Associated Banc-Corp Stock

Good afternoon, everyone, and welcome to Associated Bancorp's Third Quarter 2026 earnings conference call. My name is Sherry, and I will be your operator today. [Operator Instructions] Copy of the slides that will be referenced during today's call are available on the company's website at investor.associatedbanc.com. As a reminder, this conference call is being recorded.

As outlined on Slide 2, during the course of this discussion today, management may make statements that constitute projections, expectations, beliefs or similar forward-looking statements. Associated 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 and 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 our conference call. Please refer to Pages 26 and 27 of the slide presentation and 2P 10 and 11 of the press release financial tables.

Following today's presentation, instructions will be given for a question-and-answer session. At this time, I would like to turn the conference over to Andy Harmening, President and CEO, for opening remarks. Please go ahead, sir.

Well, good afternoon, and welcome to our third quarter earnings call. I'm Andy Harmening, and I'm joined by our Chief Financial Officer, Derek Meyer; and our Chief Credit Officer, Pat Ahern. I'll start with some highlights for the quarter. From there, Derek will cover income statement and capital trends, and Pat will provide an update on credit quality.

Across the bank, we remain squarely focused on attracting and deepening relationships as a means to drive sustainable organic growth, remix our balance sheet, enhance profitability and improve our return profile. Through the third quarter, we've maintained our momentum.

We're improving our profitability by growing and remixing our loan portfolio. We overcame elevated payoffs in Q3 and grew relationship commercial loan balances while continuing to work down low-yielding non-relationship [ resi ] mortgage loans and recent pipeline trends give us confidence in sustainable growth trajectory.

We're growing our customer base and funding loan growth primarily with core deposits. We've grown our customer household base for 7 consecutive quarters. And in Q3, we posted nearly $700 million in core customer deposit growth, a 2% increase versus the prior quarter. This growth helped us reduce wholesale funding during the quarter.

Our ability to fund our growth with customer deposits is driving expansion of both net interest income and margin. In Q3, our net interest income increased by $7 million, while our net interest margin expanded by 3 basis points to 3.2%, our second best quarter in over a decade. And our focus on relationship deepening is also contributing to emerging noninterest income growth.

In Q3, we posted total noninterest income of $87 million an 8% increase versus the prior quarter, with broad-based improvement across several fee categories. Combined with disciplined expense management and stable credit trends, our third quarter results or further illustration of a model that's repeatable and sustainable.

As a result of our improved profitability profile, we can now support growth and contemplate other uses of capital simultaneously. With that in mind, we're pleased to return capital to our shareholders with $100 million in share repurchases during the quarter. The first major share buyback we've executed since I joined the bank in 2021.

We expect to execute on the remainder of our existing repurchase authorization here in the fourth quarter. With that said, organic growth remains our primary focus. Earlier this month, we reached an important milestone by completing the systems and branch conversion of American National Corporation.

With nearly 150,000 loan and deposit accounts branches, 80 and 70 ATMs converted over the course of a 3-day weekend, reaching this milestone took months of planning, collaboration and care from colleagues across our bank. From preparing systems and processes to helping customers and teams navigate change their focus and dedication made this milestone possible.

I'd like to congratulate the project team and thank our colleagues transitioning from American National Bank who have taken the change in stride. This partnership gives us a powerful lever to attract and deepen relationships in markets like Omaha for the Twin Cities and beyond. And I'm excited for what we will continue to accomplish together as one associated bank team.

As we've discussed previously, our leadership team is currently finalizing plans for the next wave of strategic initiatives to sustain our growth momentum into 2027 and beyond. With areas of focus, including growing our customer base, competing in major metro markets, outperforming and deposit gathering, driving relationship commercial growth, remixing the balance sheet expanding margins and improving our return profile.

We look forward to sharing additional details in the coming months. In summary, Associated Bank is on an upward trajectory with a proven plan to drive sustainable growth over time. And as always, our growth will be balanced with a conservative approach to expenses, credit and risk management that serves as the foundation of our company.

With that, let's walk through our third quarter financial highlights, beginning on Slide 4. We reported GAAP EPS of $0.76 in Q3 or $0.81 after adjusting for nonrecurring acquisition costs recognized during the quarter. Total loans of $36.5 billion grew by $53 million versus the prior quarter. We were faced with elevated payoffs in our commercial business during the quarter, but pipelines remain strong, and we remain confident in both our full year loan growth outlook and the sustainability of our growth strategy more broadly.

Core customer deposits grew by 2% during the quarter, driven by a combination of organic growth initiatives and seasonal inflows. This growth in customer deposits helped us reduce our wholesale funding levels in Q3. Shifting to the income statement. Q3 net interest income increased $7 million or 2% versus the prior quarter. while our net interest margin expanded by 3 basis points to 3.2%.

Noninterest income also increased by $7 million versus the prior quarter, led by growth in capital markets, asset gains, service charges and deposit account fees and other fee-based income. Total noninterest expense of $260 million decreased by $12 million versus the prior quarter. Our Q3 expenses included $13 million in onetime expenses tied to the American National acquisition which was down from $24 million recognized in Q2.

Capital trends remain solid. Credit trends remained solid with $14 million of provision, a 2 basis point decrease in our ACL ratio, a decrease in criticized loans and 19 basis points of annualized net charge-offs recognized during the quarter. Finally, we executed on $100 million in share repurchases during the quarter and finished with an adjusted ROTCE ratio north of 15%.

On Slide 5, we reiterate the core elements of our organic growth strategy and why we expect to sustain our momentum into 2027 and beyond. First, we put in more than 5 years of work to build an organic growth engine that focuses on attracting and deepening relationships as a means to grow and remix both sides of our balance sheet.

We bolstered leadership across all areas of the organization set ourselves up for growth. We've modernized our digital banking experience, enhance our product set, improved our marketing acquisition capabilities and developed a successful mass affluent program.

All of which are key to growth, particularly in major metro markets. As a result, we've turned a shrinking customer base into a net growth story with 7 consecutive quarters of net growth in customer households. As we grow these primary relationships, it's also translated into deposit growth, fee growth and other business.

And in commercial, we've increased RMs by nearly 50% in key metros sharpened our relationship focus across the team expanded our offering with new verticals and deposit gathering capabilities and launched new and C&I offices in Kansas City and Dallas with very promising initial results.

In addition to loan growth, we're collaborating to drive deposit growth, TM, capital markets, HSA and other business in a steady increasing manner. And as we've discussed previously, the renewed focus on relationships and collaboration across the bank presents natural connections into private wealth.

To facilitate this connectivity at the local level and across the footprint, we've added several talented executives to our private wealth leadership team, upgraded our product suite and are currently working through additional enhancements to the digital experience for wealth clients.

Shifting to the middle of the page, the American National Partnership has been as advertised, serving as a natural complement to our organic growth story. Going forward, we see a significant opportunity to pair American National's strong legacy in Omaha a Twin Cities with associated proven model to track and deepen relationships in metro markets.

This gives us another level to drive organic growth into 2027. And finally, in order to sustain our growth momentum in the future, our leadership team is currently mapping out what we want the next 3 years to look like for associated.

While we're still finalizing our plans, you can expect the continuation of the sustainable organic growth that has become a defining characteristic of our company, a focus on growing our customer base, competing in major metro markets.

Outperforming in deposit gathering and commercial loan growth, remixing the balance sheet, expanding margins and improving our return profile. We look forward to sharing more details in the near future. On Slide 6, we highlight our quarterly loan trends through Q3.

Average quarterly loans grew by 1% as we continue to remix the balance sheet by driving growth in commercial categories and working down our lower-yielding noncustomer resi mortgage balances. We have previously mentioned that the torrid pace of C&I growth in the first half of the year was expected to slow somewhat in the back half.

