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Associated Banc-Corp (ASB) Q4 2020 Earnings Call Transcript

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Associated Banc-Corp (NYSE: ASB)
Q4 2020 Earnings Call
Jan 21, 2021, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon, everyone, and welcome to Associated Banc-Corp's Fourth Quarter 2020 Earnings Conference Call. My name is Diego, and I will be your operator today.

[Operator Instructions] 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 discussions today, management may make statements that constitute projections, expectations, beliefs or similar forward-looking statements. Associated's actual results could differ materially from the results anticipated or projected in any such forward-looking statements. Additional detailed information concerning the important factors that could cause Associated's actual results to differ materially from the information discussed today is readily available on the SEC website in the Risk Factors section of Associated's most recent Form 10-K and subsequent SEC filings. These factors are incorporated herein by reference.

For reconciliation of the non-GAAP financial measures to the GAAP financial measures mentioned in this conference call, please refer to pages 22 and 23 of the slide presentation and to Pages 10 and 11 of the press release financial tables. Following today's presentation, instructions will be given for the question-and-answer session.

At this time, I would like to turn the conference over to Philip Flynn, President and CEO for opening remarks. Please go ahead, sir.

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Philip B. Flynn -- President and Chief Executive Officer

Thanks, Diego, and welcome to our fourth quarter 2020 earnings call. Joining me today are Chris Niles, our CFO; and Pat Ahern, our Chief Credit Officer.

Before discussing our results for the fourth quarter and full year, I'd like to say a few words about the CEO transition we also just announced. After 11 years with Associated, I announced my plans today to retire at the end of 2021. I've been thinking about this for some time and in consultation with the Board, we agreed this is the right time to initiate our succession process.

As noted in the press release, I will continue as President and CEO until my successor is in place. At which time, I'll step down from both of those roles and from the Board. I'll be available to the new CEO in an advisory capacity thereafter to ensure a smooth transition for our customers and colleagues.

The Board has commenced the search for a permanent successor and will consider our internal as well as external candidates. As you can appreciate, we cannot speculate on the timeline for that search, but the Board and I are highly confident that we will name a strong successor who will take Associated to its next phase of success, continue our profitable growth trajectory. I look forward to working with my successor to ensure a smooth and seamless transition.

But now let me turn to our fourth quarter and full year results. This was a year unlike any of us has experienced. In the midst of incredible challenges and uncertainty, the commitment of our colleagues shown through. COVID-19 changed every aspect of life, including how people and businesses bank. In navigating the unknown, it was essential that our customers were able to connect -- to count on us and that our teams were safe and well positioned to provide their support.

As businesses and schools shut down, we found new ways to support both the health and financial well-being of our customers and communities. Through the efforts of our colleagues, we were able to support our customers with over $1 billion of PPP loans and adapt our branch services as our customers shifted to remote banking. It goes without saying that 2021 will have many challenges. However, the arrival of the COVID-19 vaccines promise a return to normality. Perhaps, it's only fitting this year we will celebrate our 160th year as a company and our rich history of supporting our customers and communities in their times of need. As we have through the decades, we stand eager to help build a stronger economy and better society.

During 2020, we took several actions to prepare for the recovery we expect to see in 2021. On Slide 2, you can see the improving trends for a number of key items. With the sudden decline in interest rates this past year, we quickly moved to reduce funding costs and implement strategies to stabilize and increase our asset yields. Together, these actions helped drive margins higher during the fourth quarter.

In addition, beginning in the second quarter, we took several steps to increase the efficiency of our organization. Included was the sale of Associated Benefits and Risk Consulting, the third quarter efficiency initiatives, reducing branches and personnel costs, and the recently announced sale of Whitnell, our family office subsidiary. Taken together, these actions will help drive further improvement in our efficiency and expense run rate as we move into 2021.

We adopted CECL at January 1, and as the pandemic began to unfold, we moved swiftly to increase our allowance in contemplation of the economy we saw through the middle of the year. As we move further through the back half of the year, we were encouraged by the positive emerging trajectory of the economy. And as we closed out the year, we are very pleased with the low levels of deferrals and new problem loans, which allowed us to bring down our provisioning over the back half of 2020. Notably, we posted a net reserve release of $11 million during the fourth quarter.

Collectively, these positive trends drove the EPS improvement we saw in the fourth quarter. We've recorded a $1.86 of GAAP earnings per share for the full year 2020 or $1.19 when adjusted for the gain on sale of Associated Benefits and Risk Consulting.

