Associated Banc-Corp (NYSE:ASB) Q1 2022 Earnings Conference Call April 21, 2022 5:00 PM ET
Company Participants
Andrew Harmening – CEO
Chris Niles – CFO
Pat Ahern – Chief Credit Officer
Conference Call Participants
Scott Siefers – Piper Sandler
Timur Braziler – Wells Fargo
Terry McEvoy – Stephens
Daniel Tamayo – Raymond James
Chris McGratty – KBW
Jon Arfstrom – RBC Capital Markets
Michael Young – Truist Securities
Operator
Good afternoon, everyone. And welcome to Associated Banc-Corp’s First Quarter 2022 Earnings Conference Call. My name is Hilary 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’s actual results could differ materially from the results anticipated or projected 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 and the risk factors section of associated most recent Form 10-K and subsequent SEC filings. These factors are incorporated herein by reference.
A reconciliation of the non-GAAP financial measures to the GAAP financial measures mentioned in this conference call, please refer to Page 23 of the slide presentation and to Page 8 of the press release financial table. 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.
Andrew Harmening
Thank you, Hilary. And good afternoon, everyone. Welcome to our first quarter earnings call. I’m Andy Harmening. And I’m joined here today by Chris Niles our Chief Financial Officer and Pat Ahern our Chief Credit Officer.
I’d like to start things off by covering the highlights of the quarter and provide an update on our strategic initiatives. From there, Chris is going to walk through our updates on income expense and capital. And then Pat will follow up with an update on our credit trends.
So here in the upper Midwest, we continue to see signs of a strong economy and our footprint. COVID restrictions have largely been eased or lifted, and employment trends remained remarkably strong with unemployment rates in Wisconsin and Minnesota now down below 3%. We also continue to see encouraging strength in our commercial loan pipelines and utilization rates, given us confidence that the momentum we began to see in manufacturing back in the second half of 2021 is in fact carrying over into 2022.
Meanwhile, all of our new lending initiatives are now fully — now we’re — now officially up and running, putting Associated positioned to deliver more and relevant product solutions to our customers.
While the war in Ukraine, continuing supply chain disruptions, and inflation issue posed significant question marks at the macro level, our core customer base has remained resilient and continues to borrow and to grow. This resilience is seen in the overall credit trends in our loan portfolios, which largely continue to improve.
As we continue to transform the bank, one of our biggest opportunities is to listen to our customers and then take action. Guided by their feedback, we announced that we’re making several changes to our overdraft program, and these changes will significantly reduce the financial burden of overdrafts to our customers. In summary, we are positioned Associated to be in a far better place than we were a year ago. Today, we’re in a strong position to deliver expanding margins, continued positive operating leverage and enhanced value to all of our stakeholders.
So now let me touch on the first quarter highlights that are outlined on Slide 2. This quarter was marked by meaningful growth in our core loan portfolios, disciplined expense management, improving credit dynamics and strong bottom line results. Our total loans grew at a 5% annualized rate, on both an average and a period and bases. And excluding PPP. Average Commercial and Business Loans expanded at an even faster 8% annualized pace. This loan growth along with our continued investment strategies help drive net interest income and margins higher despite having two fewer days in the quarter.
Now shifting to expenses. We managed our total expenses down quarter-over-quarter and year-over-year, while simultaneously increasing our minimum wage, invest in our technology platforms, and invest in our initiatives. We attribute these savings to the significant actions we took to consolidate our operations and support functions in the latter half of 2021.
With respect to credit, we would highlight that we are posting a modest net recovery this quarter. Portfolio metrics continue to be strong and stable as we keep a close eye on geopolitical and economic risks. Taken together, loan growth, margin expansion, expense discipline and strong credit drove robust EPS of $0.47, and another quarter of double digit returns on capital.
So turning to Slide 3, I’d like to provide a little more detail on the loan trends we saw in the quarter. Looking to our average balances, we had net loan growth across all of our core business segments. Consumer loans grew as our auto finance vertical kicked into gear and commercial lending group, including our new verticals, more than offset the headwinds of the mortgage warehouse and PPP. General commercial lending again showed strong momentum reflecting broad underlying loan demand customer base.