In Q3, our underlying C&I production was solid, but balance flows were impacted by an elevated level of payoffs and paydowns. We remain confident in the overall trajectory of our C&I business due to the strong trends we continue to see in our commercial pipelines, which are up nearly 40% versus the same period a year ago.

CRE was a similar story where the team drove high-quality relationship loan production that outpaced elevated payoffs during the quarter. We continue to expect elevated payoffs in CRE in the near term, but our team is among the best in the country at growing high-quality relationship business with proven players across our markets. For the combined company, we continue to expect period-end loan growth of 18% to 20% in 2026 and C&I loan growth of 20% to 22% as compared to associate stand-alone results for the year ended December 31, 2025.

On Slide 7, core customer deposits grew by 2% versus the prior quarter driven by a combination of seasonal inflows and our efforts to drive sustainable relationship deposit growth across the bank. During the quarter, we saw growth across most key markets. led by nearly $400 million of growth in the interest-bearing demand category.

This growth in customer deposits helped drive a reduction in our wholesale funding levels during the quarter. We continue to expect 2026 period and total deposit growth of 17% to 19% and period-end core customer deposit growth of 19% to 21% as compared to associated stand-alone results for the year ended December 31, 2025.

And with that, I'll pass it to Derek to discuss our income statement and capital trends.

Thanks, Andy. I'll start with yield trends on Slide 8. During Q3, overall asset yields improved by 2 basis points with slight increases in commercial and business loans, investments and resi mortgage loans, partially offset by slight decreases in CRE and auto.

On the other side of the balance sheet, total interest-bearing deposit costs have remained largely flat throughout 2026 and we finished the third quarter at 2.46%. More broadly, total interest-bearing liability costs increased by 1 basis point to 2.67%. On Slide 9, third quarter net interest income increased by $7 million from prior quarter to $377 million.

After posting a 14 basis point increase in our net interest margin in Q2 an increase largely driven by the addition of American National to our balance sheet and the resulting purchase accounting accretion, our margin expanded by an additional 3 basis points in Q3 to finish at 3.20%. This Q3 increase came despite a reduced accretion benefit during the quarter, a reflection of our efforts to grow and remix our balance sheet simultaneously.

We continue to expect total 2026 net interest income to grow by 19% to 21% as compared to associated stand-alone results for the year ended December 31, 2025. Given recent volatility in the rate environment, Slide 10 provides a reminder of the steps we've taken to put ourselves in a more neutral interest rate position.

We're keeping our funding obligations short to remain -- to maintain repricing flexibility -- we're protecting our variable rate loan portfolio by maintaining a received fixed swap balances of approximately $2.45 billion, and we're maintaining a $4 billion fixed rate auto book with low prepayment risk.

An up 100 ramp scenario now represents a 1.8% impact to our NIM as of Q3, while a down 100 scenario now represents a 1.1% impact. We expect to maintain this relatively neutral position going forward. Moving to Slide 11. Total investment security balances finished at $10 billion in Q3, down slightly from the prior quarter.

Our securities plus cash to total assets ratio finished at 22.6% as of Q3, down slightly relative to the prior quarter, but squarely in line with our target range of between 22% and 24% for the year. We expect to stick within that target range going forward. Next, I'll walk through noninterest income trends on Slide 12. Total noninterest income of $87 million was up 8% from prior quarter and up 7% from the same period a year ago. The increase was broad-based but was led by capital markets and asset gains.

We also saw growth in service charges and deposit account fees and card-based fees, while wealth management fees remained stable versus the prior quarter. Year-to-date through September, we've seen encouraging trends to start emerging wealth management, capital markets and several other fee income categories that are influenced by our efforts to attract and deepen relationships across the bank.

Additionally, as we've discussed previously, American National is not historically focused on wealth management and capital markets, so we see additional opportunities in those areas as we get into 2027. In 2026, we now expect total noninterest income growth of 12% to 14% as compared to associated stand-alone results for the year ended December 31, 2025.

Moving to Slide 13. Total noninterest expense of $260 million decreased by $12 million versus the prior quarter as we saw increases in technology, occupancy and FDIC assessment costs more than offset by decreases in personnel, legal and professional and other expense categories.

During the quarter, we recognized $13 million of nonrecurring costs in connection with the American National acquisition, a decrease from the $24 million recognized in Q2. Year-to-date, we've recognized $39 million in acquisition-related expenses, and we now expect the total amount of acquisition-related expenses to land at approximately $48.5 million a reduction from the $52.5 million forecast we shared in July.

We expect all remaining acquisition-related expenses to be recognized by the year-end of 2026. As we move forward, we will continue to invest in the growth of our franchise, but we're anchored on delivering positive operating leverage.

Based on our latest forecast, we now expect noninterest expense to grow by 19% to 20% in 2026 as compared to associated stand-alone results for the year ended December 31, 2025. This figure includes nonrecurring costs incurred as part of the American National acquisition.

Shifting to Slide 14. We are pleased to execute $100 million of share repurchases at a weighted average share price of $3.88 in the third quarter. Our CET1 ratio finished at 10.38%.

This figure was down 9 basis points from the prior quarter, but up 5 basis points relative to Q3 of 2025. Our TCE ratio was down 24 basis points from the prior quarter and down 15 basis points from the same period a year ago, landing at 8.03%.

Our tangible book value per share finished at $21.67 and $0.48 lower than the prior quarter but up $0.31 relative to Q3 of 2025. Going forward, we expect to maintain our CET1 target range of between 10% and 10.5%.

We I'll now hand it over to our Chief Credit Officer, Pat Ahern, to provide an update on credit.

Thanks, Derek. I'll start with an allowance update on Slide 15. Our CECL forward-looking assumptions utilized the Moody's August 2026 baseline forecast. Forecast remains consistent with a resilient economy continuing a more optimistic GDP outlook despite increasing concerns of energy market disruptions, elevated levels of inflation for longer and a restrictive monetary policy.

In Q3, our ACLL decreased by $4 million to $491 million, with the decrease driven by an equal mix of loan growth and normal credit movements. Our ACL ratio as a percent of total loans decreased to 1.34%, down 2 basis points from the prior quarter and flat versus Q3 of 2025.

On Slide 16, key credit quality metrics have remained solid through the third quarter. Total delinquencies increased relative to the prior quarter and the increase was not was driven that by credit quality issues, but by the temporary impact of a systems conversion of our auto portfolio, requiring a segment of customers to reenroll in ACH payments.

The vast majority of these customers had never been laid on their payments, and we are actively working with them to complete the reconnection process. This process is moving quickly with the expectation of normalized delinquency levels in the near term.

Nonaccrual balances increased by $183 million in Q3, up $33 million versus Q2. And the vast majority of the increase was driven by the reclass of a $30 million C&I credit following the recent SNC exam. We remain comfortable with the underlying asset quality and full resolution of that specific credit and our nonaccrual trends were essentially flat otherwise.

And despite the increase in nonaccruals, total criticized loans still decreased by 7% and or $121 million versus the prior quarter. Q3 net charge-offs of $18 million were down 24% or $6 million versus the prior quarter, and we posted a net charge-off ratio of just 19 basis points for the quarter.

And finally, we booked $14 million of provision in Q3, down $5 million from the prior quarter and down $2 million from Q3 of 2025. In summary, we continue to feel comfortable with the credit performance of both our core portfolio and the credits inherited from American National.

With that said, our teams remain vigilant in reviewing our portfolios and staying in regular contact with customers to stay ahead of any emerging risks. We also remain diligent in monitoring credit stressors in the macro economy to ensure current underwriting reflects the impact of ongoing inflation pressures, shifting labor markets, tariffs and other 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 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.

Thanks, Pat. On Slide 17, we provided an update to our outlook following a Q3 marked by continued organic momentum, deposit growth, margin expansion, enhanced profitability and an improving return profile.

We are well positioned to finish this year strong and look forward to providing additional color on our expectations for 2027 and beyond on our fourth quarter earnings call in January. With that, let's open it up for questions.

