no further questions, Andy, I think I can pass it back to you to wrap up. Well, I'll say 2 things. Thank you for being with us today, and thank you for your perseverance in getting through 3 different 4 different moderators, including Shamali With that, you can disconnect your lines. This concludes today's conference call. You may disconnect your lines. Thank you for participating.