Associated Banc Q2 2025 Earnings Report

Associated Banc EPS Results

• Actual EPS: $0.65
• Consensus EPS: $0.62
• Beat/Miss: Beat by +$0.03
• One Year Ago EPS: $0.52

Associated Banc Revenue Results

• Actual Revenue: $366.98 million
• Expected Revenue: $362.78 million
• Beat/Miss: Beat by +$4.20 million
• YoY Revenue Growth: N/A

Associated Banc Announcement Details

• Quarter: Q2 2025
• Date: 7/24/2025
• Time: After Market Closes
• Conference Call Date: Thursday, July 24, 2025
• Conference Call Time: 5:00PM ET

Associated Banc (NYSE:ASB), through its primary subsidiary Associated Bank, N.A., is a regional financial services company headquartered in Green Bay, Wisconsin. The bank operates more than 200 branches across the Midwest, offering community-focused banking solutions for individuals, small businesses and commercial clients. Its emphasis on personalized service and regional decision-making supports long-standing customer relationships.

On the consumer side, Associated Bank provides checking and savings accounts, residential mortgages, home equity lines of credit, auto financing and credit card products. For business clients, the company offers commercial lending, treasury and cash management, equipment financing, foreign exchange and capital markets services. Wealth management, trust administration and insurance products are delivered through dedicated private banking and investment advisory teams.

Established in 1861 as Third National Bank of Green Bay, the institution has grown organically and through select acquisitions to serve Wisconsin, Illinois and Minnesota, with specialized commercial banking operations extending into Arizona and Florida. Over its history, Associated Banc has maintained a focus on supporting local economies, partnering with civic organizations and investing in community development initiatives across its footprint.

The bank’s leadership is headed by President and Chief Executive Officer Loren M. Hansen, who oversees strategic planning, digital innovation and risk management. Hansen is supported by an executive team responsible for finance, operations, technology and client experience. Under their guidance, Associated Banc continues to prioritize regional expertise, customer-driven solutions and sustainable growth.

Associated Banc Q2 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Associated Bancorp reported a record $300 million in net interest income and a net interest margin of 3.04%, both all-time highs that drove a 17% year-over-year increase in NII.
• Positive Sentiment: Commercial and industrial loans grew by over $700 million in the first half of 2025, helping replace lower-yielding residential loans and positioning the bank to exceed its $1.2 billion annual C&I growth target.
• Positive Sentiment: Core customer deposits rose 4.3% versus Q2 2024, supported by the strongest organic checking household growth in a decade, and are expected to grow 4–5% for full-year 2025 despite typical seasonal outflows.
• Positive Sentiment: Profitability and capital metrics improved as return on tangible common equity climbed to 12.96% (up 62 bps), the efficiency ratio dipped below 56%, and CET1 capital increased by 9 bps in Q2.
• Positive Sentiment: Credit quality remained solid with non-accrual loans down 16%, net charge-offs at 17 bps, and a modest $18 million provision, reflecting the bank’s proactive risk-management approach.

Presentation

[Operator]

Good afternoon, everyone, and welcome to Associated Bancorp's Second Quarter twenty twenty five Earnings Conference Call. My name is Alicia, and I'll 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 will be referenced during today's call and are available on the company's website at investor.investor.associatedbank.com.

[Operator]

As a reminder, this conference call is being recorded. As outlined on Slide one, 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 may 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 ks and subsequent SEC filings. These factors are incorporated herein by reference.

[Operator]

For a reconciliation of the non GAAP financial measures to the GAAP financial measures mentioned in the conference call, please refer to Page 24 through 26 of the slide presentation and to Pages ten and eleven of the press release financial tables. Following today's presentation, instructions will be given for the question and answer session. At this time, I'd like to turn the conference over to Andy Harmening, President and CEO for opening remarks. Please go ahead, sir.

[Andrew Harmening, President, CEO & Director at Associated Banc-Corp]

Thank you and good afternoon everyone. We appreciate you joining our second quarter earnings call. This is Andy Harmening. I'm joined once again by our Chief Financial Officer, Derek Meyer and our Chief Credit Officer, Pat Ahern. I'll start off by sharing some highlights from the quarter.

[Andrew Harmening, President, CEO & Director at Associated Banc-Corp]

From there, Derek will cover the income statement and capital trends and Pat will provide an update on credit. Throughout the first half of this year, we remain focused squarely on landing the plane with regards to our strategic plan and the momentum from actions we've taken over the past several quarters has continued to transform our company in several important ways. First, we're leveraging a best in class value proposition to grow and deepen our customer base organically. In Q2, we posted the best organic checking household growth we've seen since we began tracking nearly a decade ago. Second, we're driving loan growth while remixing our asset base.