[Operator Instructions] Our first question is from Casey Haire with Autonomous Research.

Wanted to start on Slide 5, the strategic plan. So just some of the initiatives obviously look like they're going to put some pressure on the expenses next year. I know we're not -- it's too early for 2027, but just broad strokes is positive operating leverage still the goal for next year even with all these investments on the come? .

Yes, Casey. I mean, always a good question. I would say a couple of things to that. This -- we're going to come up with a really creative name for this third plan. It's going to be called Phase I and in Phase I and Phase II, we got the same question on expenses.

And I think probably the best indicator of future results is what you've done. And so I look at Phase 2, that's wrapping up in 2026. And we had a ROTCE target of mid-teens. We've achieved that. We had a margin expectation of 3% plus. We achieved that. We had an efficiency ratio target of 55% to 60%.

We're operating at an adjusted efficiency ratio of 51%. Net charge-offs target of less than 35 basis points were well under that and having positive operating leverage. You can probably expect some of the similar categories. And the way that we approach any new initiative, even the fancy name Phase II is we'll go into our expense base, and we will find.

We'll make difficult decisions on where to cut in order to reinvest to drive our profitability profile. So the answer is that we will have -- we will expand on what we know which increases the certainty of execution. One of those key points will be looking at expenses, driving those down to reinvest in areas that we've proven in the past, we can get results.

Okay. Great. And then just switching to capital. So it sounds like you're going to exhaust the remaining $100 million in the fourth quarter here. But just looking ahead, I know you guys are within your CET1 range. But does -- do you guys manage to the TCE ratio.

Just wondering, with that at 8% and more rate hikes coming, is that -- is there a level there that you want to hold to as you contemplate buybacks in the 27?

Yes. The short answer to that is no. We're managing to our CET1 at $10 to $10.75 and the reason that we're comfortable with that range is because we have a conservative risk profile.

And we have an ACLL that's at the peer median with the risk profile that's lower than that. So we put ourselves in a pretty good position there. And so that's how we've operated.

That's how we expect to operate I don't know if you have any further comments, Derek, on TCE or not.

No, I think you said it well, we're trying to get our rate to where it should be and the binding constraint for us as we do that is look -- and we've been reinvesting our securities portfolio pretty short so that any AOCI risk is relatively low anyways, even though that's not included in our CET1.

Our next question is from Daniel Tamayo with Raymond James.

Daniel, maybe just starting on the credit side. So criticized loans were down, which is nice to see NPLs were up a bit. Curious if you see any of that increase on the NPLs flowing through on near-term charge-offs? And maybe just kind of a reminder if everything still seems the same? Or any update on the credit outlook. .

No, we don't see any near-term things flowing through the charge-offs. We remain -- the increase this quarter, something we were already kind of in discussions with, with clients. So we feel good about that resolution. And then as far as the outlook overall, we feel pretty confident in how we're looking at right now and the continued trajectory of the metrics.

Okay. Great. And then maybe, Andy, for you on the new markets, any color on kind of early trends from a balance sheet growth perspective in terms of what the they're putting up. And just curious how the kind of the pricing out there from a loan deposit perspective compares to your -- the rest of your portfolio, your footprint?

Yes. Well, you're asking probably 1 of the most impatient CEOs in America, what trends he sees, which is pretty funny because I've been asking that question 8 days in to the systems conversion.

And in the way too early trend category, what I would say is I'm really, really pleased with what we've done on the consumer side of the bank.

And just a quick answer is we're almost fully activated on our debit card portfolio to what their activation level was pre conversion, and that happened in a week. And so as that -- what that means is then you have the people that want to get in digital banking logging in already.

And the most interesting stat that I've seen is more of a precursor into 2027. My question is on account opening, what happened immediately. So you're going through a conversion. You're getting a lot of questions.

We're issuing debit cards. You have people coming in, in the first 7 days and lo and behold, the number of checking accounts we opened in the first 7 days versus a period from June to August was up 121%. And so I can't take that number and forecast 2027, but in the category of welcome surprise.

We have a consumer bank that just has products and services that are significant, layering it on top of a team that was ready for it with a conversion that quickly got people up and running and activated on digital and on their debit cards. So the very, very early answer to that is we were excited about Omaha. There is reason to be excited. We will invest in Omaha.

We will invest from a charitable standpoint. We will invest from a marketing standpoint. We will invest from a people standpoint. And so we'll let the dust settle here over the next 30 days as you should, for any conversion but the very early indication to me is it's what we had hoped it is would be for us.

And also -- sorry, the Dallas and Kansas City markets. I know it's really early in Dallas, but Curious if there's anything you could tell us there?

Yes, we're booking loans in Dallas, and that's a good sign. That means that the people that we brought over are consistent with what our strategy has been, which is we bring seasoned bankers.

We're not training them how to be bankers. They're very good they're opting for us, and they have followings on the customer and community side. So if you don't have to introduce somebody to the community, you can immediately get down to business, and that's what they've done there.

Kansas City they've exceeded every projection we've put out for them. And we hired there, and we say it's early. It's not even early in Kansas City anymore. We're almost 2 years into that is, frankly, 1 of the strongest teams that we have.

And I would say, 1 of the strongest teams in that market. And I couldn't be more pleased with what they do and how they do it. So those 2 early indicators to us tell us that we can move into major metropolitan markets. We have a blueprint for it, and it's really key on hiring people.

Those people are going to want to know that we have capabilities that allow them to go to market. So when we come out with our strategic plan in the first quarter, you can count on seeing increase in infrastructure on treasury management so that we can compete with regional and national players.

We also just are completing this coming weekend, our transition to a new commercial platform as well, which allows us to plug additional capabilities into it. So feeling pretty good on the 2 markets and really feeling good about our leadership team in commercial across the company, including in the Omaha market with our new market President, Jason Hansen.

Our next question is from Terry McEvoy with Wells Fargo.

Maybe first question, is the 18% to 20% loan growth range, largely a function of uncertainty around the timing and magnitude of loan payoffs? And then maybe while you're thinking about loans. Could you just expand on kind of commercial loan pipelines and overall business sentiment among your customers? .

Yes. I'm not sure that I caught uncertainty on payoffs. What I would say is on the -- just starting with the big picture on loans, we're in a very good place, regardless of some Q3 company sales that it payoffs we'd be at the top of the original ASP guide.

We're very likely to meet the full bank guide. And we're growing in areas that are allowing the remix and an increased profitability profile. The commercial pipeline we pressure test this and we look at this from a dollar amount and overall commitment amount.

We look at it from a funded debt standpoint, and so when I say it's around this, I try to be conservative and it's a little hard to believe. But the pipeline is up 36% to 40%, it could even be higher if we look at funded cape opportunity.

So what we're finding is a customer base and a community base that is seeing good business results and they're starting to convert on that. When we look at CRE, that's a really interesting one.

We were up 50% in production this year year-to-date roughly. We're up roughly 50% in payoffs, which so is the industry and think good as we are. That means deals are flowing through. But when you increase that production, half of that is construction lending.

So our unfunded construction commitments are up as well. When you net all that out, it means we have a pretty good view into the next 12 months that we're going to grow. And we believe that we'll grow responsibly in the low to mid-single digits in CRE. So good pipeline in commercial, good unfunded construction balances with an increase in production to quality borrowers and so when I look at that, Terry, that's -- does it happen in November, early December, January 2, I don't know.

But I will say that we feel pretty strongly we can achieve in the range that we have. And we have a durable, sustainable period coming after that.

And then just as a follow-up, just curious, average noninterest-bearing deposits look to be about $500 million kind of above the period end. And I'm just curious, is that timing related? Am I reading too much into it because it did catch my eye.

Yes. This is Derek. So I would say all of our non maturity deposits are growing nicely. And both this quarter and looking into the next quarter, that's where you see most of the growth, including in noninterest-bearing. .

