Associated Banc-Corp (NYSE:ASB) Q3 2020 Earnings Conference Call - Final Transcript
Oct 22, 2020 • 05:00 pm ET
Thank you. Ladies and gentlemen, at this time, we will conduct our question-and-answer session. [Operator Instructions] Our first question comes from Michael Young with Truist Securities. Please state your question.
Hey. Thanks for taking the question. Wanted to ask about loan growth. You mentioned commercial construction pipeline with, I think you said $1.9 billion yet to be funded, so it sounds like that's a pretty nice tailwind or potential bridge to return to stronger loan growth. Is that the right way to think about that or there are some other offsets that we should be thinking of in terms of the other commercial categories?
Philip B. Flynn
Yeah. Thanks, Michael. So yes, certainly commercial real estate as you've seen throughout the year will continue to provide loan growth based upon the backlog we have and there is some amount of new business being done in that area as well. Our specialty areas, our utilities, the mortgage warehouse business continue to show good growth and we expect certainly the power and utilities area to keep growing mortgage warehouse will depend upon refinance activity. The mortgage business still has some tailwind and we may choose to retain some of our mortgage production going forward.
General commercial lending, probably somewhat slow. We don't have great visibility into that line item into next year yet, but we expect to have more information on that, as we get through the fourth quarter and get to the January call. So there are certain areas that continue to show good growth. There are areas that continue to have the backlog like CRE that will fund up, but general activity in the commercial lending space needs to show some more growth going forward. We will see what happens as we go along.
Okay. And just maybe on a core basis, as we're thinking about the margin for next year, is really kind of loan growth, the main driving factor to upside from kind of what you've already talked about in terms of just the funding costs coming down.
Philip B. Flynn
So we expect our liabilities to continue to grind lower. We took the actions on the FHLB prepayment, which is a significant improvement to NII next year. We are getting these traction on imposing floors on our LIBOR-based loans, which is the bulk of our loans. We'll continue to work on that. So the combination of grinding liability cost down, the FHLB prepayment, LIBOR floors, and then transitioning to new indices should provide stable to growing NIM as we look forward, but we'll have better guidance for you in January on that.
Okay. And if I could just sneak in one last one, just on the commercial deferrals. I understand, obviously, both come down a good bit, but I guess are there some that have been modified, is there a large portion that's maybe paying interest only or some other modification that's been made that's maybe not captured in that deferral number?
Philip B. Flynn
Yeah. So we're down to 1.4% of the total commercial and commercial