Earnings Call: Q2 2021

Jul 22, 2021

Good afternoon, everyone, and welcome to Associated Bancorp's Second Quarter 2021 Earnings Conference Call. My name is Hector, and I will 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 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 to actual results could differ materially from the results anticipated or projected in any such forward looking statements. Additional detailed information concerning the Certain factors that could cause Associated's actual results to differ materially from the information discussed today is readily available on the SEC Web site in the Risk Factors section of Associated's most recent Form 10 ks 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 20 21 of the slide presentation and to Page and 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 Harmening, President and CEO, for opening remarks. Please go ahead, sir. Well, good afternoon, everyone, and welcome to our Q2 earnings call. Joining me today are Chris Niles, our Chief Financial Officer and Pat Ahern, our Chief Credit Officer. Now we're going to get to our financial results in a moment, But with this being my very first official earnings presentation since taking over as Associated's President and CEO back in late April, I'd like to start by taking a moment to reflect on what I've learned in my last few months on the job and why I think the future is bright for Associated. Under Phil Flynn's guidance, Associated built a strong reputation based on disciplined approach to credit, Capital, operational risk and expense management. As an outsider looking in, I saw a clean balance sheet, The strong capital position and a franchise known for great customer satisfaction. These are all very attractive foundational qualities to build upon and qualities I've been able to validate since my arrival. Upon joining Associated, one of my first priorities was to listen and learn as much as I could both from internal and external stakeholders, what's working well for our company, what are our growth opportunities, What we must do to win more customers and deepen community engagement. We started with 100 days of listening and a listening tour. And we have held over 175 largely in person sessions with hundreds of colleagues participating and thousands of ideas shared. Throughout this process, I have personally spoken with over 300 colleagues across our footprint. I've also spoken directly with some of our largest customers and many of our key investors. And with this feedback in mind, we've already taken several actions to drive performance across the organization. First, knowing that competing digitally is more important than ever, we promoted Doug Peacock, who was previously our Director of Strategic Channels, To lead our digital strategies going forward and build a comprehensive digital roadmap across our entire consumer and business bank. Secondly, we have refocused our wealth management teams under the leadership of John Thayer, CFA, Previously, our Chief Investment Officer and a seasoned wealth management professional who will lead our integrated strategic vision for a business that already has many strengths. And finally, we are centralizing our FP and A team to bring additional discipline to the execution of our line of business activities, our cross group activities and importantly, The growth initiatives we intend to formally announce later this quarter. We are actively working on these strategies and initiatives and we expect to lead to additional growth and positive operating leverage. We will communicate those strategies to you no later than September 13. Now let me touch on the business environment in our markets and our Q2 highlights as outlined on Slide 3. The first half of twenty twenty one has been marked by an encouraging transition to a new normal. We continue to see many signs of strengthening the strengthening economy in our markets. Many businesses in the Midwest are running at full capacity. In fact, we are seeing really large gatherings. Gathering such as those of our newly minted World Champion Milwaukee Bucks, which we just got to see outside our door today during their championship parade. Encouraged by these trends, our frontline teams have been back in front of clients and working directly with our customers for much of the year. We're optimistic about growth and feel associated is well positioned to participate in the ongoing recovery. In fact, we started to see signs of increasing lending activity and line utilization in our commercial portfolios, which is reflected in our period end loan balances. Commercial and business loans excluding PPP grew by nearly 3% quarter over quarter, While the CRE segment of our loan book grew by nearly 1%. And further our PPP portfolio Continue to pay down as expected with period end loan balances and PPP down over 50% from the Q1. We find all of these trends encouraging. We also began to see signs of increasing customer confidence in spending activity With depositing card fees up $2,000,000 from the Q1 and credit card spend up 19% quarter over quarter and 