Turning to Slide 3, let's drill further into some of these positive trends for the quarter. Our fourth quarter EPS was $0.40, up more than 50% from the third quarter. We saw our net interest margin expand 18 basis points to 2.49%, driven by expanding commercial and industrial loan yields and PPP accretion from forgiveness. We ended the year with fourth quarter 2020 over fourth quarter 2019 average loan growth of $1.9 billion or 8%. Mortgage warehouse and CRE lending continued to be strong performers during the quarter.

We continue to grow our lowest cost deposits, which accounted for 64% of total deposits at the end of 2020. The cost of interest bearing deposits declined significantly throughout the year. During the fourth quarter, the cost of interest bearing deposits, excluding time deposits, was just 7 basis points. The provision for credit losses was $17 million during the quarter, down from $43 million in the third quarter. Loan deferrals fell to less than $80 million and both non-accruals and potential problem loans declined. Our allowance reserve covered 1.76% of loans at the end of the year. We finished the year on a strong capital note, tangible book value per share increase to $16.67, and all our regulatory capital ratios were higher year-over-year.

On Slide 4, we've provided a summary of our 2020 pre-tax pre-provision income. We've also highlighted several significant initiatives, which we executed over the year and their impact on PTPP. Adjusted for these significant items, PTPP was $393 million for the year. On Slide 5, we provide a similar view for the fourth quarter. Excluding the gain on sale of branches, fourth quarter PTPP was $94 million.

Average annual loan balance trends are shown on Slide 6. Total average loans came in at $24.5 billion, up $1.4 billion or 6% for the year. PPP lending and CRE activity accounted for most of the year's growth. Commercial and business lending increased $983 million or 12% from 2019. This was driven by PPP lending and mortgage warehouse financing. We also continued to reduce our oil and gas exposure to only $296 million at the end of the year. Oil and gas outstandings now represent just a little more than 1% of our total loans.

Average commercial real estate loans grew over $660 million as customers continue to build projects, particularly industrial and distribution center projects across our footprint. Construction lending has been particularly resilient in the Upper Midwest and our unfunded commercial real estate commitments stood at $1.9 billion at year-end, reflecting a healthy amount of expected further growth as we move into '21.

We originated a record $4.5 billion of mortgages during the year, driven by the lower mortgage rate environment. And despite this, average consumer loans finished the year at $9.3 billion, down $230 million. The low rate environment encouraged refinancing activity across our markets and contributed to the further rundown in our home equity book. We've been reluctant to add low rate mortgages to our balance sheet, but we have benefited from the sale of originated mortgage loans in the form of mortgage banking fees.

Turning to Slide 7. We highlight changes in the quarterly loan trend. Compared to Q4 2019, average fourth quarter loans increased $1.9 billion, commercial real estate loans increased $963 million and commercial and business lending increased $1.2 billion including PPP loans. On a sequential quarter basis, fourth quarter average loans fell $281 million from the third quarter. This decline was mostly attributable to PPP forgiveness, which we began to see in the fourth quarter. Through year-end, about 25% of our PPP loans have been repaid or forgiven.

Looking out to '21, outstanding 2020 PPP round one and two loans should be largely paid off or forgiven during the first half. We are currently originating new 2021 Round 3 PPP loans and expect these to peak in Q2 and then decline toward year-end. With respect to residential mortgages, we project balances to be flattish throughout the year as new mortgage portfolio production and increase in home equity production and utilization are more or less offset by the negative impacts of the ongoing refi market on these categories.

We are optimistic about commercial loan demand in '21, specifically we expect commercial real estate growth to continue at a strong pace and to increase average CRE balances by 4% to 6% during the year. We are also anticipating commercial line utilization expansion that should add 1% to 2% to outstandings, particularly as we move into the back half of this year. Taken together, we expect full year commercial loan growth, that is commercial real estate and commercial and industrial combined, of 2% to 4%.

On Slide 8, we've summarized our COVID-19 relief efforts for the year. During the second quarter, deferrals peaked at approximately $1.6 billion. At year-end, deferrals were just $79 million. We saw very positive trends throughout the year and we're very pleased with where we ended. Most customers who received deferrals have not needed additional assistance and have been able to resume making normal payments.

Total deferrals make up just 32 basis points of our total loans at year-end. The remaining deferrals are primarily residential mortgage borrowers that are still in their initial six-month deferral period. We expect substantially all of these consumer deferrals to be cured or expire without any credit implications in the coming quarter.