[Andrew Harmening, President, CEO & Director at Associated Banc-Corp]

With over $700,000,000 in C and I growth in the first half of twenty twenty five, we're well on our way to exceeding the $1,200,000,000 target we set for the year. These balances are replacing lower yielding resi balances as they roll off the balance sheet. This ongoing mix shift is driving stronger profitability. Our quarterly net interest income of $300,000,000 was the strongest number we've seen in our company's history. And finally, our enhanced profitability profile enables us to accrete capital while still supporting balance sheet growth.

[Andrew Harmening, President, CEO & Director at Associated Banc-Corp]

We added another nine basis points to CET1 capital in Q2 and have added 19 basis points of CET1 so far this year following the completion of our balance sheet repositioning. As always, credit discipline remains a focus for us given the uncertain macro backdrop. We continue to proactively manage our portfolios and meet with customers to stay on top of any emerging risks. We remain well positioned to play offense in the back half of this year, thanks to the stability of our markets and the building momentum of our strategic plan. We also remain well positioned to play defense if necessary, thanks to our disciplined approach to credit.

[Andrew Harmening, President, CEO & Director at Associated Banc-Corp]

With that, I'd like to walk through some additional highlights for the quarter beginning on Slide two. For the second quarter, we reported earnings of zero six five dollars per share. Total loans grew by 1% quarter over quarter and by 3% versus Q2 of twenty twenty four. Adjusted for the loan sale we completed in January, total loans in Q2 were up by nearly 6% versus Q2 of twenty twenty four. Our loan growth has been led by commercial as our middle market expansion continues to gain momentum.

[Andrew Harmening, President, CEO & Director at Associated Banc-Corp]

We added another $356,000,000 of C and I loans in Q2 and we've now grown C and I loans by over $700,000,000 through the first six months of twenty twenty five. As expected, our Q2 deposit levels were impacted by seasonal outflows, but compared to the same period a year ago, core customer deposits were up 4.3%. We remain confident in our full year outlook for customer deposit growth, thanks to our steadily improving household growth trends, our commercial RM hires and the seasonal inflows we typically see in the back half of the year. Moving to the income statement. Our Q2 net interest income of $300,000,000 was the strongest mark we've seen in company history and was up $43,000,000 or 17% versus the same period a year ago.

[Andrew Harmening, President, CEO & Director at Associated Banc-Corp]

We also posted non interest income of $67,000,000 during the quarter, which was up 3% versus Q2 of last year. Total non interest expense finished down slightly from the prior quarter at $2.00 $9,000,000 here in Q2, driving positive operating leverage and continue to be a primary focus as we execute our plan. We also continue to monitor credit quality closely. In Q2, our non accrual loans were down 16%. We booked 17 basis points of net charge offs and we added $18,000,000 in provision.

[Andrew Harmening, President, CEO & Director at Associated Banc-Corp]

And finally, we posted a return on tangible common equity of 12.96% in Q2, a 62 basis point improvement from Q1. Moving to Slide three, the strategic actions we've taken have put us in a position to enhance our profitability by growing and remixing both sides of our balance sheet and we're doing just that. You can see it in commercial, where C and I balances have grown by over $700,000,000 year to date with pipelines continuing to build and several more non competes from recently hired RMs set to expire in the coming months. We expect our momentum to carry into the back half of the year and into 2026. These higher yielding relationship focused C and I loans are replacing lower yielding resi mortgage loans that have historically been concentrated on our balance sheet.

[Andrew Harmening, President, CEO & Director at Associated Banc-Corp]

And as those balances continue to roll off, we've been able to decrease that concentration and diversify our asset base. This dynamic sets us up to drive more profitable growth without sacrificing our disciplined approach to credit. In Q2, our net interest margin climbed above 3% and we posted record NII. We see additional opportunity ahead as we continue to grow and remix our asset base while supporting that growth primarily through lower cost customer deposits. On Slide four, we highlight our loan trends through the second quarter.

[Andrew Harmening, President, CEO & Director at Associated Banc-Corp]

Total average quarterly loans increased by nearly 400,000,000 versus Q1 and while total period loans increased by 1% or $300,000,000 point to point. In both cases, this growth was led by C and I. CRE construction loans grew by $140,000,000 during the quarter, but this growth was more than offset by $227,000,000 investor bucket. And after a light first quarter of payoffs, we saw payoff activity in CRE pick up towards the end of the second quarter and we expect this activity to remain elevated over the remainder of the year. Finally, auto finance balances grew by $91,000,000 in Q2 as we've continued to diversify our consumer book.

[Andrew Harmening, President, CEO & Director at Associated Banc-Corp]

As such, we continue to expect total bank loan growth of 5% to 6% for the year. Moving to Slide five, total deposits and core customer deposits both dipped slightly during the quarter due to seasonality we typically see in the spring. However, both total deposits and core customer deposits are up more than 4% as compared to the same period a year ago. This reflects our efforts to attract and deepen customer relationships with a best in class value proposition. It also is a reflection of the RMs we've hired and our sharpened focus on whole relationships in commercial.