So that's been a strong story for us the back half of the year, both from a production standpoint and a tailwind standpoint, and it supports our outlook on NIM also.

Our next question is from Brandon Rud with Stephens, Inc.

If I could start on the expense guide. I'm just kind of backing into kind of what that implies for the fourth quarter here. And it seems like that suggests fairly large step-up in expenses from 3Q to 4Q. I guess, one, am I reading that correctly, 5%, 6% or so. And I guess, what's driving that?

So the -- we had an OREO recovery in third quarter that was -- that may have affected what you're looking at. But overall, we're within our guide and we'd expect to be.

Got it. Okay. And then maybe just on the NIM, the good core expansion here in the third quarter. Just maybe your expectations for that going forward. given the strong trends on the deposit side and the loan side as well?

Yes. I think our story is staying the same, that we started before the acquisition, then we took a nice step up with the acquisition, and we expect to continue after the acquisition, which is a basis point 1/4 of organic expansion.

We expect to do that in spite of runoff of the accretion. And so we believe that's a reflection of our business model working and the sustainability of it overall. So that's -- that's how we're thinking about it.

And we think planning that way and relying on organic growth to drive our outlook so that we can invest in a responsible way and drive operating leverage is the winning formula for us.

And Brandon, just some color behind that. It is the same idea that we've had for a few years now, but we continue to get sustained performance behind it.

So if you look behind that, what I would say gives me some comfort that we can continue on is 7 consecutive quarters of growing our customer base.

I looked at TM sales this week Year-to-date, our treasury management sales are up 37% from the same period the prior year. We don't get rich on TM sales however, that's a good indication. We're talking about liquidity management. And that's where I'm starting to see a real movement in our commercial team and what they're doing.

We have one of the largest HSA businesses in the country. We have fed that business and we've had either high single digits or double-digit growth in deposits in that pretty regularly for the last 5 years.

So as we look to continue to invest in what we're doing in those categories, we have very good stable momentum going into the year-end.

And likely additional initiatives that will kind of feed to that. I know that's a long way around town when you talk about NIM. But for us, funding and deposit funding is something that is significant. They are not new strategies, and they're proving to be repeatable.

Our next question is from Jared Shaw with Barclays.

I guess sticking with the deposit conversation, maybe looking at time deposits, you had some good pricing declines there, given the rate environment. How are you thinking about pricing time deposits? And can you give us an update on what's coming due and sort of the roll-on roll-off impact of that?

Yes. So the way we're thinking about it, is we're -- this quarter and next quarter, we don't see that as a key driver of our deposit growth. So while the pricing is a little bit below, our back book is a little bit below the marginal rates you see now.

So I think we're under 4 in the promotional rates that are out there are all over for. That rollover is not going to drive a lot of our NIM going forward. Most of it is -- most of our growth in fourth quarter, again, is non maturity deposits and interest-bearing demand deposits are is the biggest chunk of that.

So that's going to outpace any role pricing impact on the CD book for the rest of this year, and then we'll give a fresh view next year.

As we look at that dynamic of growth with good growth coming from non maturity deposits, how are you thinking about the cumulative beta through the cycle then if the structure of funding has improved, should we expect that betas could be better this time around? .

Right now, we're about 55%. I still think we're -- it's still going to roll around between 52% and 57% but as you know, even watching the competitive environment or the interest rate environment like we saw today versus a couple of weeks ago, I don't want to get too anchored on an outlook with the macro environment changing so much. What I do have a lot of confidence in is that we can offset that pricing with our asset pricing and still get improving deposit -- overall margin.

Okay. And if I could just sneak one more on capital markets. Should we expect that growth in that line is a little more stable and steady now given some of the success you're saying you're having with treasury management and other areas. How should we think about capital markets going forward?

Derek, do you know that's a yes and their question, right? I mean, you can have a lumpy quarter. But when we look year-to-year, I would expect to continue to see progress on that.

You can get a nice deal in there that gives it a pop but as we've added commercial bankers as we continue to believe we can, as we've expanded into the Omaha market where they don't have it, it's certainly my expectation that year-over-year-over-year will continue to get better. improving capital markets.

But I would be very careful to predict quarter-by-quarter in that category.

Jared, if we think about it as we should have higher highs and higher lows out of that category. .

I could have saved time by just saying that,

Our next question is from Nathan Race with Paper Sandler.

Just going back to the deposit discussion. To get to the guide for the full year, that implies a decent ramp in the fourth quarter. So just curious kind of apart from the momentum you guys described in terms of new client acquisition, household growth and so forth.

Is there any other seasonality we should be thinking about into the fourth quarter to help on the deposit growth front. And to that end, I mean, how much more do you expect kind of wholesale funding to come down after some good success on that front over the last couple of quarters?

I think the end of the fourth quarter is really where you see a lot of our seasonality kick in, which also gives us relief on the wholesale funding. And that comes through, again, in the non maturity deposits, both on the wealth side and the commercial side.

And Nathan, in the early quarters, we often show a year-over-year growth in deposits, so we don't get confused. We don't just benefit from seasonality from same period prior year, we've been squarely in the 5% to 6% growth range on deposits.

So from this near term to your question and understanding the impact on NIM from funding sources, yes, we do expect to grow. And yes, that could lead to decreases in wholesale funding.

But seasonality to me is not the full story. The full story is if you look at one period the prior year, have you gone up? And are you ahead of the market on your funding? And the answer pretty consistently for us has been yes.

Okay. That's helpful. One more for me. Just curious what you see in terms of kind of the way to have a rate on new loan pricing today? And if you have kind of like the spot rate on loan yields at the end of September? .

Yes. Getting the spot rate on the end of September, I think is the road to nowhere. I think about the idea of what can happen with your deposits, what can happen with the particular loan.

So we don't really guide to that. What I will tell you is that our -- the asset yields that we're putting on commercial C&I is a little higher than CRE, and we grow it a little bit faster.

I'll tell you the things that we're doing is leading to that lift -- but I'd be very careful modeling something on a 1-day point margin into the fourth quarter as a directional thing. So we try to stay away from that.

Understandable. Yes, just trying to get a sense of how much momentum loan yields have just given all the hires and with rates going up over the course of the kind of early part of 3Q just in advance of the rate hike.

Yes, that's a one thing I'd say though, Nathan, that I'm not sure what happened there, but we have a pretty big variable rate book on the commercial side.

So going into the quarter based on the date effective data change, and we're slightly asset sensitive. We'll see a little bit of benefit going into October from that.

Our next question is from Chris McGratty with KBW. Going.

This is Andrew Leischner on for Chris McGratty. Just going back to fee income is in the quarter and the guidance update. Is this a good run rate to use as we go into the I think it was like an $85 million core number. Is that a good run rate to use as we go into 2027?

And then from there, factor in the additional opportunities you spoke about, given the Wealth and American National synergies or were there certain items that were outsized or seasonally higher in the quarter?

No. I mean we're not going to give guidance yet for next year until we go through it do, I guess, our Phase II strategic plan. But you do start to see -- we had a really good second half of the year last year.

Now we put up a really good third quarter this year. So you are starting to see a higher level run rate. It is still lumpy. You have nice performance in debit card and customer service charges and wealth, but it really is what's the rolling 4-quarter view that we can start to expect out of capital markets, and we have not settled in on that yet.

Other than we're very interested in it, like everyone else says because it's really been a highlight for us. And there's opportunity as a result of the A&B acquisition and all the RM hires.

I'm more comfortable Andrew, now with the direction we have than I've been in 5 years. And the reason I am is that when you start to grow your customer base, we went from a negative 1% to 2% to 0% celebrated that and got absolutely no tailwind. Then we went up to 1% but was for part of the year and got very little tailwind.

And now we've been playing around in the 1.5% range for a while and that is giving us a tailwind on fees, whether that is debit card fees, whether that's new customers that are bringing more money, whether that's people that are getting a card and so on the consumer side of it, it's the first time I felt a tailwind in our company, and we'll have that heading into 2027.