Our allowance update is shown on Slide 9. We utilized Moody's December 2020 baseline forecast for our CECL forward-looking assumptions. The baseline forecast assumes additional stimulus, continuing low rates through 2023 and a COVID vaccine that becomes widely available late in this quarter. We've previously indicated that we expect it to taper our reserving as we move through the year and in fact our fourth quarter reflects a net reserve release of $11 million. While we set aside $17 million as a provision for the quarter, we also charged out $28 million resulting in a net lower quarter-over-quarter total allowance. This net release was driven by a $27 million gross reduction in our allowance related to our general, commercial and business lending portfolios. This gross release was partially offset by $15 million of additional reserves set aside for commercial real estate loans.

The commercial real estate reserves are driven by the fact that our construction loan portfolio has grown by over 30% year-to-date and that we reserve for the full committed amount on a construction loan and at inception. As of December 31, our total allowance was $431 million, down from $442 million at the end of the third quarter. Similarly, our ratio of reserves to loans was about flat 1.76% to 1.77%.

Our credit metrics are presented on Slide 10. Potential problem loans, non-accrual loans and net charge-offs all declined during the quarter. Our key COVID commercial exposures also continue to decline and notably our oil and gas, retail and restaurant exposure all declined during the quarter. We'd also note that we had no oil and gas net charge-offs this quarter and we're comforted that with oil prices currently holding above $50 a barrel, we are well reserved going into 2021. Assuming the positive credit dynamics continue, we expect our full-year 2021 provision to be no more than $70 million with some quarterly variability.

Turning to Slide 11, annual average deposits were $26 billion, up nearly $1.3 billion or 5% over 2019. At the end of 2020, low-cost deposits grew approximately $3.6 billion compared to the end of 2019. At the same time, we've reduced high-cost time deposits and network deposits by over $1 billion. These are all time record deposit levels for Associated customers and are testament to the resiliency of our systems and our ability to continue to attract and retain core customers low rate and largely remote banking environment.

We're also happy to report our customer satisfaction ratings have never been higher. Our customer interaction and call center survey data suggest our customers have been well served, despite many of our branch lobbies being closed for part of this year. Further, our mobile applications continue to be refreshed and have been very well received by our customers who have given us a 4.8-star rating out of 5 on the most popular mobile platform.

Turning to Slide 12, fourth quarter average deposits were $26.7 billion. Low cost, non-interest bearing and savings were up from third quarter, while network and time deposits declined yet again. Low cost deposits accounted for nearly 64% of our balances at the end of the year.

Turning to Slide 13, fourth quarter net interest income was $188 million, up $6 million from the third quarter and net interest margin of 2.49% was up 18 basis points from third quarter. We have previously guided that net interest margin would bottom out during the third quarter and pick up in Q4. As expected, margin hit bottom in July and August and then rebounded to 2.56% in December.

Asset yields benefited from our implementation of LIBOR floors, reduced investment activity and generally widening spreads on new loans. On the liability side, we benefited from lower levels of borrowings, driven by the influx of customer deposits which drove our funding costs down. This persistent customer liquidity encouraged us to repay $1 billion of PPP loan funding in November. We also aggressively repriced our consumer deposit book, yet still have $288 million in 1% plus CDs, which will mature in the first half of 2021.

We expect spreads to widen on our LIBOR-based commercial loans as we continue to implement new LIBOR floors into our new and renewing loans. This will happen over time or in conjunction with other repricing or credit actions, including the anticipated migration to SOFR and other indices away from LIBOR later in 2021. We continue to expect to see our margin expand as we move throughout the year. We expect our net interest margin to be relatively flat in the first quarter and gradually expand over the course of the second through fourth quarters. We'd expect the full year's margin to be between 2.55% and 2.65%.

Turning to Slide 14, fourth quarter non-interest income came in at $86 million. Mortgage banking, service charges and wealth management fees all contributed to this quarter's growth. We also recorded $7 million of deposit premiums on our previously announced branch sales.

Our mortgage banking activity remained strongest this quarter with nearly $340 million of mortgages sold to the agencies, generating $14 million in net fee revenue. We also picked up nearly $1 million of MSR recovery during the fourth quarter and still have over $17 million in temporarily impaired MSR at year-end. We expect mortgage banking activity remain somewhat elevated as we move into the year.

Service charges and deposit account fees came in at $15 million, an increase of $1 million quarter-over-quarter. Wealth fees also increased nearly $1 million, reflecting the strong equity market dynamics. On January 5, we announced the sale of our Whitnell family office subsidiary, which constitutes a little less than 10% of the wealth management revenues and is focused on the ultra high net worth market. Pro forma for the sale, we've retained approximately $12 billion of assets under management. As we look forward in net of the pending Whitnell sale, we expect non-interest income of $280 million to $300 million in 2021.

On Slide 15, we highlight our expenses. The third quarter came in at $173 million inside of the $175 million level we were targeting. Core expenses continue to trend lower, largely driven by the reduction of expense following the sale of ABRC and the branch sales which mostly closed in December. We expect the expense initiatives to provide further savings as we move into 2021.