[Andrew Harmening, President, CEO & Director at Associated Banc-Corp]

We're confident in our ability to grow core customer deposits in the back half of the year for three reasons. First, our consumer value proposition gives us an engine to attract and deepen customer relationships sustainably over time. In fact, here in Q2, we just booked the strongest organic primary checking household growth numbers we've seen since we began tracking a decade ago. Secondly, our sharpened focus on commercial deposits is gaining momentum. With pipelines growing, RM non competes expiring and the addition of a new deposit vertical.

[Andrew Harmening, President, CEO & Director at Associated Banc-Corp]

And finally, as we saw in 2024, our annual deposit growth is historically weighted towards the back half of the calendar year. Ultimately, we expect our efforts to drive growth in lower cost core customer deposit categories that enable us to further decrease our reliance on wholesale funding sources over time. Recent pipeline and household trends give us confidence in our growth outlook for the year and as such, we continue to expect core deposit growth by 4% to 5% in 2025. And with that, I'll pass it to Derek to discuss our income statement and capital trends.

[Derek Meyer, EVP & CFO at Associated Banc-Corp]

Thanks, Andy. I'll start with yield trends on Slide six. In the second quarter, our net interest margin of 3.04% was driven by a five basis point increase in earning asset yields and a four basis point decrease in interest bearing liability costs. We saw a slight uptick across the board in most asset categories. This uptick was led by the commercial business category, which increased by seven basis points versus Q1.

[Derek Meyer, EVP & CFO at Associated Banc-Corp]

On the liability side, total interest bearing deposit costs decreased to 2.78 in Q2, a 13 basis point decrease from the prior quarter and a 52 basis point decrease versus Q2 of twenty twenty four. We remain pleased with our ability to reprice deposits downward over the past several quarters, particularly the high rate categories such as CDs. On Slide seven, our second quarter net interest income of $300,000,000 increased by $14,000,000 versus the prior quarter and $43,000,000 versus the same period a year ago. Our net interest margin of 3.04% expanded by seven basis points versus Q1 and 29 basis point versus the same period a year ago. Based on our latest expectations for balance sheet growth and mix, deposit betas and Fed action, we now expect to drive net interest income growth of between 1415% in 2025.

[Derek Meyer, EVP & CFO at Associated Banc-Corp]

This forecast assumes three Fed rate cuts in 2025. Moving to Slide eight, we continue to feel well positioned for any potential Fed rate changes that may materialize in the coming months, thanks to our modestly asset sensitive balance sheet. We've kept funding obligations short to maintain repricing flexibility. We've maintained received fixed swap balances of approximately $2,450,000,000 and we built a $3,000,000,000 fixed rate auto book with low prepayment risk and strong credit characteristics. These actions have reduced our asset sensitivity over time with a down 100 ramp scenario now representing about a 1% impact to our NII as of Q2.

[Derek Meyer, EVP & CFO at Associated Banc-Corp]

We expect to maintain this modestly sensitive position going forward. On Slide nine, our securities book increased to $9,000,000,000 in Q2 as we continue to modestly build our AFS portfolio. The overall yield in our investment securities portfolio increased two basis points from the prior quarter to 4.24%. Our securities plus cash to total assets ratio climbed to 23.4% for the quarter. We expect to manage this ratio in the 22% to 24 range throughout 2025.

[Derek Meyer, EVP & CFO at Associated Banc-Corp]

Our non interest income trends for the quarter are highlighted on Slide 10. We posted total non interest income of $67,000,000 in Q2, a 14% increase over Q1 that was largely driven by the $7,000,000 loss on mortgage sale we recognized in the prior quarter. Relative to the same period a year ago, our non interest income increased 3%. As compared to Q1, fee based revenues, capital markets and mortgage banking income ticked higher and this growth was partially offset by a decrease in BOLI income. In 2025, we now expect non interest income to grow by 1% to 2% after excluding the nonrecurring items that impacted our fourth quarter twenty twenty four and first quarter twenty twenty five results from the balance sheet repositioning we announced in December.

[Derek Meyer, EVP & CFO at Associated Banc-Corp]

Moving to Slide 11. Second quarter expenses of $2.00 $9,000,000 decreased $1,000,000 versus Q1. Within our expense base, quarterly decreases in occupancy, technology, FDIC assessment and other non interest expense were partially offset by increases in personnel, business development and legal and professional costs. Our efficiency ratio dipped below 56%, which is the lowest level we've seen since early twenty twenty three. We continue to invest in people and strategies to support our growth plans.