As Derek said, we don't have the forecast for '27 yet, but we have nice momentum in areas that would lead you to believe that your fee income has an opportunity to go up.

As you increase that number on the customer side, and that goes through mass affluent, that mass affluent will start to go into your private wealth business.

And so when you expand your commercial base, that starts to go into your private wealth business. So we're seeing some increases. We highlight there some of those numbers. We'll certainly come up with a forecast for 2027.

The plan is to do that in January. But the fundamentals of our business right now are as strong as they've been in a decade.

Okay. Great. And then going back to [indiscernible] just given you're in the midpoint of your CET1 range, is the $100 million quarter a good pace for 2027? Or should we expect a little moderation

I'd put that into category, we haven't forecasted that one just yet. We saw an opportunity right now and pretty comfortable in that $10 to $10.75 area because I'd just remind you, and you can see some pages on this, the quality of our super prime business, which should matter and the allowance that we have today. .

What I would say is it's an option open to us that we haven't had before. It's one that will be in our decision matrix for capital spend in 2027.

Our next question is from Jon Arfstrom with RBC Capital Markets.

Andy, can you talk about that commercial pipeline comment. Again, I think I heard something like 35% to 40% up. and you hedged a little bit on that. But is that right? And is that up materially? And if so, when or how does that pull through?

My only hedge on that is I didn't want to give you a bigger number. The number is 36% to 40% in commitments, and it's higher than that when we look at funded portion of that.

So when you start to get into those numbers, you say, hey, what's the real pull through. I think the takeaway for me in that is when I see a pipeline going up like that, from a year-over-year standpoint, it does lead me to believe that the production is going to be there.

It has been my whole career. And I would say Phil Trier and the commercial team are very diligent in tracking their pipeline through the different levels so the answer is, it's not a hedge. It is a 36% to 40% increase. And with that, we expect pretty solid production in the fourth quarter, and we expect C&I growth in the fourth quarter.

Okay. Good on that. And then most of the questions have been handled, but I'm not asking for Phase III yet. But what are you pushing your people on right now, what's bothering you? And then is there anything left undone from Phase I that will carry over .

Yes. I we've worked pretty darn hard to get to a 15% ROTCE. We've worked really hard to get to a 1.5-plus percent customer growth. And the message now is after you go through a conversion, after you go through a couple of platform changes, hey, that's your breath, but catch it fast.

And what I want to make sure of, and I really don't have to do much convincing on this is we want to be 2%, 2.5%, 3% in household growth. That doesn't happen by wishing for it. So we have plans, and we're just determining what the right timing of that is going to be.

And I think the continued growth in major metropolitan markets, where do you go and how do you get launched there? And do you use the plan that you've had in the past. But right now, I think it's the things that aren't fancy, it's discipline, and our team has it, and I like it.

And it's making sure that you aren't in place because there is a clear next step for us. We've worked hard to get to where we are, but there's another step for us from a business standpoint and a performance standpoint. And then let's make sure we give enough attention to Omaha.

It's a really good market, and these people are going through a conversion, and that's hard. However, we will put our money where our mouth is in that market. We believe in that team. And so I think those are some of the things on my mind right now heading into the end of the year and into 2027.

Are no further questions at this time. I would like to turn the conference back over to management for closing remarks.

Yes. So I want to thank everyone for the interest. I will just highlight that. I'm pleased that we continue to expand NIM. I'm pleased that we've controlled expenses, grown revenue, maintain credit quality, improve our ROE. .

And I'm quite optimistic on the -- not just the fourth quarter, but going into the next year based on the pipeline growth that I've seen. So thank you for the continued interest and I will say, go brewers. This is the eve of the World Series and the first time in Milwaukee in 44 years. Thank you all.

This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.

All right. Good morning. Thanks for showing up early this morning, and we're excited to start off our second day of the conference. This morning, we're starting with Associated Banc-Corp and Andy Harmening, President and CEO, coming in from Wisconsin to join us. So thanks.

Yes. Thank you, Jared. So this was the first conference we ever did 5 years ago when I started, and it was during COVID, and it was remote, and we launched our first strat plan. And the world has changed since then. Our bank has changed since then. And so we're wrapping up 2026. And from a consumer standpoint, what's happened for us as a different bank is we've gone from shrinking customer base to growing kind of minus 2% to plus 2%, expanded product set, spent a lot of time and energy on digital segmentation, some specialty businesses on the consumer side. And then the commercial side, we've grown roughly $6 billion on a $7-plus billion portfolio in those 5 years, including $1.2 billion in C&I growth in the first half of this year and $1.2 billion last year.

So we've made a lot of progress. But right now, how I'm thinking about the company is really 3 ways. One, we have to continue with organic growth, and we did in the first half of the year, whether that be customer growth, deposit growth, C&I growth. So we're in a pretty good position there. We have the American National Bank integration that's right in front of us. Pleased with where we are to date, finding the marks are coming right in where we expected. The cost saves are a little bit ahead of schedule, and we've gotten through mock 2 conversion. So the final conversion should occur here in the next 3 weeks. So excited about getting that. And then we'll roll out a new strat plan at the beginning of the year, which we're a couple of passes into. And we think that we'll be able to continue to expand margin, expand ROTCE, and we think we'll be able to grow additionally on the household growth that we've had so far. So that's our story. We're sticking with it.

Great. Well, thanks for that overview. As you mentioned, it's now been several months since the American National acquisition closed. As you moved from diligence into actual operating the business, what's gotten better than expected? And what's been more challenging? And I guess, what would you have learned about the organization that you really didn't know before?

Well, you think you know what it is. And every time there's a deal, people say the cultures align. And what's really nice is when they do. And so what we've found is we've done surveys of our colleagues and their colleagues side by side. And using the 3 words to describe the companies, both sides use the same 3 words in the survey. And then you get in and you meet with folks and the attention to detail with customer satisfaction, the attention to detail on credit. They're what we had hoped for when we're looking at it. But then we had held open some positions in some key areas and kind of done, hey, the best athlete wins. And we have been able to fill a lot of positions with American National colleagues, particularly in the risk group.

Of course, we have people in the field finance. And so we've actually gotten better from a colleague standpoint. So that's been really encouraging to me. And I think what you learned going through integration is it's a lot of work. And so I'm really pleased with the Associated colleagues on our side, being able to continue to grow the bank, grow our funding base, grow the loan side of it, while we get through the integration. So that's what we've seen so far. And frankly, we're chomping at the bit to get this integrated and move forward.

Along those lines, when you announced the transaction, the goal wasn't just to get larger. It was really to create a stronger platform for growth. As you sit here today, what areas of the business excite you the most now that you've had time to operate as a combined company?

Yes. If you think about the fact that we've gone from negative 2% household growth to positive 2%, that is starting to create a tailwind really for the first time for our company. And then we think about Omaha, where they have 20 branches, and we're going to be able to layer in our marketing acquisition tools, our consumer product set, which is quite strong on the deposit side. And now we're talking about as a company, how we go from 2% growth to 3% growth. So that's a hard jump. But we think Omaha is the fastest-growing major metropolitan market in our footprint. And then you pair on top of that, the Twin Cities, that's the second fastest growing, and we're getting branch networks in both of those.

In Omaha, on the commercial side, the commercial team is strong. With American National, the leadership is very good, but we have capital markets syndications capabilities that they just didn't have. And we have a little bit bigger balance sheet. And so when we look at consumer and commercial, there's opportunity on both sides. And then we run a pretty decent-sized private wealth business. They don't have that offering today. So we'll launch a private wealth offering in Omaha right after systems conversion.

Great. Maybe looking at on the commercial side, at the beginning of the year, you targeted 9% to 10% organic C&I growth and really effectively reached that goal by midyear. What's driving the momentum you're seeing today? And why do you think it can continue?