As you can see from the charts on the right, our efficiency trends continue to improve and our adjusted expenses to average assets ratio is already trending to 2%. Given these positive dynamics and the pending sale of Whitnell, we are revising our full-year 2021 expense guidance down to approximately $675 million.

As shown on Slide 16, our regulatory capital levels remain strong. Our common equity Tier 1 ratio increased 23 basis points from the third quarter and has grown 109 basis points from the first quarter as we conserved capital in light of economic uncertainty. Our TCE ratio grew 44 basis points from the third quarter, benefiting from solid earnings and lower asset levels as we used excess cash to these higher cost deposits and our PPP loans began to be forgiven.

As we look forward into '21, we expect to resume opportunistic share repurchases this quarter. We will continue to target TCE levels at or above 7.5% and CET1 at or above 9.5%. So to wrap up on Slide 17, we're providing guidance for 2021. We expect full year net interest margin of 255 basis points to 265 basis points. We expect mortgage banking revenue to moderate, but non-interest income still to come in between $280 million to $300 million. We're revising our 2021 expense guidance down to approximately $675 million from the $685 million previously guided. Our provision for credit losses has trended down since the second quarter to an annualized fourth quarter run rate of about $70 million.

With the positive credit trends we're seeing and assuming the economy behaves positively, as is generally expected, we believe our 2021 full year provision will be at or better than $70 million with some quarterly variability and we expect our annual tax rate to normalize in the 18% to 21% range.

And, with that, we'd be happy to take any of your questions.

Questions and Answers:

Operator

Thank you. At this time, we'll be conducting a question-and-answer session. [Operator Instructions] Our first question comes from Jared Shaw with Wells Fargo Securities. Please state your question.

Jared Shaw -- Wells Fargo Securities -- Analyst

Hi. Good afternoon, everybody. Can you hear me?

Philip B. Flynn -- President and Chief Executive Officer

Hi, Jared.

Jared Shaw -- Wells Fargo Securities -- Analyst

Yes.

Philip B. Flynn -- President and Chief Executive Officer

Yes, how are you?

Jared Shaw -- Wells Fargo Securities -- Analyst

Great. Thanks. Phil, congratulations. I hope you get through really enjoy your last fall/winter up in Green Bay and get the most out of it. Congratulations on the next step and we look forward you to working with the rest of the team. I guess, maybe, starting with the margin, I think that your guidance is pretty good. It's better than what we're seeing out of most and I would love to hear, I guess, where are you seeing the new loan yields? You talked about getting better spreads and putting in some LIBOR floors, where are we seeing new loans coming on right now? And do you think that that's going to be sustainable for the next quarter or so?

Philip B. Flynn -- President and Chief Executive Officer

Yeah. Thanks for the question, Jared. I'll let Chris answer that. But just to what you said, yes, winter is cooperating, it was 8 degrees here yesterday. So I am still enjoying that. Chris, do you want to take the NIM question?

Christopher J. Del Moral-Niles -- Executive Vice President and Chief Financial Officer

Yeah. So, Jared, we would point you to both the slides and the margin page in the deck, page 7 in the table where we say that the core commercial and business lending spreads have widened and as the combination of the strategy to have floors in certain loans, so years ago it started to sort of phase out and we've been reinserting them through the course of the year and that started to basically lift our core yield on the loans. The spread impact doesn't change, just the baseline, those strong from LIBOR in the teens to something like LIBOR at 50 basis points or 100 depending upon the type of loan.

And we're seeing a good maintenance of the spreads in commercial real estate lending. So not necessarily widening, but not compressing either, and the new loans aren't resulting material shift to that. And so the combination of the new stuff coming on at reasonable spreads in the commercial real estate, the slightly better mix of construction to total real estate and the LIBOR floor strategy is really the contributing factors for the expansion we've seen in that commercial loan yields.

And then as we mentioned or as Phil mentioned on residential mortgages, we've really been holding the line and we're not terribly excited about putting two handle on mortgages into the portfolio. And so, we've been selling most of that production to the agencies. And so the book that we're left with isn't growing, but at least it has something in the neighborhood of a 3% [Phonetic] yield.

Jared Shaw -- Wells Fargo Securities -- Analyst

Okay. That's great. And then I'm assuming that that margin guidance assumes the benefit from this initial PPP loans, but anything coming out of the newest round is not included in that, is that correct?