[Derek Meyer, EVP & CFO at Associated Banc-Corp]

But as we've said previously, driving positive operating leverage continues to be a primary focus for our company. Based on our latest forecast, we now expect total non interest expense growth of between 45% in 2025 off of our adjusted 2024 base. The increase was largely attributed to variable comp, benefits expense and OREO. On Slide 12, we once again saw capital ratios increase across the board in Q2. Our TCE ratio of 8.06% in Q2 was up 10 basis points versus the prior quarter and up 88 basis points versus Q2 of twenty twenty four.

[Derek Meyer, EVP & CFO at Associated Banc-Corp]

Our CET1 ratio increased to 10.2% as of Q2, a nine basis point increase relative to the prior quarter and a 52 basis point increase versus the same period a year ago. Based on our expectations for growth in 2025 and current market conditions, we continue to expect demand in CET1 within a range of 10% to 10.5% for the year. I'll now hand it over to our Chief Credit Officer, Pat Ahern to provide an update on credit quality.

[Patrick Ahern, EVP, Chief Credit Officer & President - Chicago Market at Associated Banc-Corp]

Thanks, Derek. I'll start with an allowance update on Slide 13. We utilized the Moody's May 2025 baseline forecast for our CECL forward looking assumptions. The Moody's baseline forecast remains consistent with a resilient economy despite the higher interest rate environment. The baseline forecast contains no additional rate hikes, slower but positive GDP growth rates, a cooling labor market, continued elevated levels of inflation and continuing monitoring of ongoing market developments and tariff negotiations.

[Patrick Ahern, EVP, Chief Credit Officer & President - Chicago Market at Associated Banc-Corp]

Our ACLL increased by $5,000,000 in Q2 to finish the quarter at $412,000,000 with increases in commercial and business lending, CRE construction and other consumer categories partially offset by decreases in CRE investor and mortgage. The increase in commercial largely stemmed from a combination of loan growth plus normal movement within risk rating categories. Our ACL ratio increased by one basis point from the prior quarter to 1.35%. On Slide 14, we continue to review our portfolios closely given ongoing uncertainty in the macro picture, but we maintain a high degree of confidence in loan portfolios and continue to see solid performance in Q2. Total delinquencies increased slightly to $52,000,000 in Q2 with an uptick in the 90 plus bucket, partially offset by a decrease in the thirty to eighty nine day bucket.

[Patrick Ahern, EVP, Chief Credit Officer & President - Chicago Market at Associated Banc-Corp]

The increase in the 90 plus category was a timing issue of one credit that was in the process of payoff via a sale. This carried over to the July with full repayment. Total criticized loans increased slightly versus Q1 with increases in the special mention and substandard categories partially offset by a decrease in nonaccrual loans. Much of this increase was driven by migration within CRE and C and I categories as we continue our philosophy of a proactive and conservative approach relative to credit risk ratings adhering within the current industry guidance. We do not feel that recent trends in this category are an indication of a noteworthy shift in the credit profile of the portfolio, nor do they represent an increased risk of loss.

[Patrick Ahern, EVP, Chief Credit Officer & President - Chicago Market at Associated Banc-Corp]

We continue focused portfolio deep dives in an ongoing basis and don't see a systemic shift in our commercial portfolios. In fact, we continue to see resolutions with some of our more stressed credits and liquidity remains present in the market in terms of both payoffs and loan re margin. Balances in the non accrual category were down $22,000,000 versus Q1 and $41,000,000 versus the same period a year ago. Finally, we booked $13,000,000 in net charge offs during the quarter and $18,000,000 in provision. Our net charge off ratio increased by five basis points to 0.17%.

[Patrick Ahern, EVP, Chief Credit Officer & President - Chicago Market at Associated Banc-Corp]

All three of these numbers remain squarely in line with the figures we've seen over the past several quarters. In summary, our credit metrics continue to give us confidence that what we've seen to date is a handful of credits migrating within our rating system and not necessarily a sign of broader issues coming down the road in future quarters. Overall, outside of these specific situations, we remain comfortable in the normalized level of activity we've seen across the bank. In response specifically to tariffs and the ongoing trade policy negotiations, after our initial targeted portfolio reviews in April, we remain in close contact with clients as the trade policy discussions continue. I would note that clients have been planning for tariff changes for some time, and we feel comfortable with the positioning of strategies and the ability to execute when more clarity exists.

[Patrick Ahern, EVP, Chief Credit Officer & President - Chicago Market at Associated Banc-Corp]

Going forward, we remain diligent on monitoring other credit stressors in the macro economy to ensure current underwriting reflects the impact of ongoing inflation pressures and shifting labor markets to name just a few economic concerns. In addition, we continue to maintain specific attention to the effects of elevated interest rates on the portfolio, including ongoing interest rate sensitivity analysis bank wide. We expect any future provision adjustments will continue to reflect changes to risk rates, economic conditions, loan volumes and other indications of credit quality. With that, I will now pass it back to Andy for closing remarks.