Yes. The simple answer to that is we've had a lot of hires on the commercial side. We've had a lot of hires on the relationship manager side. But we've also moved into some major metropolitan markets. And the question for us is we're headquartered in Green Bay. We're growing nicely in Milwaukee. Can we grow in Chicago, Twin Cities, Kansas City, now Dallas? And the answer is yes. If you get the right people, you get experienced bankers that have been in the market for a long time, you have a process that makes sense, you can grow. And then we've launched a franchise vertical. We've expanded into Dallas and already are booking deals. We continue to benefit from asset-based lending, equipment finance.

So we've launched multiple verticals at the same time, and we've gotten the right people in the right chairs. And so we think it's a formula that works. And what's kind of interesting, if you think about the go forward is Kansas City, for example, when we rolled out the new team there, the question mark, can you hire a team of experienced bankers and grow in a responsible way. When we did that, another team immediately came available and we doubled the size of that team and kept going. So that model worked. We've carried that model to Dallas and hired our first relationship managers and leaders there, and they're already putting deals on the books.

When you look at those new initiatives, whether it's the geographic expansion you talked about, treasury management is another, where do you think you've seen the strongest returns? And where would you be willing to invest more capital at this point?

Yes. A little bit of a rinse and repeat, but -- excuse me. So we'll be able to continue to add on the relationship manager front. That has worked for us. But when I look at treasury management, that's a really exciting one because we're up significant double digits in treasury management sales. And what goes with treasury management sales is primacy. And when you get primacy, you get deposits. And when you get deposits and you get treasury management, you typically get the low-cost deposits. And that's happening for us at a pretty good rate right now. But if I look out over the next 3 years at our opportunity to layer on top of the 50 RMs that we've added, treasury management capabilities that can compete with any regional bank or even super regional. If you layer on those capabilities, you see a runway on the funding side. I see a runway on the funding side for us that will be significant over 12, 24, 36 months.

On the competition side, competition remains intense across both loans and deposits. How would you characterize the current competitive environment? And where do you think Associated has become more differentiated than it was a few years ago?

Yes. Well, when you're shrinking your customer base for an extended period of time, not good. And so when you want to grow it, you go out and you build products by listening to the customer and you basically -- you create attributes that they care about. So whether they're getting a paycheck early or they're able to see the credit monitoring easily in the customer experience, I would say for banks our size, we're pretty developed on the product capability. We're developed on the digital capability, but we just hired a new Head of Digital that a very short period in, I was with her last week and her ideas on what we can do to improve the digital ecosystem married with the product is really impressive. So when you look at competition, the question is, what are you offering? How are you offering? What's the ease of use? What are the characteristics of the product set that makes somebody buy? And then do you have new ideas.

And so our point in our team is always to be challenging kind of what your status quo is and making sure you have new attributes because what worked last year will work a little bit less than next year and the next year. And so literally just reviewed 7 new capabilities that we think will launch over the course of 2027 that will continue to keep us ahead of the game. And when we get that done with that, we'll come up with 7 more. And so when you're thinking about the household game and the industry is at a net zero and you start to get to 2 and you want to get to 3, that is the door to your funding capabilities. And then when you create segment management, you're able to deepen. And so for us, yes, the competition is real. You have to -- it's not a set it and forget it, it's constant. But that's on the consumer side.

The commercial side, we're opening our HOA title business. We didn't put a deal on the books in the first year because we had to build out our digital capabilities. Well, now we have. And lo and behold, right when we launched the digital capabilities, we had our first large couple of customers. The upside there is significant for us because they know the industry. And so we look at treasury management capabilities spread across. So all of these pieces for us on the competition side, a lot on the funding has been built over an extended period of time. And then the commercial side of it is really making sure that you have a good process and making sure that you have folks that are local that know the markets.

Along those lines, as you speak with commercial customers today, what are you hearing regarding business confidence, investment plans and hiring intentions? Is the uncertainty around rates, tariffs and policy causing businesses to become more cautious? Or are they looking to invest?

Both. It's interesting. I do a CEO roundtable probably every single month in a different city, then Chicago roughly 3 weeks ago. And it's incredible what you learn from the CEOs about what's happening with trade, what the impact on cost is. And for all the reasons you listed, there is a feeling of caution in the marketplace. And there's a feeling of confidence within their own business. So it's a bit of a bifurcated situation. We've seen that over the last couple of years as people hear about global tensions, they see what's happening in the economy, they'll pause for a moment, and they'll look around and say, wait a second, everything seems okay. I think the economy, generally speaking, is pretty solid. And then they get back in the game.

And so you'll see a lull in growth and an increase. And what's interesting that I see right now is the confidence in their own company and our commercial pipelines are up from August to August, over 30%. However, the pull-through has slowed for a period of time while people are looking at what's happening, kind of, in the greater world and the country.

Maybe shifting to the deposit side. A few years ago, investors primarily viewed Associated through the lens of funding constraints. Today, the conversation seems much different. How would you describe the evolution of the deposit franchise and why you believe the growth you're seeing now is sustainable?

Yes. Several reasons that I'd mentioned. So on the core customer funding, we kind of did an end of June to end of June comparison for the last 3 years, and it was 2% growth and 4% growth and 6% growth. And it's not because the markets got easier and got hotter, it's because we got better. And that is both on the consumer side and that is on the commercial side. And so if you start to grow your customer base, the next logical question is, are they bringing deposits to you? And so are you growing low balance accounts or are you deepening those? And if you can do both those things, you can end up in a pretty good place. And so that is segment management.

So you bring them in through acquisition marketing, product set and then you deepen them through what your capabilities are and kind of the more you have, the more we get. So the quality of our account has gone up. At the same time, we've grown the customer base faster. So that makes it pretty durable. And that's kind of going from mass market to mass affluent. And the next step in that evolution will be private wealth for us. And so that's why I like the trend we're on, but there is still opportunity. And you'll hear about that more from us in 2027 and 2028 as we build our plan, it's just a funnel that goes up on that side.

On the commercial side, that, again, we have the HOA title vertical, which will be helpful to us. But the productivity from the relationship managers and our level of penetration is going up, our level of being the prime bank on deals has gone up. TM sales has gone up and our product is going to get better. And so when you see that trend, that's pretty encouraging. So it ends up being 3 things. You get the consumer going, bringing customers deepen, you get the commercial going with treasury management and primacy and then they meet at private wealth. And so we wanted to get 1 and 2 right. And now we'll start investing in the experience more heavily on the private wealth side.

As the bank grows, how would you like investors to think about the future deposit mix? Is the larger opportunity just gathering more deposits overall, improving the mix, increasing the operating accounts that you talked about? Or all of the above?

That's an all of the above. When I first got to the bank, they said, well, what do you want? Do you want to grow accounts? Or do you want to grow deposits? And the answer is yes. And that's how I would feel about all those things. If you want to be a survivor bank, you cannot be a one-trick pony. And that to me the secret is there are a lot of pieces that go into success right now. And you have to have it across all of your lines of business. There has to be participation on the product, the digital, the customer experience, the workflow, the outbound marketing, the communication and the coordination and collaboration between the teams. And when I think about all of those pieces, the question that I've had coming into this role is, can you be great individually within these groups and then actually have a team that cares about working with each other. And as you get some wins, people seem to be more willing to collaborate. So yes, I would say all of the above.

I guess one of the biggest surprises in the second quarter was the strength of the margin outlook. Despite the runoff of some purchase accounting benefits, you still expect margin expansion in both the third and fourth quarters. What gives you confidence in that trajectory?