Christopher J. Del Moral-Niles -- Executive Vice President and Chief Financial Officer

We've given a full-year guidance for the 255 basis points to 265 basis points, that's sort of the good indicator for the entire year. But yeah, what I just walked you through on our spreads is all excluding PPP. We break out commercial PPP as a balance, then as a yield and is spread independently for you on all of our tables and materials.

Jared Shaw -- Wells Fargo Securities -- Analyst

With the newest round that's coming out, I guess, what should we be thinking volume could look like on that compared to what we saw earlier, call it, third quarter peak?

Philip B. Flynn -- President and Chief Executive Officer

Now, I'll take that, Chris. As we sit right now, we've already received more than a 1,000 applications for $150-ISH million. I don't know. It's hard to prognosticate how much there's going to be. We did $1.1 billion in the first two rounds last year. The rules are a little bit more difficult this time around. So certainly be something less than that, but it's kind of hard to hazard a guess.

Jared Shaw -- Wells Fargo Securities -- Analyst

Okay. All right. Totally get that. And then just shifting to the core loan growth. Looking at your guidance, expecting 1% to 2% increase in C&I, you also talked about utilization improving and giving that one to two benefit, so is that really -- you're not expecting a lot of necessarily core C&I growth other than an improvement in utilization, is that the right way to look at it?

Philip B. Flynn -- President and Chief Executive Officer

Yeah. I think you're going to see most of our growth from the big backlog of commercial real estate fundings that will come and we're sitting at the end of the year at almost $2 billion and there is additional new business there. Commercial utilization, as you know from looking at other banks and across the industry, is very low. So we certainly think as the economy picks up, we'll get more utilization, 1% to 2%, maybe a little bit conservative, it's just -- it's hard to know what the general commercial borrower or when the general commercial borrower is going to feel comfortable stepping up. I think growth will be perhaps stronger in the second half.

Jared Shaw -- Wells Fargo Securities -- Analyst

Okay. And then, I guess, just finally for me. Looking at the allowance and the CECL impact, looking at the allowance ex-PPP of $182 million is really strong, I guess, given the overall quality backdrop. How much did you have to rely on qualitative overlays this quarter to get there? And is that maybe a reduction of qualitative overlay is going to be the driving factor behind the provision guidance or is that not a change?

Philip B. Flynn -- President and Chief Executive Officer

Chris, do you want to take that one?

Christopher J. Del Moral-Niles -- Executive Vice President and Chief Financial Officer

Yes.

Jared Shaw -- Wells Fargo Securities -- Analyst

Did you get the question?

Christopher J. Del Moral-Niles -- Executive Vice President and Chief Financial Officer

I think -- yes. Jared, in our modeling, it was not so much the qualitative overlays. It's the qualitative overlays that kept the reserve level, because we try to think about reserve as being countercyclical. And so with an improving forecast that captured and driven some of the numbers here in our modeling, we -- I think your question is, as we think about that level of provision guidance that we've given you, does that imply, perhaps, the total reserve level is coming down over time? The answer to that is yes.

Jared Shaw -- Wells Fargo Securities -- Analyst

Great. Thank you.

Operator

Thank you. Our next question comes from Terry McEvoy with Stephens. Please go ahead.

Terry McEvoy -- Stephens -- Analyst

Hi. Good evening. And Phil, congratulations on the retirement news. It's -- I can't believe it's been 11 years, but congratulations.

Philip B. Flynn -- President and Chief Executive Officer

Thanks, Terry.

Terry McEvoy -- Stephens -- Analyst

I'll start just on page 2, I'm looking at the personnel expenses, which have come down all year and we've seen that in the expense line. My question is how much of that kind of fell to the bottom line last year and how much of it was kind of reinvested in the business, I know, in the past and maybe I missed it, there was kind of a technology spend slide and maybe a few others?

Philip B. Flynn -- President and Chief Executive Officer

Yeah. Going forward, much of this is falling to the bottom line. We've been able to maintain a fairly stable tech spend, although we continue to spend significant dollars on that. So this change in personnel costs is really benefiting the bottom line.

Terry McEvoy -- Stephens -- Analyst

And then as a follow-up, kind of your COVID watchlist portfolio, Slide 20 here. I'm wondering if you could provide some updated thoughts on some of the larger portfolios, particularly kind of the retailers and the retail REITs that you've discussed in the past?

Philip B. Flynn -- President and Chief Executive Officer

Sure. Pat, do you want to take that?

Patrick E. Ahern -- Executive Vice President and Chief Credit Officer

Sure. Right now, we're seeing some stabilization there. The issues we had in the past have all been kind of circled in large part put behind us. So I think we're seeing in our portfolio a lot of these retail centers are collecting more, they're seeing an increase in rents, so that's been a positive. The other one that stands out in terms of real estate is hotels. Obviously, we have a pretty small exposure there relatively speaking. And I would say we've kind of, again, circled all the issues and we've kind of put actions in place to continue to monitor those and get those hopefully through the next 6 months to 12 months, 18 months.