40% year over year. Now shifting to credit. We continue to be very pleased with the improving credit environment over the first half of twenty twenty one, which speaks to resiliency of our customers and to the resiliency of our core markets. Non accrual loans were down 10% quarter over quarter And net charge offs remained flat at just $5,000,000 After posting a negative provision of $23,000,000 in the Q1 of 2021, We posted another negative provision of $35,000,000 for the 2nd quarter. Taken together, charge offs negative provision combined to drive a net reserve release of $40,000,000 for the period. And finally, we repurchased $30,000,000 of common stock for quarter and also added $0.40 to our tangible book value per share. Now turning to Slide 4. Let me highlight a few quarterly loan trends. Compared to the Q1 of 2021, average second quarter loans decreased 1%. However, on a sequential quarter end period basis, we saw solid growth in several of our commercial, CRE and specialty lending portfolios including REITs, general commercial and power and utilities as our Customers began to modestly draw on their lines. As expected, PPP loan balances continued to decrease, declining by $431,000,000 or more than 50%, as we've seen the SBA accelerate their pay down and forgiveness processing. We continue to enjoy strong mortgage originations during the 2nd quarter, have originated over $2,000,000,000 year to date, But we remain reluctant to add low rate mortgages to our balance sheet. After seeing significant refinance activity in Q1, This activity carried over into Q2, driving our residential mortgage and HELOC balances modestly lower during the quarter. Looking forward looking towards the back half of the year, we remain optimistic around loan growth. Specifically, We are optimistic about commercial loan demand and still expect full year commercial loan growth that is CRE and C and I combined Excluding PPP of approximately 2% to 4%. I would also like to provide an update on our indirect auto lending initiative. As mentioned back in April, we are expanding our consumer lending platform to add indirect auto lending to our product set. We continue to build out the infrastructure and expect to begin booking loans during the Q4 of 2021. While adding auto allows us to diversify and add to our total our consumer portfolio slightly better spreads, We are also continuing to evaluate other consumer and commercial verticals with good lending characteristics. Slide 5 provides a bit more color around the period end trends that are giving us confidence that we are on track to meet our full year guidance for commercial loan growth. At June 30, our commercial and business lending segment PPP grew by 2.8% for the quarter, while CRE grew by 0.6% during the quarter as well. Combined, these two segments represented roughly 2% on a period end basis, which is in line with our full year expectations. Moving to Slide 6. We continue to see record deposit levels for associated customers And 2nd quarter average deposits were up $1,300,000,000 or 5% year over year. This continued growth has reflected strong trends in our lowest cost deposit category averages, which grew approximately $2,400,000,000 from the same period a year ago. From a period end quarter over quarter standpoint, however, we began to see signs of increasing business confidence. Combined DDA balances from our corporate and commercial specialty segments, which includes trust, were down by 12% for nearly $450,000,000 from their historic highs at the end of the Q1. We see this as a positive sign that businesses are putting their money to work in our economy. During the quarter, we also continue to work down our average higher cost network and time deposit balances, which decreased by approximately $1,600,000,000 from the Q2 of 2020. And on a related note, Our aggregate wholesale funding levels decreased to approximately $3,000,000,000 at the end of the second quarter and have steadily decreased over the past 5 quarters. In addition, last week, we exercised an early redemption option on $300,000,000 of our 3.5% Medium term bank notes, which will also help our margin going forward. On Slide 7, we provide a walk down of our quarterly pre tax pre provision income or PTPP for the Q1 to the Q2. Adjusting for the MSR write ups and one time gains recognized in Q1, You can see our run rate is held steady and our net interest income is beginning to move higher. With net interest income increasing, we believe we have reached an inflection point on PTPP. In addition, The growth initiatives and efficiency strategies we will be rolling out later this quarter are intended to capitalize on our market strengths and position us to drive positive operating leverage and expand PTPP over the next several quarters. We do believe the expansion in PTPP over the second half of twenty twenty one will more than cover the incremental costs contemplated for the initiatives on deck. So let me pause there and hand it over to Chris Niles, our Chief Financial Officer, to provide a little further detail on our margin and income statement trends