On Slide 4, we’d like to highlight several dynamics which give us confidence in the continuation of the loan trends we’ve seen emerging over the past several quarters. First, the left hand side of this page highlights the emerging total commercial growth we’ve experienced. Aside from the dual headwinds of PPP and mortgage warehouse our commercial portfolio at March 31, was up 9% year-over-year and expanded a double digit annualized growth rates versus the third quarter. This has largely been fueled by a rebound in commercial C&I, balances, growth from our new ABL and equipment finance initiatives, as well as increased line utilization. And we still see upside and room for more borrowing as the economic environment continues to normalize.
Now second on the lower right, we’d also highlight that our backbone of unfunded CRE construction projects has continued to grow. Year-over-year, we’ve added over a $0.5 billion in unfunded commitments, most of it — most of which we would expect to see funded over the next 18 months. And while the first quarter is seasonally slow for construction in our markets, we fully expect this activity to pick up as the spring weather arrives in our footprint.
Underscoring the points I just made, I’d like to affirm our full year loan targets on Slide 5. With respect to commercial loans, we expect to end the year with $16 billion of outstandings, excluding ABL and equipment finance, which I’ll touch on in a moment. Given the growth that we’ve seen the robust pipelines that continue to have — continued to grow since year-end, and the funding activity we expect to see this quarter, we’re confident we’re on track to hit our commercial loan goals for the year, even with the headwind of dampening of mortgage warehouse activity.
We’re also pleased to update you on the strong progress we’re driving in our new ABL and equipment finance verticals, we’ve strengthened the teams. Both groups have added commitments and outstanding starting the quarter. And we feel very confident about the $300 million target we set for year-end. So taken together, we expect our total commercial book to end the year at approximately $16.3 billion.
Turning to auto finance the first quarter demonstrated our team’s ability to deliver. We expect this portfolio to continue to grow strongly and maintain its strong credit profile as we roll out the program to our broader dealer network and into our core footprints later this year. In summary, despite some uncertainty in the markets and modest headwinds, such as mortgage warehouse, we expect to achieve our lending growth targets in 2022.
Now turning to Slide 6, let me make a few comments with respect to our continued investment in talent, our digital transformation and our capital priorities. With respect to talent, we’ve continued to add new relationship and portfolio managers to our commercial and small business teams during the quarter and are on track to hire 15 to 20 bankers by year-end. We also opened our Houston CRE office during the quarter and continue to ramp up our ABL and equipment finance teams.
On the digital front we crossed a milestone by launching our internal pilot for our new NCR Digital platform, which we plan to roll out to all of our consumer customers this summer. Now this one I’m personally very excited about, because it’s going to give us an open architecture platform. It’s going to allow us to integrate, integrate both customization and FinTech solutions.
Turning to capital. We remain committed to optimizing our capital to support our customers. In 2022, that means focusing squarely on organic growth. We see plenty of long growth in our outlook and envision using all of our capital to support that growth while paying a competitive dividend.
We continue to see our investments and strategies that’s created differentiated growth paths are Associated, that will drive further margin and efficiency gains in a time where we are already expecting to see significant tailwinds from the rate environment.
So, let me pause there for a moment and hand it over to Chris Niles, our Chief Financial Officer to provide a little more detail on our revenue and income statement trends for the quarter, Chris?
Chris Niles
Thanks, Andy. Turning to Slide 7, net interest income continued to increase for the fourth consecutive quarter. The increase came as we put our excess liquidity to work in loans and securities. As we had previously indicated, our NIM bottomed out last year, and it’s continued to inch higher each quarter since. Given the rising rate environment, our general asset sensitive profile and the anticipated impacts of our growth initiatives, we fully expect our NIM to continue to expand and come in above the 2.5 level, which we already saw during the month of March.
We now expect short term interest rates to rise following each of this year’s upcoming FOMC meetings. Assuming those rate increases are 25 basis points, at least following meeting, we would expect our full year net interest income to exceed $840 million.
On Slide 8, we highlight that we’ve purchased securities — sorry, which have been participating in move higher and rates in effect we’ve been averaging up into the yields were earning even as we’ve reined in durations. Our blended investment yields for the quarter continue to move higher, and our total portfolio yields have improved by nearly 40 basis points since the third quarter. In anticipation of higher rates, we also took steps in Q1 to re-designate $1.6 billion of our securities from AFS to HTM.