[Andrew Harmening, President, CEO & Director at Associated Banc-Corp]

Thanks Pat. In summary, we're pleased with our progress over the first half of the year. We continue to feel well positioned to build on our momentum in the back half of the year and that's primarily due to our strength and profitability profile, our solid capital position and our disciplined approach to both business and growth. So with that, I'd like to open it up for questions.

[Operator]

Thank you. We will now be conducting a question and answer session. Session. Our first question comes from the line of Daniel Tamayo with Raymond James. Please proceed.

[Daniel Tamayo, Vice President at Raymond James Financial]

Thank you. Good afternoon, guys.

[Patrick Ahern, EVP, Chief Credit Officer & President - Chicago Market at Associated Banc-Corp]

Hey, Daniel.

[Daniel Tamayo, Vice President at Raymond James Financial]

Maybe just starting on the deposits, I guess the seasonal decline caught us by a little bit of surprise this quarter, even though maybe it shouldn't have. But just kind of back half of the envelope here, back of the envelope, looks like to get to the guidance for the core customer deposit growth for '25, you need about $1,600,000,000 in the back half. So correct me if I'm wrong on that. But how much of that is just the seasonal rebound and how much of that is normal growth and maybe just kind of walk us through how you think you'll get there? Thanks.

[Andrew Harmening, President, CEO & Director at Associated Banc-Corp]

Yes, Daniel. So this is a little bit like a movie you've already seen. In fact, I mean, I'm not going to say we forecasted this to the dollar, but we're pretty close. So when we look at the second half of the year, a big piece of it is seasonal. Have three or four customers that every year they go down during this period.

[Andrew Harmening, President, CEO & Director at Associated Banc-Corp]

And frankly, it's actually about $100,000,000 better if you look at the trend from the prior year. What's different going into the second half of this year is we have a commercial pipeline report on deposits. That pipeline has gone up $500,000,000 in the last twelve months. Interestingly though, it's gone up $200,000,000 in the last ninety days. So we have that as a backdrop.

[Andrew Harmening, President, CEO & Director at Associated Banc-Corp]

Starting in August and September, the vertical that we hired people for the technology fixes that we need to launch that, those two things go in place. Over the course of twelve to eighteen months, that will be worth we think a few $100,000,000 in growth to us. We actually hit household growth of 2% in the first half of the year. As you probably know, you don't immediately get the deposits in those. Those come in thirty, sixty, ninety days after you have it.

[Andrew Harmening, President, CEO & Director at Associated Banc-Corp]

We've not had that kind of trend in the past. We started at negative one to two, we went to zero, we went to positive one, now we're at two. And then you look at our we look at our customer satisfaction, which is the leading indicator as to what you're going to run off. It's as high as it's ever been in our company. So we look at the second half of the year and we say, gosh, if we're just average to last year, we're going to hit the numbers that we forecasted.

[Andrew Harmening, President, CEO & Director at Associated Banc-Corp]

We don't feel like we're average to last year. So whether we get that additional lift in the 2025 or we get the additional lift in 2026, we see a path for where it's coming to us. So the forecast itself we think is pretty disciplined and pretty right on line with what we've seen in the prior year.

[Daniel Tamayo, Vice President at Raymond James Financial]

Terrific. Thanks for that. And is it fair to say that the increase on the total deposit guide relative to core deposit is just well, let me ask you, what drove that increase?

[Derek Meyer, EVP & CFO at Associated Banc-Corp]

Dan, this is Derek. That's just wholesale funding, brokered CDs. So that's a GAAP number, but what we're focusing on is the customer number that Andy is referring to. And we were right on budget, the whole both first and second quarter. So for us, this has not been a surprise and we're sort of right on schedule, is why we're pretty confident.

[Daniel Tamayo, Vice President at Raymond James Financial]

Okay. But the overall balance sheet is just expected to be slightly larger than and that's funding kind of securities or cash That's the way to think about it?

[Derek Meyer, EVP & CFO at Associated Banc-Corp]

That's exactly right. And is a little bit of more CDs, brokered CDs versus FHLB. So you have to if you're going to give a GAAP guidance, then you have to include that. That's all.

[Daniel Tamayo, Vice President at Raymond James Financial]

Understood. Understood. Okay. And then maybe one for Pat. This is just kind of a question I think that should be asked every few quarters.

[Daniel Tamayo, Vice President at Raymond James Financial]

If you could just give us kind of an update on the office CRE portfolio. You gave a lot of good color in the slide deck. But just curious kind of if you could give some color around how you see that portfolio, what trends look like, if there's a differentiation between the A and the B that you talk about, the classes there? And then if you have a number for participations, if you do any of that with the office portfolio, that would be helpful as well.

