Associated Banc-Corp

Good afternoon, everyone, and welcome to Associated Bank Corp's fourth quarter 2025 earnings conference call. My name is Vaughn, and I will be your operator today. At this time, all participants are in a listen-only mode. We will be conducting a question and answer session at the end of this conference. Copies of the slides that will be referenced during today's call are available on the company's website 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 two, during the course of the discussion today, management may make statements that constitute projections, expectations, beliefs, or similar forward-looking statements. Associated's actual results could differ materially from the results anticipated or projected 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 33 and 34 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 Andy Harmoning, President and CEO for opening remarks. Please go ahead, sir.

Yeah, thank you for the introduction and good afternoon. Welcome to our fourth quarter earnings call. This is Andy Harming. I am joined once again by our Chief Financial Officer, Derek Meyer, and our Chief Credit Officer, Pat Ahern. I'll start off with some highlights from the fourth quarter and 2025 as a whole. From there, Derek will cover income statement and capital trends, and Pat will provide an update on credit. 2025 was a pivotal year for Associated Bank. In March of last year, we marked the completion of all major investments from phase two of our strategic plan. Those investments gave us strong momentum throughout 2025, and they positioned us for additional momentum in 2026 and beyond. We are growing and deepening our customer base organically and taking share in major metropolitan markets. We delivered our strongest year for organic household growth since we began tracking a decade ago, with net growth in all four quarters of 2025. We're growing and remixing our balance sheet simultaneously. In 2025, we added over $1.2 billion in relationship CNI loan growth, while steadily reducing our low-yielding, low-relationship value resi mortgage loan balances. And on the liability side, we added nearly $1 billion in core customer deposits during the year. And we're driving stronger profitability. Over each of the last three quarters, we set a company record for net interest income. We also saw strength in several fee income categories in the back half of the year. This enhanced revenue profile, combined with expense discipline and solid credit performance, helped us deliver the strongest net income in our company's history in 2025. To further enhance and accelerate our organic growth momentum, we announced an agreement to acquire American National Corporation in December. The transaction is financially attractive, but importantly, it also enables us to expand our organic growth prospects by providing entry into the vibrant Omaha market with the number two market deposit share and strengthening our position in the Twin Cities market where we already have momentum. We believe that Associated and American National are a natural cultural fit, and we look forward to welcoming American National employees and customers to Associated later this year. Further underscoring our commitment to organic growth, we're planning several additional investments in 2026 to accelerate momentum in multiple strategic growth markets, including the Twin Cities, Omaha, Kansas City, and Dallas. Our expectation is to maintain a growth and profitability focus while simultaneously managing our low risk profile. Credit discipline remains foundational to our strategy and our growth centers on high quality commercial relationships, and prime super prime consumer borrowers. We continue to manage our existing portfolios proactively to stay on top of any emerging risks. As we look into 2026, Associated Bank's momentum continues to build. We're excited about the future of this company and look forward to providing additional updates along the way. With that, I'd like to walk through our financial highlights on slide four. We reported earnings of 80 cents per share in Q4, and $277 per share for the full year. Total loans grew by another 1% versus the prior quarter and 5% versus Q4 of 2024. CNI has continued to be a primary growth driver for us throughout the year. We grew CNI loans another 2% in Q4 and added over $1.2 billion in CNI balances for the year. On the funding side, core deposits grew by nearly 4 customer deposits grew by nearly $700 million versus Q3 and nearly $1 billion versus Q4 of last year. Point to point, this represented a 3.5% growth rate, but on a quarterly average basis, core customer deposits were 5% higher in Q4 of 2025 versus Q4 of 2024. Shifting to the income statement, Q4 net interest income of $310 million set another record for the strongest quarterly NII in company history, And our NII was up 15% for the year. After posting strong quarterly non-interest income of $81 million in Q3, we posted another strong quarter of $79 million in Q4. Capital markets, wealth fees, and card fees all grew in the fourth quarter. And on an adjusted basis, total non-interest income grew by 9% versus 2024. Total non-interest expense of $219 million increased $3 million from the prior quarter. Delivering positive operating leverage remains a primary objective as we execute our plan. On the credit front, we remain pleased with asset quality trends. In Q4, our criticized loans decreased and our non-accruals dipped to 32 basis points of total loans. Net charge-offs decreased to just three basis points for the quarter and 12 basis points for the full year. And finally, Our return on average tangible common equity increased steadily throughout the year, finishing over 15% in Q4. On slide five, we want to take a moment to highlight how our strategic investments since 21 have transformed our return profile. First, after investing in talented RMs in major metropolitan markets across our footprint, we've grown CNI loans by over 50% since 2020. With pipelines remaining strong, and a few more non-competes set to roll off between now and the end of Q1, we expect our momentum to carry through 2026 in both commercial lending and deposit acquisition. As we continue to add relationship C&I loans to the books, they're replacing lower-yielding, non-relationship resi mortgage balances as they roll off. Since 2020, we've worked down our concentration of mortgage loans by over 10 percentage points. This ongoing mix shift is contributing to enhanced profitability. In 2025, we posted three consecutive quarters of record NII and a NIM north of 3 percent for the year, 50 basis points higher than 2020. While we've invested significantly to transform the growth profile of the bank, we've remained disciplined on the credit front, and our net charge-off rate has remained below our medium-term target of 35 basis points. We've also managed our expense base in a disciplined way to support revenue expansion, positive operating leverage, and enhance profitability. As a result, our adjusted efficiency ratio decreased by over 700 basis points from 2020 to 2025, and our ROTC increased to 13.6% in 2025. In Q4 of 25, our ROTC climbed above 15%. So as you can see, our strategic investments from Phase 1 and 2 are having a meaningful impact on the strength and