Nonetheless, our AOCI does reflect $127 million reduction in the value of the portfolio during the quarter. This AOCI impacts net earnings drove the 18 basis point reduction in our TCE, which you can see on our tables, our TCE nonetheless ended the quarter at 7.7%.
Moving on to Slide 9, we continue to benefit from our strong deposits, trends. In a time of year when we might typically expect to see a post New Year outflow, average deposits were up $245 million quarter-over-quarter and up 7% year-over-year. Growth continues to be concentrated in our low cost deposit categories, such as our savings and interest bearing demand accounts for consumers. With rates expected to rise throughout the year. We may see some outflows later in the year and would expect deposit pricing to heat up at some point. But so far, we have not seen customers reduce balances, and we’re not seeing competitive pressure to raise rates in our markets.
Moving on to Slide 10, our core fee based revenues came in modestly ahead of last year’s comparable quarters Total non-interest revenues did not improve year-over-year, with notable reductions in mortgage banking revenue, asset gains and branch sales, as well as slightly reduced BOLI income. With the expectations for continued rising rates, we’ve seen mortgage banking revenue further moderating as we move through the year. We also expect that higher rates will ultimately translate into higher earning credit rates for some commercial deposit customers, which will have the effect of dampening commercial deposit fees later in the year.
As Andy mentioned, we also announced several changes to OD NSF program today that will impact our run-rate for fees beginning in the third quarter. While these changes are intended to reduce the burden on our customers, they will also reduce our deposit service charge revenues by approximately $3 million in 2022.
Given our outlook for higher rates, and the revised expectations of lower service charges revenue from both commercial and consumer customers over the back half of the year, we are therefore modifying our full year non-interest income guidance moderately downwards. We would now expect total non-interest income for the full year of between $290 million and $300 million.
Moving on to Slide 11 first quarter expenses came in at $173 million, $9 million lower than Q4 amid reduced personnel and other expenses. In alignment with the strategic initiatives we announced last fall, we do expect to scale up investments in areas such as technology and personnel later in the year. But as we continue to execute our plans, we remain committed to maintaining our expense growth in line with the revenue and the revenue expectations. Taking all of our initiatives in consideration, we continue to expect our full year 2022 non-interest expense will be in the range of $725 million to $740 million.
On Slide 12, we provide a walk forward of our quarterly pretax pre-provisioning some from the fourth quarter of ‘21 to Q1 of ‘22. While our non-interest income was down from the prior quarter, our pretax pre-provision income grew by $3 million quarter reporter despite having two fewer days in the period. We estimate our daily interest accrual benefit at about $1 million per day.
Slide13 shows the fourth quarter trend of our PTPP income. As you’ll recall, we updated back in July that we expected pretax pre-provision to consistently come in above the $78 million baseline we set in Q2, I’m pleased to confirm that we’ve delivered on that and held to that statement over the past three quarters. Furthermore, we expect PTPP to continue to trend higher as we expand our operating leverage throughout ‘22 and into ‘23.
Moving on to Slide 14, we remain disciplined from a capital perspective and continue to drive our capital ratios towards their targets, as we continue to grow loans on the balance sheet. As I mentioned previously, the AOCI impact we realized that our securities book was a key driver of our decrease in the TCE quarter-over-quarter. But thanks to strong earnings and the redesignation actions, we took in the quarter our tangible value per share only decreased 3%. We will continue to target TCE level 7.5 and CET1 levels of 9.5.
I’ll now turn it over to Pat Ahern, our Chief Credit Officer for credit quality updates.
Pat Ahern
Thanks Chris. I’d like to start by providing an update on our allowance as shown on Slide 15 We utilized the Moody’s February 2022 baseline forecasts for our CECL forward-looking assumptions. The Moody’s baseline forecast remains consistent and assumes additional fiscal support, continued relatively low interest rate environment, the recent acceleration and consumer prices to be transitory and relatively localized COVID cases.