[Patrick Ahern, EVP, Chief Credit Officer & President - Chicago Market at Associated Banc-Corp]

Yes. I would say, overall, office continues to evolve, probably in a better spot than it was a couple of years ago. And I think the clients that we're working with who have addressed their assets and have been proactive in improving and providing amenities that the market is looking for have benefited and that's what we're seeing in our portfolio. Certainly not completely out of the woods in terms of CRE as an office as an asset class. And I think the industry would agree with that.

[Patrick Ahern, EVP, Chief Credit Officer & President - Chicago Market at Associated Banc-Corp]

But the way we're down considerably in what we would deem kind of the more stressed office credits in the portfolio. We've had a fair amount of exits. In fact, the one payoff from the delinquency I noted was a CRE office deal that sold. So I think we feel confident where we're at right now and we just continue to watch it because that's still an evolving story as you know with return to office and where the assets are performing. And I in terms of SNC, in terms of office, I don't have a number off the top of my head.

[Patrick Ahern, EVP, Chief Credit Officer & President - Chicago Market at Associated Banc-Corp]

Most of the stuff we're doing there is going to be direct with sponsors we've worked with for a long, long time. We don't get involved in a lot of big banks, NIC deals in the with the office class. That's why we don't have a lot of downtown urban exposure there.

[Daniel Tamayo, Vice President at Raymond James Financial]

Got it. Okay, very helpful. That's all I had. Thanks very much guys.

[Derek Meyer, EVP & CFO at Associated Banc-Corp]

Thank you.

[Operator]

Thank you. Our next question comes from the line of Scott Seifert with Piper Sandler. Please proceed.

[R. Scott Siefers, MD & Senior Research Analyst at Piper Sandler Companies]

Good afternoon, guys. Thank you for taking the question. Derek, I was hoping you could help to kind of codify where the margin could go and the puts and takes that get us there. I remember like earlier in the year, we sort of talked about a, call it, a 3% margin with some upside if rates stayed elevated. But now it feels and correct me if I'm wrong, but it feels like remixing within loan portfolio could be as powerful a factor as the level of rates.

[R. Scott Siefers, MD & Senior Research Analyst at Piper Sandler Companies]

So just curious how you're thinking about all the kind of all the things sloshing around in there and where ultimately we could end up going?

[Derek Meyer, EVP & CFO at Associated Banc-Corp]

Yes. So what I think you anchored on the right point. I think the piece that we have that has the most predictable impact on our margin strength is the asset side. And we've set the table and are getting the growth in the asset classes where we made the investment, the C and I book and then stopped adding or let the old third party resi roll off. It really is grinding up the asset yields in a sustainable way even if rates come down a few clicks.

[Derek Meyer, EVP & CFO at Associated Banc-Corp]

So what and so that we feel really good about that. We think we've demonstrated that consistently and it came through again this quarter. So and that also gave us confidence to raise the guidance, both the growth and where we finished the quarter. I think probably the most uncertainty, there's the same opportunity of remixing our deposits going forward, but it will be unclear on how big that opportunity is. It'll be dependent on where the market takes deposit rates.

[Derek Meyer, EVP & CFO at Associated Banc-Corp]

So most of our guidance is, again, maintaining the margin that we've established and then growing our NII through growing the balance sheet rather than making a bet on interest rates.

[R. Scott Siefers, MD & Senior Research Analyst at Piper Sandler Companies]

Got it. Okay. Thank you. And then maybe if you can actually expand on something to what you alluded toward the end of that response, sort of the deposit pricing side, maybe any update on kind of strategies there? I guess, the background of the question is, I know like there are the seasonal nuances and balances and then I think there are some kind of higher cost roll offs, but just the sequential downdraft in interest bearing deposit costs was much larger than most that we're seeing this quarter, good things.

[R. Scott Siefers, MD & Senior Research Analyst at Piper Sandler Companies]

So, just curious, how is the overall strategy looking? What would be the outlook going forward? That sort of best guess.

[Andrew Harmening, President, CEO & Director at Associated Banc-Corp]

I'm going to take this is Andy. I'm going to take that one. First, I'd say the discipline we have around pricing is significant. Whether that is with the entire back book of the portfolio or it's the coming due nature of the CD book. The retention of our CDs and the strategy around that, we're hovering around 84%, 85% retention and getting pricing that's been good and helped to become accretive.

[Andrew Harmening, President, CEO & Director at Associated Banc-Corp]

The thing I'm pretty pleased with in the second quarter, even though we had the seasonal decrease that we expected, the ability to manage the interest bearing aspect of that during that time and still expand margin was really strong on our part. So when we look at the rest of the year, we have the same discipline and approach in forecasting out of each one of those buckets and categories. What we expect then is with both the seasonal flow and the increase in kind of BAU, We forecast our NII based on being relatively flat in NIM. So if deposit pricing doesn't become irrational, we think there could be some positive upside, but we don't want to bet on that just yet.