for the quarter. Thanks, Andy. Turning to Slide 8. We had previously indicated that net interest income and net interest margin would gradually start to expand over the last three quarters of 2021 based on slowing refinance activity, a steady decline in liability costs and expected loan growth. In the Q2, we started to realize the benefits of these factors with net interest income rising. Similarly, while quarterly NIM continue to be pressured, we saw an encouraging uptick from month to month with the June NIM finishing at 2.45%, up nicely from March. Slide 9 provides a breakdown for the specific factors that lifted net interest income in Q2. On the mortgage side, margins and investment income were driven higher by declining refinance activity, which contributed to slower prepayment rates on mortgages and mortgage backed securities. We expect mortgage yields to continue to rise over the back half of the year as the refinance wave continues to taper. On the commercial side, we saw an uptick in PPP income recognition relative to Q1. We had approximately $15,000,000 of unrecognized deferred fees remaining at the end of the quarter and expect that most of that will be realized over the back half of the year. On the liability side, Fine period over period. Average time deposit yields finished the 2nd quarter at just 51 basis points and we still have about $50,000,000 in consumer CDs with rates above 2% set to mature by the end of the 3rd quarter. Given the 2nd quarter's margin, current CD rates and market trends, we continue to expect our full year net interest margin to finish between 2.45% and 2.55%. Turning to Slide 10, 2nd quarter non interest income came in at $73,000,000 up from $68,000,000 in the same period last year, excluding ABRC related income, but down from the $95,000,000 in the first quarter. The quarter over quarter decrease was driven primarily by a decline in mortgage banking income amid the tapering refinance wave. Partially offsetting this, fee based revenues continue to expand led by service charges, deposit account fees and card based fees. Feebase revenues overall increased by 4% quarter over quarter and 16% year over year. As shown on the upper right, Mortgage Banking gross gains of $9,000,000 were down quarter over quarter due to sales margin compression. Despite the sales of Whitnall, which closed in the 1st March this year, we continue to see strength in our Wealth Management business. Wealth management fees saw a slight increase in Q2 after a strong Q1 and we're pleased to have ended the quarter with over $13,000,000,000 of assets under management, up 12% year over year. Given we are halfway through the year, We are tightening our range of our full year fee income outlook to 3.15 to 3.25. Turning to expenses on Slide 11. The Q1 came in at $174,000,000 in total expenses, a slight decrease from the Q1 and a 5% decrease from the same period last year. Personnel expenses rose for the quarter. However, other core expenses, including occupancy, continue to trend lower, more than offsetting the additional personnel expense we saw. Turning to capital on Slide 12, Our tangible value per share continues to grow quarter over quarter and has increased 7% year over year to $17.35 Associated's regulatory capital levels also remain strong. Our common equity Tier 1 ratio has grown 45 basis points from the Q2 of 2020 as we conserve capital in light of the economic uncertainty we saw over the last year. We continue to target a TCE level atorabove7.5 percent and a CET1 level atorabove9.5%. With that, let me turn it over to Pat Ahern, our Chief Financial Officer. Thanks, Chris. I wanted to start out by providing an update on our allowance as shown on Slide 13. We utilized the Moody's June 2021 baseline forecast for our CECL forward looking assumptions. Moody's baseline forecast assumes additional fiscal support, continuing low interest rate environment, The recent acceleration in consumer prices to be transitory and a relatively localized COVID cases. Following a net reserve release of $28,000,000 in the Q1 of 2021, we posted a further net reserve release of an This net release was driven by gross reductions in our allowance for all of our core business units With a $12,000,000 gross reduction in our allowance related to our general commercial and business lending portfolio, a $13,000,000 reduction and our CRE allowance, an $11,000,000 reduction in oil and gas and a $3,000,000 reduction in retail lending. As of June 30, our total ACLL was $364,000,000 down from $404,000,000 in the prior quarter. Similar to that, our ratio of reserves to loans declined to 1.52% from 1.67% during the quarter. We have previously guided that we expected ACL to loans to drop back down to CECL's day 1 levels by the end of 2021. And halfway through the year, we're in line with those expectations. Turning to our quarterly credit trends presented on Slide 14. Potential problem loans and non accrual loans both declined during the quarter with net charge offs flat from the Q1. Our key COVID commercial exposures also continued to decline. Notably, oil and gas, Retail