Following net reserve releases in all four quarters of 2021, we posted another negative provision in Q1 of 2022. So net recoveries as opposed to net charge offs during the quarter. Our ACLL as of March 31, was $380 million, down from $220 million at year-end. Here in Q1, the reduction in ACLL was driven primarily by $6 million reduction in oil and gas as that portfolio continues to run off. Our ratio of reserves to loans declined slightly to 1.3% from 1.32% during the quarter.
Turning to Slide 16, we highlight our quarterly credit trends. As Andy mentioned, most of our key credit metrics continue to improve over the course of the quarter. Non-accrual loans did pick up slightly quarter-over-quarter, with the increase tied to one specific credit. Nonetheless, total non-accruals were down 12% year-over-year. While in total restructured loans and delinquencies have fluctuated over the past five quarters, they have now decreased 26% quarter-over-quarter and have decreased by $13 million versus Q1 of 2021. Going forward, we would expect to adjust provision to reflect changes to risk rates, economic conditions, loan volumes and other indications of credit quality.
With that, I will now hand it back to Andy to share some closing thoughts.
Andrew Harmening
Thanks, Pat. So on Slide 17, we recap our full year guidance for 2022. Over the remainder of 2020 to remain bullish about loan growth. Specifically, we continue to expect full year auto finance loan growth of over $1.2 billion and total commercial loan growth of $750 million to $1 billion. In our forecasts, we had anticipated a 25 basis point increase at each FOMC meeting this year. And accordingly, we expect our full year 2022 net interest income to exceed $840 million.
Given this revised rate outlook, we are also modifying our fee income guidance to account for lower mortgage banking and service charge revenue throughout the remainder of the year. As such, we now expect total non-interest income to be between $290 million and $300 million for the full year. And then taken together, we now expect the combined total net interest and fi income to exceed $1.135 billion.
Lastly, our commitment to expense discipline remains a focus. And we continue to expect between $725 million and $740 million of non-interest expense in 2022.
So with that, we’d like to open it up for questions.
Question-and-Answer Session
Operator
Thank you. At this time, we will be conducting a question-and-answer session. [Operator Instructions] Our first question is from Scott Siefers with Piper Sandler. Please proceed with your question.
Scott Siefers
Good afternoon, guys. Thanks for taking the question. Chris, maybe — hey, first question for you. The $40 million favorable delta in the NII guide. So is that completely due to the higher rate expectation or are there any other nuances in there? I’m guessing it’s mostly due to rates given no change to the loan growth or securities, portfolios outlooks. But just curious to hear your thoughts.
Chris Niles
Yeah, it’s rate driven. We’ve been monitoring spreads. And I think it reflects our expectations around rates and their impact on spreads and deposit betas, which we’ve continued to get competent as we’ve gone through the quarter.
Scott Siefers
Okay. And I think last quarter, you alluded to sort of $1.5 million per month benefit from each Fed rate hike. Is that still a good rule of thumb in your mind?
Chris Niles
So we would say that the $840 million incorporates the early benefits of the first 25, and the marginal above and beyond that, it’s probably a little tamper down to the about a million to the per months for any rate rise above 25. So, for example, it’d be a little more specific than it was last time. If there’s 50 basis points in May, we would see the bit that — that benefits start to show up in June. And so you’d have seven months of additional million dollar benefit to the extent there’s 50 in May, for example. So the 814 would be 847-ish.
Scott Siefers
Okay, perfect. And then I guess, final question. How are you thinking about overall balance sheet growth, specifically earning asset growth for the full year? I guess another way of asking sort of deposits fall expectations?
Chris Niles
Yeah, so we’ve seen our deposits remain remarkably resilient. And so the balance sheet is going to be driven by the asset growth, from our perspective. And we’re reaffirming all of the asset growth numbers here.
Scott Siefers
Yep. Okay, good. Thank you guys very much.
Andrew Harmening
Thank you, Scott.
Operator
Our next question is from Jared Shaw of Wells Fargo. Please proceed with your question.
Timur Braziler
Hi, good afternoon. This is Timur Braziler filling in for Jared. Maybe just following up on the deposit question. Appreciate the comments that 1Q is typically seasonally weaker and held a better this go around. Just given kind of the liquidity that you still have in your balance sheet the loan to deposit ratio, to the extent that there are incremental outflows here in the second quarter, which we have seen in the past. Are you okay, just kind of letting those flows through and having the loan to deposit ratio tick up higher? Or is there an expectation that you’ll kind of offset those exiting deposits with either brokered money or wholesale funding?