Terry McEvoy -- Stephens -- Analyst

Thank you.

Operator

Our next question comes from Scott Siefers with Piper Sandler. Please state your question.

Scott Siefers -- Piper Sandler -- Analyst

Good afternoon, guys. And, Phil, I wanted to add my congratulations as well. Enjoyed working with you and look forward to this final year, but wish you the best and it's well earned. I wanted to --

Philip B. Flynn -- President and Chief Executive Officer

Thank you, Scott. I'm not done yet though, so you probably haven't done -- you're not done talking with me yet.

Scott Siefers -- Piper Sandler -- Analyst

Yeah. No. Fair enough. Fair enough. That's a good point. I guess just on the search and just sort of the timing on announcement, was there any thought to wait to announce until you kind of gone through the search? I mean, obviously, it's a kind of dicey thing with disclosing stuff, but any sense for why now? And then M&A has become another topic in the industry has gotten a lot more frothy more recently, does the search for a new CEO, does that sort of put you guys off from looking at any transactions yourself? And then I guess conversely, I guess one way to find a new CEO would be to partner with someone else and source the CEO that way. Just maybe any broader M&A thoughts you could offer?

Philip B. Flynn -- President and Chief Executive Officer

Sure. So bunch of questions in there. First of all, on timing, I've been discussing this with the Board for some time. And as you point out at some point this is material and should be disclosed, which is why we're doing it now. Secondly, I really think that we are very well positioned at this point with all the actions we took last year to really participate in the economic recovery. So making this announcement now in the face of what we think is a improving '21 and improving results for us to make some sense.

As far as M&A, with -- as you've seen us been active over the last few years in acquisitions, we will continue whether it's me sitting here or perhaps someone else to look at those kind of opportunities and if we think that are in the interest of our shareholders to pursue them. And, as always, as far as doing something more strategic, the Board with their responsibility to look out for shareholders is always open to looking at something like that.

Scott Siefers -- Piper Sandler -- Analyst

Okay. All right. Perfect. Thank you. And then maybe switching gears a bit, I guess, for Chris, probably most appropriate for you, but as it relates to PPP, would you mind sort of trying to embed that into what total loan growth will look like for the year, inclusive of the PPP ebbs and flows between all these myriad rounds that are in there and then same thing on the margin? How much will PPP forgiveness contribute in your existing guidance?

Christopher J. Del Moral-Niles -- Executive Vice President and Chief Financial Officer

Sure. So I think, Scott, if you take a look at the transcript, when you go back to what Phil articulated that we really expect the bulk of the PPP that fares today just go away. So that's the better part of the remaining portion and the large portion of Round 3. So PPP on balance sheet will sort of be a non-material number probably by the time we get to the end of 2021 in the grand scheme of things.

The fees that are remaining for 2021 from the 2020 round, we disclosed as $12 million. So there is $12 million of unamortized fees that we're largely assuming we're going to receive next year and again, as Phil alluded to, we'll figure out how much the new is. But it's not going to be on the same order of magnitude as the Round 1 and Round 2, right. So it will be a smaller number and it will mostly run through the year. So it will be a little over $12 million plus whatever happens for Round 3 is what's basically assumed in the budget.

Scott Siefers -- Piper Sandler -- Analyst

Okay. Terrific. All right. Well, thank you both very much. I appreciate it.

Philip B. Flynn -- President and Chief Executive Officer

Thanks, Scott.

Operator

Our next question comes from Jon Arfstrom with RBC Capital Markets. Please state your question.

Jon Arfstrom -- RBC Capital Markets -- Analyst

Good afternoon.

Philip B. Flynn -- President and Chief Executive Officer

Hey, Jon.

Christopher J. Del Moral-Niles -- Executive Vice President and Chief Financial Officer

Hi, Jon.

Jon Arfstrom -- RBC Capital Markets -- Analyst

Phil, I'm more interested in the Lambeau weather report for Sunday?

Philip B. Flynn -- President and Chief Executive Officer

Mid 20s and likelihood of lights now.

Jon Arfstrom -- RBC Capital Markets -- Analyst

Okay. All right.

Philip B. Flynn -- President and Chief Executive Officer

-- won't care, but the rest of their team isn't going to like it.