and restaurant exposures all declined during the quarter. After peaking at $1,600,000,000 in the Q2 of 2020, Our quarterly active loan deferrals have continued to decline each quarter and fell to a total of just $20,000,000 across all core business units in the Q2 of 2021. Total deferrals now make up just 8 basis points of total loans at quarter end. Most customers who receive deferrals have not needed additional assistance and have been able to resume making normal payments. Going forward, we expect to adjust our provision with changes to risk rates, other indications of credit quality and loan volume. With that, I will now pass it back to Andy to share some closing thoughts as we look to the second half of twenty twenty. Thanks, Pat. On Slide 15, we recap our updated guidance for 2021. We are tightening our non interest income guidance and now expect the full year to come in between $315,000,000 to $325,000,000 reflecting the strong mortgage activity we see in the first half of the year and the continued strength in our Wealth Management business over the course of the year. As a result of our ongoing planning For growth and efficiency initiatives, we are withdrawing our prior 2021 total expense guidance. Before the impact of such initiatives, we expect that total expense for 2021 will be approximately $695,000,000 to 700,000,000 reflecting incentive accruals and additional business development expense. Now our total expenses for 2021 will ultimately reflect the impact of the initiatives that we will announce later in Q3. But let me reiterate, Even with the expenses we're contemplating to support our growth initiatives, we still expect to deliver PTPP Above our 2nd quarter baseline in each of Q3 and Q4. Lastly, as mentioned, we continue to experience positive credit trends due to economic conditions and as such, we expect provision to be adjusted accordingly, inclusive risk rate and future loan volume. With that, we'd be happy to take your questions. Thank you. At this time, we'll be conducting a question and answer session. Your first question comes from the line of Scott Siefers with Piper Sandler, please proceed with your question. Good afternoon, guys. Thanks for taking the question. Hey, Chris, maybe first one for you. So year to date, the margins are at 2.38%. So it looks like you'll need some good acceleration in the second half. Now I imagine PPP fees later this year are a big part of that. But maybe to the extent you could, would you mind please refreshing thoughts on sort of the XPP Margin, I know you've got some of the CDs rolling off that should give you a little bit of tailwind, but just maybe thoughts on sort of the PPP puts and takes, please. Absolutely. So as I stated, we're anticipating to have the benefits and you restated now of the CDs repricing, which will come to us. We're anticipating seeing the benefit of having paid off the medium term banknotes, which we Fully paid off last week. We're anticipating to see a sort of stabilization of LIBOR at Hopefully, what we expect to be slightly above today's levels as we move towards the back half of the year, and we're expecting to see loan growth. And those four factors together will all drive our margins meaningfully higher from even where they were in June. All right. Perfect. And then similarly, so on the fee side, you'll need a little acceleration to get toward the middle or high end of the range. Just curious about the main drivers. It sounds like wealth management is going to be sort of a key growth area for you. But Same kind of thing, maybe puts and takes you would see as we look into the second half of the year on fees. We certainly expect wealth management, which typically sets its Fees for the subsequent quarter based on quarter end levels to have a good quarter given that June 30 was a pretty good point for the markets. We also expect to see deposit fees continue to come in nicely. And based on what we've seen in card fees, that can also be a positive as we move through the back half of the year. Your next question comes from the line of Michael Young with Truist Securities. Please proceed with your question. Hey, thanks for taking the question this afternoon. Good afternoon, Michael. And congrats on the Milwaukee win. I know that the hope was Green Bay, but you take what you can get, right? Maybe it's one of many. There you go. Step in the right direction. So just wanted to follow-up And maybe put a bow kind of on the expense commentary. So I think you said it would the increased expenses would be kind of covered by the incremental PPP P fees you expect in the second half, so maybe you could just kind of put a dollar amount on that. And then on an ongoing basis, Are those kind of one time expenses to put things in place and get people hired? Or is a lot of that going to be in sort of the longer term expense run rate? Yes. This is Andy. Let me just clarify that. It is PPP, that we believe will cover that as opposed to PPP. We clearly are seeing an increase in net interest income. And so that increase in net interest income, we believe gets void even