Andrew Harmening
Well, this is Andy. And of course, we always have the option of funding in the wholesale market. What I would say is, we’re in a pretty good position from a core funding standpoint today. But if you look at some of the initiatives, we’ve talked about our commercial bankers, our business bankers. We’ve added since I got here, roughly 22% increase in relationship managers. Those folks don’t do just loans, they’re in our core markets, and they will start to drive our deposit strategies.
We’re also launching a mass affluent strategy. And I can tell you that I see the index of our massive affluent customers and in a consumer bank, they make up 70% of deposits. We’re under index and the amount we have from each of those, this will be the third time I’ve launched this type of strategy at a bank. And I know what to expect. We will see additional growth at the tail end of the year going into the next year. We’re a top 20 HSA provider. That is a very deposit heavy business. We have the infrastructure and we will continue to invest in that. We’ll invest in our digital account opening, we will invest in our branch account opening.
So some of the things we haven’t talked as much about will directly relate to how we fund our core deposits overtime. So to answer the question, we do feel like we have sufficient liquidity from different sources, but we’re also making sure we are prepared from a balance sheet standpoint, from both a loan side and at a deposit side.
Timur Braziler
Okay, that’s helpful. Thank you. And then on the loan side, I guess how much of an expected remaining headwind is there out of the mortgage warehouse portfolio. And I’m assuming as that stabilizes as PPE becomes less of an issue, these new initiatives are going to result in faster kind of balance sheet and loan growth. Is there another leg lower in the second quarter for warehouse? And then we really start to see loan growth accelerate in the back end of the year? Or do you think that much of the warehouse reduction has already been addressed here in the first quarter?
Andrew Harmening
Yeah, so I think you’re hitting the nail on the head a little bit there. We don’t expect the year-end balances to be much different than what we forecasted. We have seen it more quickly with the ramp up and rates. So we still expect a modest decrease in mortgage warehouse the rest of the year, but not at the rate that we saw in the first quarter.
As you add RMs, and as you mature these initiatives, we expect our pipeline is the highest we’ve seen in six months. So we expect that to follow through and pull through to the balance sheet. So yes, there’ll be a slight dampening. And that’s why I use the term modest on purpose, we’ll see a modest dampening of mortgage warehouse where it was much more significant in the first quarter.
Timur Braziler
Okay. And then just last for me. On the expenses great to see the expense control in the first quarter and get on that front versus kind of plan dollars in the pipeline that you have visibility to coming in the remainder of the year that’s going to drive expenses kind of to that guided level.
Andrew Harmening
Yeah, great question. I’m going to take your first comment, as I’m going to say thank you for the kudos on expense management. And what I would say is, look, this is a growth story. And as we grow, we have to invest to grow. And so we expect as we go through the year, we’re going to add another 20% on the RM side. That will set us up not for this year, because the folks we’ve already hired have set us up for this year. That’ll set us up for the end of the year heading into next year.
So we want to continue to fuel this. And we expect as we put out in our strategic initiatives that we expect positive operating leverage which we are achieving. And we believe we’ll achieve throughout the year. And so in order to do that you have to reinvest in the business. And so we see that steady growth, but we’ll control that investment to make sure it lines up with our revenue growth.
Timur Braziler
Got it. Great, thank you for the questions.
Andrew Harmening
Thank you.
Operator
Our next question is from Terry McEvoy of Stephens. Please proceed with your question.
Terry McEvoy
Hi, good afternoon, everybody.
Andrew Harmening
Hey, Terry.
Terry McEvoy
Maybe big picture question for Andy, a lot of what you’ve done is that on the lending side, and I guess deposits which you’ve highlighted as well. What are your thoughts on adding to the fee income businesses? When I look at your 2022 outlook, it’s about 25% fee income, which my gut tells me is a bit light versus some peers. So do you have any kind of bigger picture plans on expanding fee businesses once these lending platforms are up and running?