Jon Arfstrom -- RBC Capital Markets -- Analyst

I was just going to say, similar to Foxborough. Well, good luck with that. I'll congratulate you after -- probably Q3 earnings. But just a question back on the C&I piece of it. That -- those balance has been coming down over the last several quarters and just I'm curious if you're starting to see signs of life there? It sounds like you're a little more bullish on that later in the year, but are you starting to see some of those balances trough?

Philip B. Flynn -- President and Chief Executive Officer

We've had some really good success, particularly in the fourth quarter with some new customers and some new closings and the pipelines are encouraging. I mean, that said, low utilization has kind of masked that. So I think it's still a little early yet, but we believe that vaccines are going to become much more widely available here and as the population starts to be able to access that, it's going to have a pretty big impact on growth. So, as I said, the 1% to 2% is our forecast now, but I would think that there is a decent likelihood that that's conservative. But you're probably going to see it more in later quarters after the first quarter.

Jon Arfstrom -- RBC Capital Markets -- Analyst

Okay, good. And then on the interest bearing demand growth, if you guys had to put your finger on what's really driving that, is it environmental, is it you and how sticky do you think these balances are longer term?

Philip B. Flynn -- President and Chief Executive Officer

Chris, do you want to take that?

Christopher J. Del Moral-Niles -- Executive Vice President and Chief Financial Officer

Sure. I mean, I would note that the rate on those is blending out at 8 basis points. So they are not being attracted by rate. So we're not -- it's not a rate opportunity. But I think it is generally the liquidity broadly across our commercial customer base and across, in particular, for these accounts the municipalities and various government entity level groups that have balances that have just nowhere else to go with the money in the short run. There aren't investment options that make too much sense either and 8 basis points is better than 0. And so I think, perhaps, that's generally the math that those customers are doing there in these types of accounts.

Jon Arfstrom -- RBC Capital Markets -- Analyst

Okay. And then resuming the repurchase program, I'm just curious, in your mind how attractive is that for you and how aggressive would you like to be? Thanks.

Philip B. Flynn -- President and Chief Executive Officer

Yeah. So all we can really say on that is, we have -- well, we have about $100 plus million of authorization right now. And even though the stock has somewhat recovered, we're still trading at what would, to us, seem an attractive level of repurchasing stock at. So not going to signal too much about what we're going to do in the first quarter other than we're going to resume.

Jon Arfstrom -- RBC Capital Markets -- Analyst

Okay. Well, you issued stock when you showed up and now you're buying it back, right, 11 years later, so that's good.

Philip B. Flynn -- President and Chief Executive Officer

Well, we've been buying it back for a while. So --

Jon Arfstrom -- RBC Capital Markets -- Analyst

All right. Thank you.

Philip B. Flynn -- President and Chief Executive Officer

Thanks, Jon.

Operator

Our next question comes from Michael Young with Truist. Please state your question.

Michael Young -- Truist -- Analyst

Thanks for the question. I'll follow-up on Jon's well wishing Phil with Packers won their Super Bowl back close to when you started there, so hopefully, they'll bring one home for the Green Bay [Phonetic] lead. And --

Philip B. Flynn -- President and Chief Executive Officer

That would be a good -- that would be a good book end to this thing, because I got here at the end of '09 and they won the '10 Super Bowl, so, yes, that would be perfect.

Michael Young -- Truist -- Analyst

Yeah. The timing could be unique. Well, anyways, maybe just following up on that, kind of starting with just a high-level question, you've been here for 10, kind of 11 years and just curious with what you've done in terms of credit cleanup and then efficiency improvement, technology, adaptation and roll out for the company through your career and I'm sure I've missed some things that you accomplished along the way, but what do you see as kind of the core needs for the franchise going forward from here and just anything that we should be expecting maybe on a go-forward basis?

Philip B. Flynn -- President and Chief Executive Officer

Yeah. It's a great question. Appreciate that. We've positioned ourselves well from a credit point of view as you pointed out. We have a very disciplined credit culture. I think, if you look back to March of last year, it was very hard to forecast how this is going to turn out, but it appears at this point that this is going to be a very mild credit cycle. We charged off about 40 basis points of loans last year. We expect something in a similar zip code to that and compared to what we were thinking in March, it's pretty mild.

Now, perhaps not every bank will have those results, but we have relatively modest and broadly diversified exposure. So yes, I think we're in good shape on credit. We've invested a lot in tech. Thank goodness we did that, because when we had to handle our customer's remotely, we've had a mobile app that works, online works, we've invested a lot of money in this. And, importantly, we still have 3,000 people working from home and we've been able to do things like handle a record amount of mortgage volume and such.