return profile of our companies. We believe the momentum from these investments will carry well into 2026. With that said, we also see additional opportunities to incrementally build on our momentum in 2026. On slide six, we've already proven through our strategic plan that we can grow in legacy major metro markets like Milwaukee and Chicago. The investments we've made bolster market leadership, add talented RMs, enhance our value proposition for consumers and small businesses, and amplify our brand presence are having a clear impact. Over the course of the past two years combined, we've driven double-digit deposit growth, double-digit C&I loan growth, and household growth that's outpaced population growth in both markets. Milwaukee and Chicago are great markets for us, and we see plenty of additional growth opportunities in those markets going forward. But we also see opportunities to double down and duplicate our success in several other attractive metropolitan areas, with strong growth characteristics. In the Twin Cities, we already have a solid retail presence, and we've built a very strong commercial team under the guidance of our head of corporate banking, Phil Trier, and our new market president, Mike Labins. We're also planning to move into our new regional headquarters in the heart of downtown Minneapolis in March. The acquisition of American National is expected to deepen our presence in that market, giving us a top 10 pro forma deposit market share. The American National Deal also gives us entry into the attractive Omaha market, with stronger population growth and median household characteristics than both the Midwest and national averages. Our number two pro forma deposit market share gives us scale, and our product set and marketing engine provide meaningful opportunities to both deepen and grow relationships post-close. On the commercial side, we've added a small team in Kansas City in March of last year, That's a market our management team knows well, and we brought in talented, experienced group of bankers who had the tools to hit the ground running. In fact, the team is off to such a strong start that we see opportunities to double down and drive additional momentum there. Dallas is also a market our management team knows well. Associated has had a CRE office in the market for roughly a decade, but we now see opportunity to replicate the success we've had in Kansas City and with the addition of CNI presence in the Lone Star State. Moving to slide seven. We're going to accelerate organic growth in these major metropolitan markets through two categories of investment in 2026. First, we've created a best-in-class value proposition for our customers with a combination of digital and product upgrades. And we've had success growing and deepening primary checking households through acquisition-focused marketing. In 2026, We're doubling down on the success to accelerate household growth in major metropolitan markets. Specifically, we're planning to increase acquisition-focused marketing spend in the Twin Cities and Omaha by over 100% between the two markets combined. The total marketing acquisition spend across all markets will increase by 25%. Through these actions, we're confident we can deliver stronger household growth in our major metro markets in 26 and 27, which we expect will translate to stronger household growth for the bank overall. As we grow primary checking households across the bank, this drives additional deposit growth, but it also brings additional fee income. On the commercial side, we've invested significantly in recent years to hire talented RMs who can gather relationship loans and deposits across our footprint as we look to remix both sides of our balance sheet. This remix is already well underway. Since 2020, C&I loans are up 50%, or over $4 billion. To build on this momentum, we're announcing another wave of selective RM hires in the Twin Cities, Kansas City, and Dallas, where we see attractive growth opportunities. We expect to add approximately five more RMs in the Twin Cities, two in Kansas City and four in Dallas, which equates to a 10% increase in overall RMs bank-wide. We expect these actions to help us drive approximately $1.2 billion of relationship CNI growth across the total bank in 2026. In 2027 and beyond, we expect to continue adding talented RMs to drive sustainable, high-quality commercial growth. On slide eight, we highlight our quarterly loan trends through Q4. Total loans grew by 1% on both an average and a period-end basis in Q4, As expected, C&I led the way with over $200 million in balances during the quarter. Auto balances grew by another $65 million in Q4, as we've continued to selectively add high-quality balances to our book. Total period end CRE balances dipped by $88 million versus Q3 due to elevated payoff activity. We expect elevated CRE payoff activity to linger in the coming quarters. On slide nine. We show an annual view of loan trends. In this broader view, you can clearly see the growth and remix story that has been in progress since 2021. We've decreased our concentration of low yielding non-customer resi mortgages and diversified into higher quality, higher return categories like C&I and auto. We've also grown total loans by nearly 30% over this time without abandoning our disciplined approach to credit. In 2025, Total loan growth was once again led by CNI, where we achieved our $1.2 billion growth target for the year. With pipelines remaining strong and additional lift expected as our last few non-competes roll off, we expect continued momentum in CNI into 2026. As such, we expect CNI loan growth of 9% to 10% in 2026. At the top of the house, we expect total bank loan growth of 5% to 6% for the year. Both growth figures are on a standalone basis, excluding the impact of American National. Shifting to slide 10. We added nearly $700 million in core customer deposits in Q4 after adding over $600 million in Q3. In Q4, our growth was once again spread across most categories, with customer CDs being the only category that decreased. This core deposit growth enabled us to work down our wholesale funding balances by 1% in Q4. including a $161 million decrease in broker CDs. On slide 11, we show a broader annual view of deposit trends. We've consistently grown our deposit base on an annual basis, and after adding $1.2 billion in core customer deposits in 24, we added another $1 billion in 2025. On a percentage basis, period end core customer deposits grew 3.5% relative to 2024. This number was influenced by seasonal flows in a couple larger accounts that impacted balance flows at the tail end of 2025. That being said, core customer deposits still grew by 5% on a quarterly average basis from Q4 of 24 to Q4 of 2025. As we look to 2026, we're bullish on our ability to drive incremental core customer deposit growth thanks to the best-in-class consumer value proposition. household growth momentum supported by increased marketing, acquisition spend, and growth markets, and significant momentum in our commercial deposit gathering capabilities. As such, we expect core customer deposits to grow by 5% to 6% for the year, excluding the impact of American national acquisition. With that, I'll pass it to Derek to discuss our income statement and capital trends. Derek.