additionally by margin increases that we expect in the Q3. So right now we're finalizing our growth initiatives. We do anticipate making an investment in our company and recognizing the current environment that we're in as we come through the pandemic. But even after any new investments that are made in the Q3 or the Q4, we do expect to exceed the Q2 PTPP In each of individually the 3rd quarter and the 4th quarter. Okay. That's helpful and thanks for the clarification. Sorry, I didn't hear that correctly. And then my I guess my other question was Sort of more on the capital front, just as you guys are looking at sort of deploying capital, you've been active with a share buyback. But there's also a lot of these kind of growth initiatives that you're investing in as well. So just trying to kind of think about or understand how you guys are kind of weighing the payback period of various investments kind of across the platform and How that will pertain to future capital allocation? Yes. I'll start that one out and maybe have Chris piggyback on this one. So As we look at our growth initiatives, of course, growth and funding growth is our number one priority. So when we think of operating leverage, obviously, In a prudent risk fashion, we don't believe we have to step out of our credit box. We will finalize the initiatives and we expect there'll probably be a shift in the use of capital, A little bit away from maybe not quite as much on the share repurchase as much on the growth. So as you have positive operating leverage, you invest in businesses that drive your margin, you do that in a prudent risk framework. We think between the growth will be number 1. And then we'll also of course look at what dividend strategy and share buyback strategy is Combined. So as we finalize those numbers, we'll pull that through to the capital plan as well. That was well said. Okay. Yes, I was going to ask maybe Chris could kind of add a little bit more on the Financial metric side, so are you looking at certain like tangible book value earn back periods or anything like that or recoup of investment timelines as you're Hiring teams are adding new origination platforms, etcetera. We are and we look at those internal rate of return metrics on a variety of measures. The good news is typically The addition of incremental adjacent lines don't have significant other costs other than people And people tend to pay for themselves very quickly. So we are encouraged by the early measures that we have and we look forward to announcing more of that Your next question comes from the line of Terry McEvoy with Stephens Inc. Please proceed with your question. Good afternoon, everyone. Good afternoon, Terry. Hey, Terry. A question for Andy. As you were out on the road the last 100 days listening To your colleagues, I'm just curious the ideas that they were presenting, would you could you put them into called the expense bucket and then the revenue bucket Kind of where you'd kind of line those up and maybe just the technology bucket as well given the promotion to the individual to run the digital strategy. What were the comments you heard internally on your digital platform relative to your competitors? Well, yes, great questions, Terry. And I guess what I would say is, We have a serviceable digital strategy today, but we'll be looking for a lot more. And what I'm encouraged by, in fact, When I talked to Doug Peacock, maybe the reason I promoted him is the first thing he said is don't be afraid to be bold. And when we think about the world that we're living in and The attack on FinTechs, we have a legacy trust advantage. And so I believe this in my prior job when I took on digital and omni channel, I believe it firmly in this position. So we will look at a combination of what our product strategy is, what our digital delivery strategy is. And Certainly, we will have to spend money in digital. The exact amount of that is what we're finalizing right now. What I heard from our Colleagues as well as we want to grow. We want to participate in the markets that we're in. Inherently small business and commercial are local businesses still. We expect to compete very well in small business and commercial, and those will be a focus as we're trying to finalize our plans as well. So The things that I heard there and I in fact I heard it from the investment community as well. And I think one time they said, We want a reason to follow you and for you to be bold and that's what we expect to deliver on come September 13 or before when we have our plan. So When we talked about evenly listening to the investment community, our customers and our colleagues, that's exactly what we've done. And Interestingly, the feedback wasn't that far apart. The thing that I find encouraging was when you start with listening and you get to as many folks as we have, It wasn't just me as our entire executive leadership team. When you understand the nuance of what is on people's mind And you bring strategies forward that, deliver on that, you typically get buy in and execution. So It's been a really good 90 days getting to