[R. Scott Siefers, MD & Senior Research Analyst at Piper Sandler Companies]

Got it. All right, perfect. Thank you both very much.

[Andrew Harmening, President, CEO & Director at Associated Banc-Corp]

Thank you.

[R. Scott Siefers, MD & Senior Research Analyst at Piper Sandler Companies]

You're welcome.

[Operator]

Thank you. Our next question comes from the line of Terry McElroy with Stephens. Please proceed.

[Terry Mcevoy, Managing Director at Stephens Inc]

Hi, good afternoon guys.

[Andrew Harmening, President, CEO & Director at Associated Banc-Corp]

Hey Terry.

[Terry Mcevoy, Managing Director at Stephens Inc]

I guess I'll just start with a question based on this afternoon's news, kind of your updated thoughts on acquisitions, your capital is growing, your stocks outperformed, your business models generating performance above expectations. So I'd love to get your updated thoughts on M and A.

[Andrew Harmening, President, CEO & Director at Associated Banc-Corp]

I liked all those things you said, Terry. In fact, you repeated that question, I could hear it over and over. I'd say a couple of things. One, thanks. Look, if something came to us, it would have to be a really good fit.

[Andrew Harmening, President, CEO & Director at Associated Banc-Corp]

Strategically, it'd have to be a good fit financially, it'd have to be a good fit culturally. The things that we wanted to achieve with our strap plan, remember we're only a year and a half into it and we're just starting to harvest the profitability of that. We're seeing margin expansion, we're seeing household growth, we're seeing a ROTCE increase, we're seeing customer satisfaction at historical highs and strong revenue growth. So I've said this a lot of times, that is our number one priority. It's our first priority.

[Andrew Harmening, President, CEO & Director at Associated Banc-Corp]

If you do that well enough, lead yourself to opportunities. But I would just reiterate, it would have to be a good fit in kind of all the ways that we think about otherwise. And our team's very much locked in into delivering the forecast and guidance that we've provided for 2025 right now.

[Terry Mcevoy, Managing Director at Stephens Inc]

Thanks for that. And then as a follow-up, when I look at the ACL for the C and I portfolio, it was 136,000,000 it's gone up to 150,000,000 And I'm assuming it's just not a riskier portfolio of loans today versus a year ago in terms of the growth that we've had. So we just hopefully you could provide some color into why that specific ACL has gone up where others have been flat to maybe down in some cases?

[Patrick Ahern, EVP, Chief Credit Officer & President - Chicago Market at Associated Banc-Corp]

You've largely hit on it. It's a growth story there. So we're certainly going to have movement within the risk ratings that will affect it from quarter to quarter. But overall, it's been a growth story. Our spot balances CRE investor was down this quarter, so there was there'd be a release there.

[Patrick Ahern, EVP, Chief Credit Officer & President - Chicago Market at Associated Banc-Corp]

And then, for comparison's sake on the CRE construction, we're going to be we have a little more aggressive build on those when we fund deals. So we're going to appropriately grab that risk upfront when we close new deals. So you'll see when you have growth, you'll see that ACL rate go up.

[Terry Mcevoy, Managing Director at Stephens Inc]

Perfect. Thanks for taking my questions.

[Andrew Harmening, President, CEO & Director at Associated Banc-Corp]

Thanks, Jerry.

[Operator]

Our next question comes from the line of Christopher McGratty with KBW. Please proceed.

[Christopher O'Connell, Director at Keefe, Bruyette & Woods (KBW)]

Hey, good afternoon. This is Chris O'Connell filling in for Chris. Just I make it easier. Yes, exactly. I just wanted to start off thinking about the positive operating leverage that you guys have been able to put up over the first half of this year and as you get further along into 2026, if you view that as continuing and still sustainable?

[Andrew Harmening, President, CEO & Director at Associated Banc-Corp]

The short answer is yes. That is the goal going to every single year. The little bit expanded answer of that is kind of in the details of where we are on the strat plan. And what I'd say is when you think about the number of RMs that we've hired and the increase that we have relationship managers and commercial, when I look at the pipeline that we're increasing and when I what we have to believe is that resi is going to slowly decrease, it is. We have to believe that commercial loan growth is going to increase, it is and it's increasing at an increasing rate.

[Andrew Harmening, President, CEO & Director at Associated Banc-Corp]

We have to believe that we're going to add customers because that means that you start to bring in lower cost granular deposits, we are. And you have to have discipline around the pricing of what you're doing on the back book as well. And so we feel like when we do that and we've gone into every budget season basically with the requirement request from our leadership team that they bring ideas on expense saves before we talk about where we're going to spend money so that we kind of mitigate the risk there. So with all the pieces that we're talking about right now, it sure looks like we're going to be able to continue on with the positive operating leverage throughout this year and into 2026.