Thanks, Andy. I'll start with yield trends on slide 12. Within the major asset categories, the yields of our largely floating rate CRE and commercial books decreased by 24 basis points and 27 basis points respectively in Q4. Auto and investment yields also saw slight decreases. These decreases were modestly offset by a slight uptake in the yield for a largely fixed rate resi mortgage book. Total interest bearing deposit costs decreased by 17 basis points in Q4 and are down 49 basis points since Q4 of last year. In Q4, Total earning asset yields decreased 16 basis points to 5.34%, while total interest bearing liabilities decreased 21 basis points to 2.82%. Moving to slide 13, third quarter net interest income of $310 million increased $5 million versus the prior quarter and $40 million versus Q4 of 2024. Our net interest margin increased two basis points to 3.06 for the quarter, As compared to the same period a year ago, our NIM increased 25 basis points. In 2026, we expect to drive net interest income growth to between 5.5 and 6.5 percent. This forecast assumes two Fed rate cuts in 2026 and excludes any impact from the American national acquisition. On slide 14, we provided a reminder of the steps we've taken to put ourselves in a more neutral interest rate position and protect against rate changes and other external factors. We're maintaining repricing flexibility by keeping our funding obligations short. We're protecting our variable rate loan portfolio by maintaining received fixed SWOT balances of approximately $2.45 billion. And we built a $3.1 billion fixed rate auto book with low prepayment risk. While we're still modestly asset sensitive, a down 100 ramp scenario represents less than a 1% impact to our NII as of Q4. We expect to maintain this relatively neutral position going forward. Moving to slide 15, total investment security balances grew to $9.3 billion in Q4. Our securities plus cash to total assets ratio climbed to 24.3% to the end of the year, but we continue to target a range of 22% to 24% for this ratio. Slide 16 highlights our non-interest income trends for the quarter. After posting $81 million in non-interest income in Q3, we followed that up with another strong quarter in Q4. Total non-interest income of $79 million was down $2 million from the prior quarter but was up $8 million from our adjusted Q4 2024 number. Our strong Q4 was supported by additional growth in wealth management fees, card-based fees, and capital markets. As we continue to grow our customer base and deepen relationships across the bank, those trends are beginning to flow through in our core fee businesses. While quarterly results in an area like capital markets can be lumpy, we're confident in our ability to drive non-interest income higher over time. As such, we expect non-interest income to grow by 4% to 5% in 2026, excluding any potential impacts from the American national acquisition. Moving to slide 17, Q4 expenses came in at $219 million, 2% higher than the prior quarter. The quarterly increase was primarily driven by a $3 million increase in equipment expense, along with a $1 million increase in variable comp expense and $1 million of severance as we continue to execute against our strategic plan and set ourselves up for a productive 2026. These increases were partially offset by a $3 million decrease in FDIC assessment expense, following another adjustment to the special assessment and a $1 million decrease in overall personnel expense. Throughout the year, we continue to invest in the growth of our franchise, but delivering positive operating leverage has remained the top priority along the way. After steadily decreasing over the course of the year, our efficiency ratio held at 55% in Q4. In 2026, our expense philosophy remains the same as it has each year since Andy arrived. We're going to invest in the future growth of the company while finding ways to offset these investments with cost reductions in other areas. With this in mind, we expect total non-interest expense growth of 3% in 2026, excluding the impact of the American national acquisition. On slide 18, capital ratios increased across the board once again in Q4. Our TCE ratio increased to 8.29%, up 11 basis points versus Q3, and 47 basis points versus Q4 of 2024. Our CET1 ratio increased to 10.49%, a 16 basis point increase relative to the prior quarter, and a 48 basis point increase versus the same period a year ago. We've also seen consistent expansion of our tangible book value per share, with Q4 coming in above $22 per share. This represents a $0.65 increase versus Q3 and a $2.30 increase versus the same period a year ago. I'll now hand it over to our Chief Credit Officer, Pat Ahern, to provide an update on credit quality.