know our colleagues, having a reason to talk to them in person, getting to know them personally, but also to know what they want from our company. Great. Great color, Endy. And then as my follow-up question, reading here there's a runoff now of the oil and gas portfolio, which maybe I missed that last quarter, but that's not my question. I guess the $31,000,000 reserve against that portfolio and it was much higher on day 1. As that goes down, should we expect then the ACL ratio to Move below that day one level of 155? Pat, why don't you take that one? Yes. We do expect ACL to Continue to decrease below CECL Day 1. Specific to oil and gas, as we continue to wind that down, we're less than one And we would expect that trend to continue and that does have a big effect looking back to CECL Day 1 in terms of the ACL. Great. Thanks for that. Thanks, Terry. Your next question comes from the line of Chris McGratty with KBW. Please proceed with your question. Hey, great. Andy, Andy, just want to make sure I've got the right starting point on the PPNR guidance from here. I guess is that like a mid-eighty low to mid-80s like $83,000,000 run rate for Q2? Is that what you're using? Let me pull that up, Chris. We're starting with the Slide 7, which has the TCPP on it. Okay. I can look it back. Thanks. Yes. And maybe kind of Yes. Maybe while you're digging that up, maybe broader, Andy, Appreciating the expense comment on the we have to wait for September. Do you envision laying out kind of medium to longer term just High level profitability targets ROE, ROA efficiency. I think that's one of the things that we would be looking for. I was wondering if that was going to be included in that. Yes. Our plan is to show what the investments are, what the payback period is and what that does To the key drivers, whether that's ROTCE, whether that's our efficiency ratio, whether that's our operating leverage, those are all categories that We know that you're going to want to see and we're walking through that right now to make sure that it's what We need and expect for the company and externally. So we're very much trying to align with what we heard, what our strategies are and how that hits our key ratios. Great. That would be great. And then lastly, can you just the CECL Day 1 you referenced, I missed that bogey, that percentage that you're ultimately going to get to. Can you provide that again, please? Yes. We're currently equal to where we started CECL Bay 1 at about 152. So we can expect to see that trend down given where non accrual loans are going, potential prom loans have decreased. Where it will float down to, we'll get back to that without oil and gas, it could get down to that $125,000,000 $130,000,000 range, but we continue to watch that. Thank you. Your next question comes from the line of John Arfstrom with RBC Capital Markets. Please proceed with your question. Thanks. Good afternoon. Good afternoon, John. Couple of follow-up questions, bigger picture. Andy, can you talk about Give us a little more detail on the centralized FP and A and what's behind that? Talk about that a little bit and how it aligns with your growth Help us understand that. Absolutely. Look, they're fun things to talk about when you talk about driving revenue and you talk about changing Culture and you think about all the good things you can do in product, but those things are only as good as your disciplined approach to execution. And so As we come out with additional initiatives all at once, we want to make sure that our tracking is in place. We want to make sure that we are clearly understanding the timing of each piece. We want to know how that rolls up to our key financial metrics. We want to make sure that that rolls into our monthly business reviews. We want to make sure that rolls into our forecast. And so having a team, in my mind, I see it as a best Practice, I've experienced that in my past stop and you really get down to the granular Granular pieces of it and we know what to expect and we know quickly what we need to correct or emphasize. And so When we bring that centrally under our CFO, it's still incredibly tied into the line of business. However, When we're doing our performance forecasting, budgeting and tracking of initiatives, to me that was a really important thing that I want to have a view on all the time. And so, getting that in line as we make promises to both our colleagues and to the investment community, I don't want to let either side down and I think this is the best way to get to that point. That's helpful. On your listening tour and maybe Pat or Chris can add in on this, but what did you hear from commercial customers, Not necessarily on reputation of associated, but in terms of their level of optimism or bullishness on the growth outlook and Maybe to Pat or Chris, is it much different than it was a quarter ago? Let me start that one out and then I'll defer To Pat as well, I mean, I was with 20 of our customers last week. And what I'm hearing is a general level of increased activity, Whether that be thinking about a buyout of someone, whether that's