Andrew Harmening
Yeah, it’s a good question. I’ll say a couple of things. One, the mass affluent strategy in order to be a good wealth bank, a really good wealth bank, having the mass affluent piece in place is really important. What happens is you have the initial conversation with people that are switchers, that move money. Those folks that are in the mass affluent bucket, which is 250,000 to a 1 million, they grow into wealth customers, and you upstream those folks.
As we launched the mass affluent, our expectation is we will rebrand our wealth business. We will have a digital roadmap for wealth that aligns with the conversations we’re having, and then ultimately we will start to feed that business. But getting the mass affluent first is important for us. We’ll have a focus on the commercial business, which we do believe can drive some additional fees, whether that be treasury management or capital markets. But that is just getting started for us.
So, Terry, I think your observation is right. There is a lot on the margin side of this. And over time, we believe that we can build the capabilities, some organically on the fee income side of that through wealth and commercial banking.
Terry McEvoy
Thanks for that. And then maybe my follow up for Chris, is about $2 million increase in quarter-over-quarter mortgage is that a function of earlier in the year adopting kind of fair value of your MSR and just seeing that asset worth more valued more today than three months ago?
Chris Niles
Look — yeah, the short answer to your question is yes. Just so that we’re on the same page mortgage banking net was only at modestly $300,000 quarter-over-quarter. But the lift for the quarter was all driven by looking at how we adapted fair value. And it came in, as we expected, but was it was a contributor to the lift, yes.
Terry McEvoy
Okay. Thank you, Chris. Thanks, Andy.
Andrew Harmening
Thank you. Bye Terry.
Operator
Our next question is from Daniel Tamayo of Raymond James. Please proceed with your question.
Daniel Tamayo
Good afternoon, guys. Really, it’s been a good story on the credit quality front. We’ve had a few issues there. But just the non-accruals that you mentioned was of course, a real estate non-accrual in the quarter. If there’s any other detail around industry or anything like that, that you could provide, I’d be interested. Thanks.
Pat Ahern
No, as we mentioned, it was really one specific credit. Given some events around that we feel confident that we’re not going to see a long-term loss there, but we’ll continue to watch it. In terms of what we’re seeing in commercial real estate space, it’s been pretty resilient. As with anyone else, we’re watching the CRE office asset class. We feel pretty good about how we’ve been pretty conservative underwriting that asset class and over the historical period. But, we’re always monitoring and doing probably further deep dives than we had in the past, just given the shift coming out of COVID and how tenants are going to start using their space.
Daniel Tamayo
Okay. Thanks for that. And then the NSF fees that are going to be coming out? Is that just modelling question, $3 million, is that literally just a million to have a quarter that’s going to be started later in the third quarter or is that just July 1 time you expect?
Andrew Harmening
Yeah, I think — this is Andy. From a modelling perspective, we expect that $3 million is really a half year impact. So doubling that up our annualized impact is about $6 million. So it is roughly $1.5 million a quarter.
Daniel Tamayo
Okay, perfect. All right. That’s all I had. Appreciate the answers.
Andrew Harmening
Thank you.
Operator
[Operator Instructions] Our next question is from Chris McGratty of KBW. Please proceed with your questions.
Chris McGratty
Great. Thanks. Maybe question for Chris. Last cycle, you guys — you’ve made some efforts to reduce the network deposits. And those dollars that come down. I guess where could you be surprised and your deposit base? We saw some of your peers have some chunky movements this quarter, you obviously didn’t. But where could you be surprised?
Chris Niles
Well, I’ll go with Andy’s approach. Thank you for the kudos on the management that we did here over the last couple of years to make sure that when the rates started to turn again, we wouldn’t be in a position of being surprised. And so I’d say we’ve worked hard to make sure that wasn’t the dynamic.
As we point out, and as we show on our tables, the entire amount of network deposits is down to $760 million. And that number was close to $4 billion at one point in time. So again, dramatic roles, reversing that. Where we I think we’re most concerned is the significant uplift in non-interest bearing. And so the non-interest bearing is up to $8.3 billion, which is a remarkable and wonderful thing. And if you would ask me, which Andy did, what’s going to happen in the first quarter, the answer was, well, they’re going to flow out. And they didn’t. And if you’d asked me what’s going to happen after April 18, is your tax day, I was said, well, we’ll see a downtick and we have.