Yes. I think back to kind of the low point as I was coming in when we had like a 2.39% margin, and now we're heading towards the 3.20s percent. And the first answer is yes. I do expect margin expansion even in the face of the accretion impact that we'll see. And again, it is a number of fronts, but on a very basic level, we continue to run off low-yielding resi, and that has been a strategy. Our correspondent banking, we eliminated that, but it had a little tail on it. We've gone from at our peak, 36% of our balance sheet was residential real estate. Today, it's 18%. So the balance sheet mix is real. We'll continue to have that -- we'll do residential loans, but the portfolio will be a runoff portfolio for a period of time, and we'll put on higher-margin commercial business that's supported by deposits.

And so really, you're talking about remixing the loan side of the balance sheet. But now when I look at June to June, you can see our noninterest-bearing deposits rising. That has not been the case for quite some time. And it's in line with your household growth. And so that creates a funding opportunity for you. And deposits can get more competitive. But if you're also getting the noninterest and nominally interest-bearing deposits, which we are, it can offset that from a competitive standpoint. And that's why, relatively speaking, we're in a pretty good position, and it's why we think we'll be able to continue to slowly each quarter, move the margin up a little bit.

On the deposit pricing, how are you thinking about that and the mix in this rate environment? This time last year, we were talking about the potential for rate cuts. Now we're talking about the potential for rate hikes. How is that changing your thinking around deposit structure and pricing?

Yes. The interesting thing about our situation right now is if loans slow a little bit, because we built a machine on the deposit acquisition and growth side, that helps -- we still are in a pretty good position overall. And so with the potential rate increase, likely rate increase, we're slightly asset sensitive. So on a very basic level, we make more money. So I think that will help our margin a little bit. I don't think it will change the forecast that we have. We felt pretty comfortable before that rate increase. I don't think it does anything to dampen growth by going up 0.25%. And I think overall, I really think it just probably slightly expands our profitability, but it doesn't damage the outlook in any way based on the kind of both sides of the balance sheet strategies that we have today.

Maybe shifting over to the fee income side. You've talked about wealth, treasury management, capital markets and deeper commercial relationships as important pieces of the long-term growth story. Which fee businesses have the greatest potential to become larger contributors over the next few years?

Well, if I look at the immediacy, we're seeing fee income growth just because we're growing our customer base and whether that be service charge income, credit card, debit card income, that's in the immediate. In the 3-year period of time, treasury management will play a significant role for us. I love that we're seeing the sales. And as we add tools to that with a larger workforce across our entire network, to me, that's probably the low-hanging fruit for our company. And I expect -- we hired a new Head of Treasury Management that we brought in from a major bank. They're very strong, and they've put together a road map that we're in the middle of strategic planning, but we're likely to fund most of that road map.

You mentioned earlier brought up the systems conversion next month. That really is the next major milestone. As you approach that conversion, what are the biggest opportunities you see once the 2 banks are fully operating on the same platform, 2 legacy banks on the same platform?

Yes. No, I feel like we're waiting for Omaha, a really good growth market that we already have the digital platform. We already have the marketing capabilities on the consumer side. We already have the product set. We're ready to get on with it. And so to me, that's an immediate -- once you get through the conversion, you make sure everyone is set and we head into the year with just another market that's opened up for us.

And then in the Twin Cities, you deepen your penetration. And so there's something to doing the density of the marketing and the density of your footprint, and we increased just enough to make us more significant in that market. We're now #10 in the Twin Cities in deposit market share. We're #2 in Omaha. And so well-known name in Omaha. But opportunity on the consumer side immediately. And then the Twin Cities moving in the top 10, we think the opportunity there between consumer and commercial and then we've had significant hires in private wealth. All of those pieces post conversion will allow us to start to run.

A significant amount of technology work has gone to the deposit gathering capabilities you've talked about, the treasury management and specialty businesses beyond the merger integration. What are the technology and AI or where are technology and AI creating the most tangible opportunities for growth or efficiency?

Yes. There are clearly already -- we have 30 use cases in process with AI already. And we're seeing it on the development side pretty significantly. We had an option to renew and buy something for $800,000 90 days ago. And we thought, well, gosh, let's see if we can build it. And we built it in a very short period of time for $45,000. It cost us $65,000 just because I was so excited, we gave a bonus to the 2 people that did it, the 2 people that did it. So we took the time to create a structure around that. In our risk and fraud framework, we have the same situation going on. So we think that on the expense side, just the development cost is starting to already go down. We're able to build a little bit of the -- we'll lean into it with some of the simpler applications that we have. The buy versus build is more real, and we'll assess that. We brought in a new head of procurement so that we basically can marry what is our vendor strategy to what our development is.

But on the sales side, I think it's going to be significant, too. And that's whether we build it ourselves or we employ somebody to help us on that side. And so we just brought in a new Head of AI for the commercial bank, and he's fantastic. He's working on what is the idea of research and delivery and how do we go more quickly everything from researching a customer, presenting to a customer to the back end of a customer. And so I wouldn't put a number to it today, but we'll drive efficiency in 2027 and we'll drive more efficiency in 2028. And I think when you look at some of the private wealth capabilities and the ability to do planning and marry that up with your core platform. And by the way, having now invested in our core digital platform, which we can plug private wealth into, which we can plug the planning into with a human at the middle of it, all of those things will help on the delivery to the customer side in not that long a term.

On credit, credit quality has remained resilient despite elevated rates, and you've indicated the ANC portfolio has come in largely as expected. What trends are you monitoring most closely today? And where are you potentially becoming more comfortable?

I don't know if the comfortable part. Could you throw that one in the end? There is some comfort in managing a consumer portfolio that's super prime. I mean when you start looking at the FICOs of the resi, the resi has a low yield, but the good news is it has FICO scores right around 800, just below. The auto book is the same thing. You're in the 790 range there. So you look at delinquencies as a precursor to issues that we're going to have, and delinquencies are flat as a pancake. I think probably for most banks right now and certainly the ones that deal with prime, super prime customers, you cannot get lazy with portfolio review.

And so on the C&I side, on the CRE side, we just don't see the emerging issues happening. And the message from our credit team to our field team is we're coming. We're coming this week. We're coming next week, we're going to come the following month, and we're going to continually through these portfolios until we see a trend. And if we see a trend, then we're going to dig into whatever that looks like. Thus far, as you know, it's been a pretty benign credit market for a long time. And I don't want to get a false sense of security based on that, but the credit side is very clean today.

As you said, you've taken a disciplined approach to reviewing the ANC portfolio and aligning credits with Associated's credit philosophy. Were there any lessons from that process that reinforced or changed how you think about risk going forward?

No. There are a couple of portfolios that didn't fit with us, which were smaller portfolios. But the overall commercial, we were able to get through a vast majority of everything that they have already. And we made appropriate adjustments to fit our model, and we did it and still are seeing the right return metrics. So I don't feel like there's somebody waiting around the corner for us. And as you know, the 2 things that can get you are credit and systems. And the credit is -- it looks very much like what we've had on our books.

As integration progresses and profitability improves, how are you thinking about capital priorities over the medium term? And I guess at what point does capital return become a more meaningful part of the story again?

Yes. Buybacks?

However you want to discuss?

Yes. No, we got authorized just over $200 million for buybacks. And the good news for us is that we have a good enough margin and a good enough ROTCE, good enough return today that we can both fund our growth and consider deploying capital in additional ways. And so we fully expect in the third quarter and the fourth quarter to exercise all those approved dollars, and we expect to be able to fund growth that we have at the same time. So we're in the best position we have been in, in quite some time with the ability to accrete capital, and then we'll work through the conversion and the one-time expenses will be largely completed, a lot of it this quarter and almost entirely in the fourth quarter, and that puts us in a really good position heading into '27.

Great. We have a few minutes. Are there any questions from the audience before we wrap up? And I guess, Andy, while you're not, I guess, ready to probably share specific guidance for 2027 today, how should we think about what's next for Associated once you get through the conversion?