M and A, whether that's thinking about equipment purchases, There is just it seems to be the beginning of something. So I believe that we see slight increases in our We do see slight increases in our pipelines. We are seeing that slight drawdown on business deposits. We see a slight increase in line utilization. But more than that anecdotally, I can tell you it is almost as if there's a pent up demand that is Starting to move. So anecdotally, those are the conversations that they had and that we've heard. There's of course, talk about supply chain, But some of them are saying, gosh, we have as much going on right now as we can handle. Now we want that to improve, But to me that will be additive and that will not stop the recovery. Pat? Yes, I would agree with that. I think the some of the overarching themes we're hearing is demand is outpacing supply. There's a lot of catch up going on from last year. Obviously, many of our clients still have liquidity and they are, as Andy mentioned, they're starting to deploy that, whether it be investment in new technology, equipment, etcetera. And again, I think like a lot of the Thanks for that. And then maybe one more for you, Andy, bigger picture here, but how do you think about the geography of the company? And I'm thinking about markets like the Twin Cities, Chicago and St. Louis, which kind of ring The perimeter of your franchise and just they're big markets where you have smaller share and I'm just curious how you're thinking about those markets. Yes, absolutely. So look, I'll just do a quick overview. Northeast Wisconsin, we have a stronghold and we have really deep roots. And Meeting those customers you feel the presence of associated value of long term relationships. We want to make sure we maintain those. I moved to Milwaukee and clearly a population concentration. That's why I'm splitting time between Milwaukee and Green Bay as In office time, but we expect to do very well in Milwaukee. But with that, you get discipline on the small business side and the Commercial side and to me, those are businesses you can scale without having a massive footprint. So we would expect on the small business Decide to compete quite well in Chicago, in Minneapolis. We haven't focused as much on St. Louis yet, But what we intend to do is show that we can compete in the major markets. Then you look mid term and you build out your digital strategy and that makes you attractive in every market, Rural, urban, large, small and so that will be a point of emphasis for us on the midterm. So that's how we're thinking about it right now. As we get into our growth initiatives and execute on those, I believe that will open up optionality for us both from a market standpoint And then ultimately, from a scale standpoint and potentially, second step in the merger and acquisition market. Okay. Thanks a lot. One moment please while we poll for more questions. Your next question comes from the line of Daniel Tamayo with Raymond James. Please proceed with your question. Hi, good afternoon, guys. Thanks for taking my question. Just wondering if you're able to quantify the modest increase in mine utilization that you referred to a couple of times And maybe give us a sense for how far below pre pandemic levels that those lines are? I'll take that, Daniel. This is Andy. We think we had a trough or bottom in April and it was in the very low 30s, 30% on line utilization and we were up 2% at quarter end. Now historically speaking, as we look at that, That's about 10% below what our historic numbers are. So we think there's room. We are not forecasting a massive increase To that, but modest increase to that. So, we're seeing evidence that that will, that we clearly have room And we see capacity from our customers of over $7,000,000,000 to draw down. So, we believe that the growth will be steady, slow in the second half, but that will be enough to meet that 2 2% to 4% commercial and CRE growth target that we have out there. All right, terrific. And I guess on just also sticking on the commercial loan growth side, if you have any commentary on what pay downs look like in the Q2 relative to prior quarters? Sure. We certainly saw a fairly healthy amount activity, but obviously in our For commercial books, we had a net increase. So for the overall bank, obviously, New transactions exceeded all net paydowns And we had a fairly nice rollover of the shorter term loans. So it was a net positive quarter. All right, terrific. Well, that's all I had. Thanks, guys. Thanks, Daniel. Ladies and gentlemen, there are no further questions at this time. I'd like to turn the call back over to Andy Harmening for closing remarks. Well, in closing, I just want to thank you for joining us today. We look forward to talking to you again later this quarter. If you have any questions for us in the meantime, please don't hesitate to call. And thank you for your interest in And thank you for your interest in Associated Bank. Ladies and gentlemen, this does conclude today's conference. You may disconnect your lines at this time. Thank you all for your participation.