Going forward, the challenge for us is the same challenge as the whole industry faces. We've got a basically zero interest rate environment stretching out for a couple of three years. So it behooves us to continue to work hard on finding efficiency, so that we can grow our bottom line in that very difficult macro environment. Fortunately, the economy to us looks like it's going to improve and that will give us some tailwind as we get into the year, but doing things well, doing them efficiently is the biggest challenge we have in this rate environment.

Michael Young -- Truist -- Analyst

Okay. I appreciate that perspective, Phil. And maybe just following up on kind of the loan growth outlook, I think you mentioned still resi is not super attractive at these yields, although maybe better than securities. But it seems like the swing factor and kind of growth for 2021 outside of just the macro lift in commercial is the ability to start stabilizing and/or growing kind of the residential book. So at what point would the long end of the curve kind of ticking up, would you be interested in putting that paper on the balance sheet?

Philip B. Flynn -- President and Chief Executive Officer

Chris, what do you think? I mean, you --

Christopher J. Del Moral-Niles -- Executive Vice President and Chief Financial Officer

Yeah.

Philip B. Flynn -- President and Chief Executive Officer

Securities, I think, get a little more attractive, hopefully, right.

Christopher J. Del Moral-Niles -- Executive Vice President and Chief Financial Officer

We would hope so. Yeah. And the resi and mortgage book, we've been sort of focused in -- if you look at this quarter's yields, for the fourth quarter, the resi book had expected yields of 3% and that's probably a reasonable level that for us to be adding to that book and certainly a much better yield relative to other security choices that might be available and it wouldn't require much of a backup in some products to get back to those levels. So that would certainly be the level we'd probably start to add some back to the balance sheet.

Michael Young -- Truist -- Analyst

Okay. Thank you. I appreciate it.

Operator

Thank you. [Operator Instructions] Our next question comes from Chris McGratty with KBW. Please state your question.

Kelly Motta -- KBW -- Analyst

Hi. This is actually Kelly Motta on for Chris. Thanks so much for the questions. Most of what I had has been asked and answered already, but on -- maybe on liquidity and liquidity management. You've heard that there will -- from a lot of banks that there's still going to be a drag from an influx as PPP is forgiven and potentially we get more stimulus. How should we be thinking about that over the course of 2021 and the size of the balance sheet? Thank you.

Philip B. Flynn -- President and Chief Executive Officer

Sure. I'll take that, Chris. If you noticed the quarterly trend, obviously we and everyone have been awash in liquidity, but you'll also notice that we've taken some actions to reduce that liquidity. So we prepaid, as you know, in the third quarter of the FHLB advance, that took a significant amount of cash off of the balance sheet. And this past quarter, we decided to go ahead and repay the Fed PPP facility that took another $1 billion off.

So we've done some significant things to improve, i.e., reduce the amount of cash we've had. Now as the next round of stimulus rolls out and customers get PPP loans, liquidity perhaps will build, but we'll continue to look for opportunities to manage the cash on our balance sheet. Do you want to add anything to that, Chris?

Christopher J. Del Moral-Niles -- Executive Vice President and Chief Financial Officer

No, I think you've covered it. Yeah, I think we've reduced, as Phil alluded to, not only the $950 million of FHLB advances that we repaid in the third quarter, but year-over-year over $1.5 billion. So we've really put a lot of that -- when you look at the total year-over-year, deposits are up $2.7 billion and we repaid $1.5 billion of Federal Home Loan Bank and has lead to another $1 billion of PPPLF. So we're really sort of put the money out to offset other liabilities in an effective way.

Kelly Motta -- KBW -- Analyst

Thanks a lot.

Christopher J. Del Moral-Niles -- Executive Vice President and Chief Financial Officer

Looking for those opportunities.

Operator

Thank you. There are no further questions at this time. I'll turn it back to management for closing remarks.

Philip B. Flynn -- President and Chief Executive Officer

Great. Hey, thank you and thanks for the kind words. I appreciate it. But I do look forward to talking to you in April, which is most likely. If you have any questions in the meantime, give us a call, as always, and thanks again for your interest in Associated Banc and Go Pack! on Sunday.

Operator

[Operator Closing Remarks]

Duration: 45 minutes

Call participants:

Philip B. Flynn -- President and Chief Executive Officer

Christopher J. Del Moral-Niles -- Executive Vice President and Chief Financial Officer

Patrick E. Ahern -- Executive Vice President and Chief Credit Officer

Jared Shaw -- Wells Fargo Securities -- Analyst

Terry McEvoy -- Stephens -- Analyst

Scott Siefers -- Piper Sandler -- Analyst

Jon Arfstrom -- RBC Capital Markets -- Analyst

Michael Young -- Truist -- Analyst

Kelly Motta -- KBW -- Analyst

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