And so the reality is, they’re proving to be a lot stickier than I would have expected. And that’s a positive. But that’s the biggest risk. But so far, knocking on wood here. We just haven’t seen it.
Chris McGratty
Okay. That’s great color. Thanks, Chris. Maybe a second one on just pricing for the auto business. Can you just remember — remind us what part of the curve is priced off? How spreads and pricing held up, given competition?
Chris Niles
So on Page 6 of the press release tables, we break out the yield for the auto finance portfolio, which for the quarter came in at 3.52. I haven’t looked at everyone’s results on that basis. But Andy did have me look at a bank based in Ohio that has a big auto book and I noticed that our yields are about 14 basis points higher than there. So I guess we’re in sync.
Chris McGratty
Okay.
Operator
Our next question is from Jon Arfstrom of RBC Capital Markets. Please proceed with your question.
Jon Arfstrom
Thanks. Good afternoon, guys.
Andrew Harmening
Good afternoon.
Jon Arfstrom
Hey. On Slide 3, when you’re gone through your prepared comments, Andy you made a comment about construction lending. And I missed part of it, and I think I understood what you’re saying. But can you can you go through that, again, in terms of what you’re seeing on your backlog?
Andrew Harmening
Yeah. I mean, the crux of it is our unfunded commitments continue to grow on the construction side. So clearly, our belief is, as we get into heavier construction season, we have an opportunity for growth. So we put on roughly a $500 million increase year-over-year in commercial construction CRE construction. So what we’re saying is, we believe that’ll serve as a tailwind for growth for us the rest of this year. And really, the expectation is that does fund that entire amount over roughly an 18 months period of time.
Jon Arfstrom
Okay, good. So the question I had is kind of nuanced, but the general commercial, your averages were up about 240. But period end, it was up about 40. What’s the subtlety there? I know, it’s sometimes different to compare the average two periods.
Andrew Harmening
Sure, I think if you look on Page 3, you can see it’s not that subtle, it’s mortgage warehouse. That’s the biggest part of it.
Pat Ahern
This is Pat Ahern. The total commercial —
Andrew Harmening
Outside of —
Pat Ahern
Impacting to —
Jon Arfstrom
General commercial.
Andrew Harmening
General commercial, yeah. What we had done on there, as we’ve shown kind of the fourth quarter combined with the first quarter, because we had a very big fourth quarter in commercial. And so that dampen a little. We pulled forward some of those deals, they happen to close pretty quickly. That not subtlety that you can’t see as we have our highest pipeline in the last six months. So we’ve been able to refill that during the first quarter. So a little bit of accelerated all did at once, drain that a little built it back up to where it was, and then some significantly above there. So that’s what’s giving us confidence in the growth as we see the general C&I on the go forward basis.
Jon Arfstrom
Okay. And then, maybe more philosophical on the change in overdraft. I think we all understand what the bigger banks are doing on it. I’m just curious if you can gain from this. I know, there’s a lot that we talked about financially, but can you gain from this relative to some of your other competitors that may not be waiving overdraft fees to your small and medium size competitors.
Andrew Harmening
It’s hard to predict what their actions are going to be in the future. But when you do things that are in a customer’s favor, and you do it willingly, that usually serves as a positive when it comes to satisfaction. So our expectation is that as they see this, there’s only a positive response to this. I’m particularly pleased with the NSF fee that that that will go away. Those NSF fees are overdrafts that aren’t paid. So to know that goes away, I really liked that one in particular. Although all of them are in the customers’ favor.
So my answer probably can’t be relative to others, because that’s a fluid situation. But I do expect a positive response from our own customer base.
Jon Arfstrom
Okay, last one, Pat, for you. Anything you’re wary of if we do get, Fed funds at 200 basis points by the end of the year? Anything that makes you nervous about that?
Pat Ahern
No, not really. We’re sizing all of our upfront underwriting, we’re sensitizing interest rates we’re looking out kind of, especially in the real estate book to commercial real estate book to an exit. So we’re building a lot of that stuff into our underwriting. It hasn’t happened the last couple of years. We might start to see it now. But right now, like I said, the book overall is doing very well. The one item we’re watching like everyone else is just the office.