[Christopher O'Connell, Director at Keefe, Bruyette & Woods (KBW)]

Great. And then on the hiring efforts here, how does the pipeline look for hiring throughout the rest of the year? And then I think you guys had talked about sitting down post the end of the Phase two investments, kind of mapping out some of the next steps? Any preview into the forward investments that are being contemplated going forward?

[Andrew Harmening, President, CEO & Director at Associated Banc-Corp]

Two really good questions. We're in a really I was reflecting on this just earlier today with our Head of Commercial Banking. Three or four years ago, we were working really hard on the recruiting. Two years ago, we ramped that up again. In the last six, twelve months, we're getting inbound calls from people and that's really makes it a lot better and word-of-mouth is spread.

[Andrew Harmening, President, CEO & Director at Associated Banc-Corp]

We've completed our hiring. You've never fully complete if there's somebody that's exceptional in a market, but our ability to get talent has increased, improved over the last four years, three years, two years and even in the last year. What's interesting on that is the predominance of our production is still coming from people that we hire pre-twenty twenty three. That's going to shift as we head into the end of this year and the beginning of next year non solicitations expire. So we have a lot of legs still and what the hiring piece has been.

[Andrew Harmening, President, CEO & Director at Associated Banc-Corp]

But I think it's 64% is from the legacy, but even the people hired in 2024 the next biggest piece of about 23%. So we only have about 10% to 15% of our production from those we've hired in 2025. So pretty optimistic there. There is room to add in some key markets should that come available, but we're going to be very kind of selective in what potential expansion is. There is never a shortage of ideas.

[Andrew Harmening, President, CEO & Director at Associated Banc-Corp]

What we'll do is we'll take that and we'll talk about what do we execute most swiftly, what fits our risk profile, what has the fastest payback. That's the process that we'll go through in the second half of this year. I don't feel a lot of pressure to add new initiatives immediately because throughout 2026, we'll harvest the ones we have. But right now, we'll talk about that. We'll likely add a couple and then see how we layer that in as we head into the 2026 going into 2027.

[Andrew Harmening, President, CEO & Director at Associated Banc-Corp]

We're in a good position where we can look twelve to twenty four months out and see what revenue forecast might be and then add to that in a very specific way.

[Christopher O'Connell, Director at Keefe, Bruyette & Woods (KBW)]

Great. Thank you. And last one for me, just given those comments and kind of the harvesting in the pipeline that you guys have over the next year and a half year. Any update, I guess, on timing or the glide path towards the mid teen medium term ROTC target? Is that something that given this momentum you think you'll be seeing in 2026?

[Andrew Harmening, President, CEO & Director at Associated Banc-Corp]

Chris, if I were asking that question, would have first said great job on hitting the NIM target of three plus percent. I would say way to go on the net charge offs being on track at less than 35 basis points. And you guys said you'd be at an efficiency ratio of 55 to 60. I see you hit it early. But I'm going to get to that fourth one and that's ROTCE.

[Andrew Harmening, President, CEO & Director at Associated Banc-Corp]

And we saw a pretty nice expansion in the last ninety days. We think as you continue to we believe in our strategy. We believe this remix is going to matter. We think the increase in granular deposits is going to matter. And we think that's going to drive NIM, which almost everyone has told us improve your NIM, we're improving our NIM.

[Andrew Harmening, President, CEO & Director at Associated Banc-Corp]

So as that happens, we believe that puts us over the next twelve months, twenty four months in a position to reach that target as well.

[Christopher O'Connell, Director at Keefe, Bruyette & Woods (KBW)]

Great. I appreciate it. Thanks for taking my questions.

[Andrew Harmening, President, CEO & Director at Associated Banc-Corp]

Sorry for re asking your question, Chris.

[Christopher O'Connell, Director at Keefe, Bruyette & Woods (KBW)]

All good. Thanks, Andy.

[Operator]

Thank you. There are no further questions at this time. I'd like to pass it back over to Andy for any closing remarks.

[Andrew Harmening, President, CEO & Director at Associated Banc-Corp]

Well, I'd just say thank you for your interest in the Associated Bank story and we look forward to continuing to tell it as the year goes on.

[Operator]

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Participants

Executives

• Andrew Harmening, President, CEO & Director
• Derek Meyer, EVP & CFO
• Patrick Ahern, EVP, Chief Credit Officer & President - Chicago Market

Analysts

• Daniel Tamayo, Vice President at Raymond James Financial
• R. Scott Siefers, MD & Senior Research Analyst at Piper Sandler Companies
• Terry Mcevoy, Managing Director at Stephens Inc
• Christopher O'Connell, Director at Keefe, Bruyette & Woods (KBW)