Jon Arfstrom
Okay, thanks for the help guys. Appreciate it.
Andrew Harmening
All right, thanks for the interest.
Operator
Our next question is from Michael Young of Truist Securities. Please proceed with your question.
Michael Young
Hey, thank you for taking the question. Jon took a couple of mine, but I did want to take another crack at the higher rates sort of question. And just, as we move later in this year, and we are at, you know, higher levels of absolute rates. Is there any interest in maybe turning back on or putting some mortgage on the balance sheet at, kind of higher interest rates? Or is that still, kind of really in run off even once we reach those levels?
Andrew Harmening
I would say we’re not really in runoff, but we say the balance will be relatively stable. And so clearly, mortgage rates in the high 4s and even 5s are relatively attractive. But so is a growing commercial book, and so is our auto book. And so I think we’ve got focused on growth, but we won’t turn blind eyes opportunities. And what we might say is, if I can put on a mortgage at 4 or security at 3, sometimes the mortgage looks better.
Michael Young
And then my follow up question was actually just on auto. Obviously, it’s been performing well thus far, but consumers are starting to feel a little bit more of a pinch. Are you guys seeing any early signs or anything that you’re monitoring more closely now, just kind of with the inflation backdrop, and in the squeeze on some consumers?
Andrew Harmening
It’s an interesting question of who’s feeling the pinch and what that means. And what we’re hearing and seeing is the subprime market is feeling the pinch. And maybe those delinquencies are at a level that may be similar to pre-pandemic. We virtually don’t have that in our portfolio, so we’re not seeing that.
The second thing is general consumer is fairly healthy relative to where they enter the crisis from average liquidity position. So the answer is, the consumer is fairly healthy in the segments that we’re learning to. We have not seen anything. And we won’t have a blind eye to that with inflation at the levels that we have and the actions that are being taken having geopolitical conflict. But we like the way that we’re lending into a very prime super prime customer.
Michael Young
Okay, thanks very much.
Andrew Harmening
Thank you.
Operator
Our next question is from Jared Shaw of Wells Fargo. Please proceed with your question.
Timur Braziler
Hey, guys. This is Timur again. Just one more follow up on auto. The implied balance for year-end kind of suggests a similar growth rate to what we’ve seen here in the first quarter. I’m just wondering as you continue to roll out that product set to the rest of your footprint. Does that growth accelerate? Is there something that you’re going to be doing on your end to kind of limit that growth to that $1.2 billion $1.3 billion by year-end? I would just love to hear your comments on the trajectory of the expected growth rate in auto.
Andrew Harmening
Yeah, so this is Andy, I’ll take that one. And the way that I would answer that is, while I like the auto vertical, we don’t want to be just an auto bank. We want to be lending across the spectrum and using our capital for commercial for business banking, for ABL for equipment, finance for auto. I also want to make sure that we’re operationally solid and strong as we go through this.
So we don’t — I don’t feel I need to put too much pressure on this machine. To me $1.2 billion in growth is a strong — is a strong year. And so if we are getting returns, if we are operationally strong, if we believe that it fits within the capital usage of all the other pieces of that, that will bear out what our decision is.
But as it goes right now, with the pipeline’s that we’re seeing in commercial and the successful launch of multiple initiatives, the successful hiring of talented RMs on the commercial side, I really liked the balance that we’re getting right now. I very much want to get into footprints. I actually think that with our brand name and our recognition, it’s actually a product, well, it’s indirect, it actually can translate on the direct side for our customer base.
And, so that’s probably where our focus is. And I don’t feel the need to come out and modify the forecast on that for the sake of volume.
Timur Braziler
Got it. Okay, thank you.
Andrew Harmening
Thank you.
Operator
We have reached the end of the question-and-answer session. I will now turn the call back over to Andy Harmening for closing remarks.
Andrew Harmening
Well, thank you. And based on the questions I want to thank you for your interest in Associated. As always, if you have questions reach out to us. We are more than happy to answer those. And we appreciate your continued interest in the story that’s unfolding for us at Associated Bank.
Operator
This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation. And have a great day.
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