Yes. So when we look at 2027, this will be the third time that we put a strategic plan out there. And the first question that usually comes up is how are you going to control expenses? And the answer usually is the same way we did the first 2 times. We will cut the spend. And so we'll find cost save opportunities in places that we feel probably don't have as good return. And then we'll invest in areas that we think have a better return. And so it's worked the last 2 times where we've been able to expand our margin, expanded our return. And what's particularly interesting now for us is, we've expanded margin and return, but we've also shown that we can compete in Milwaukee and Chicago and the Twin Cities. We'll move into Omaha, Kansas City.

So now we've shown some clarity that we can compete in major metropolitan markets. Well, that opens the door for a lot more business. So I'm pretty optimistic heading into the strat planning session from -- we're 2 rounds into that session already. And there are specific actions that we think will lead to more household growth and expanded margin and return.

Great. Well, thanks very much. Thanks for joining us, and I hope you have a great rest of the day. Thank you.

Thanks, Jared.

Good afternoon, everyone, and welcome to Associated Banc-Corp's Second Quarter 2026 Earnings Conference Call. My name is Alicia, and I will be your operator today. [Operator Instructions] We will be conducting a question-and-answer session at the end of the conference. Copies of the slides will be referenced during today's call are available on the company's website at investor.associatedbank.com. As a reminder, this conference is being recorded.

As outlined on Slide 2, during the course of the discussion today, management may make statements that constitute projections, expectations, beliefs or similar forward-looking statements. Associated actual results may differ materially from the results anticipated or projected in such forward-looking statements. Additional detailed information concerning the important factors that could cause associated 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 a reconciliation of the non-GAAP financial measures to the GAAP financial measures mentioned in this conference call, please refer to Pages 28 through 31 on 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 Harmening, President and CEO, for opening remarks. Please go ahead, sir.

Thank you, and good afternoon. Welcome to our second quarter earnings call. I'm Andy Harmening. And as usual, I'm joined by Derek Meyer, our CFO; and Pat Ahern, our Chief Credit Officer. I'll start with some highlights from the quarter. And from there, Derek will cover income statement and capital trends, and Pat will provide a credit update.

Midway through 2026, delivering sustainable, profitable organic growth continues to be the primary focus for our company, and we've maintained momentum in several important ways. We are driving relationship growth and particularly in commercial. Back in January, we set a target of 9% to 10% organic C&I loan growth for the year, and we've already hit that target as of June 30, thanks to the addition of over $600 million in balances during the second quarter. We're also driving relationship deposit growth. Through the first half of 2026, our organic customer household growth has held above 2% on an annualized basis, trending ahead of the 2% target we set for ourselves at the beginning of the year. From June 30 of 2025 to June 30 of 2026, organic core customer deposits were up 6%, which is the strongest June to June growth we've seen in the last 5 years.

As we look to the back half of 2026 and into 2027, we are well positioned to maintain our growth trajectory, thanks to steady execution against our organic initiatives and the ongoing integration of American National Corporation. With respect to initiatives, our hiring has progressed as planned, and we've been pleased with the initial results we've seen from several recent investments, including our expanded Kansas City, C&I team, our new Dallas C&I office, our new franchise banking vertical and key leadership hires in our private wealth business.

We expect the impact from these investments to ramp up later this year and into 2027. With respect to American National, we've incorporated their balance sheet, assessed the purchase accounting impacts and identified cost saves. As we work through the integration process, the team and the businesses have been as advertised, and it's becoming clear that we are positioned to drive organic growth momentum over time.

Our next major milestone is systems and branch conversion, which we expect to take place in October of this year. As always, our intention is to grow in a disciplined way and maintaining our conservative approach on expenses, risk management and credit remain as the foundation of our strategy. We look forward to providing additional updates as the associated growth journey along the way.

With that, I'd like to walk through our Q2 financial highlights, beginning on Slide 4. We reported GAAP EPS of $0.63 in Q2 or $0.73 after adjusting for $24 million of nonrecurring cost, recognized during the quarter through our acquisition of American National. With the addition of nearly $4 billion in American National loan balances during the quarter, total loans grew by 15% versus the prior quarter. Excluding the impact of American National, we saw organic loan growth of 3% or $940 million in Q2. The vast majority of this growth was driven by our commercial business, led by $644 million in organic C&I growth during the quarter.

Total deposits and core customer deposits, both grew by 12% in Q2 after adding over $4 billion in American National balances to our balance sheet. Excluding the impact of American National, total deposits decreased by 1% due to the normal seasonality we typically see in our portfolios in Q2. With that said, we saw organic core customer deposit growth of 6% or $1.7 billion from June 30 of last year through June 30 of this year. This was the strongest June to June growth we've seen since I arrived at bank over 5 years ago.

Moving to the income statement. Q2 net interest income of $370 million increased by 20% or $63 million versus the prior quarter, following the addition of American National. Total noninterest income of $80 million increased by $5 million versus the prior quarter, led by growth in wealth, service charges and card-based fees. Total noninterest expense of $272 million increased by $53 million versus the prior quarter, following the incorporation of American National. Our Q2 expenses also included $24 million onetime expenses tied to the deal.

Shifting to credit. Asset quality trends remained solid in Q2. As we absorbed American National's balance sheet. During the quarter, we booked $19 million in provision. Our ACLL ratio increased by 2 basis points, and we saw $23 million in charge-offs for the quarter. After excluding approximately $7 million in net charge-offs, for a handful of credits inherited from American National, our charge-offs were largely in line with historical trends.

On Slide 5, we provided an update to key transaction estimates we shared when we announced the American National deal in December of last year. And by and large, the transaction has come in as expected. While nonrecurring merger expenses have come in slightly above expectations and fair value marks were impacted by the shift in rates. The credit mark was in line and our expected cost saves have increased from 25% of American National's expense base to approximately 30%. Taken together, our expected earn back has held firm at 2.25 years. We remain on track for the systems and branch conversion expected to take place in October.

Shifting to Slide 6, we highlight our quarterly loan trends through Q2. As mentioned previously, our second quarter flows were impacted by the addition of nearly $4 billion of American National balances that were added to our balance sheet as of April 1. With the addition of American National, total loans grew by 15% or $4.7 billion on a spot basis relative to Q1. Excluding the impact of American National, total period-end loans grew by 3% or $940 million organically.

Organic growth was led by C&I, which grew $640 million or 5% during the quarter. We also saw organic CRE balances increased by $251 million, as production outpaced payoffs again in Q2. We continue to expect elevated payoffs in the back half of the year. As outlined on Slide 7, our results over the first half of the year reflect continued growth momentum. This is particularly true with respect to the growth we've seen in our commercial business, which is a reflection of both the investments we've made in the business over the past 5 years and incremental tailwinds expected from our latest wave of investments in 2026.

Throughout the past 5 years, we've bolstered our leadership team with top talent, increased RMs by nearly 50% and expanded our capabilities to grow commercial relationships. After posting over $500 million growth in C&I in Q1, we delivered another $644 million of organic growth in Q2. Taken together, we've grown organic C&I loans by nearly $1.2 billion or 10% through June 30, effectively hitting our original 4-year growth target within the first 6 months of the year. We expect these prior investments to sustain our growth momentum in the coming quarters, but we also intend to sustain our growth in 2027 and beyond.

With that in mind, we remain focused on expanding our capabilities and hiring talented bankers to deepen relationships and take share in major metro markets. After launching a new C&I office in Kansas City last year and seeing promising initial results, we doubled the size of the team earlier this year. And based on the successful model we deployed in Kansas City, we also officially launched a new C&I office in Dallas with the hiring of respected market leader, Brandon White in May. We're rounding out our team as we speak, and we're bullish about the commercial opportunity in the state of Texas.

And finally, our new franchise banking team, led by industry veteran, Shaun Coard, has already started to book deals after just launching the business in April. For the combined company, we now expect period-end total loan growth of 18% to 20% in 2026. And continue to expect C&I loan growth of 20% to 22%, as compared to associated stand-alone results for the year ended December 31, 2025.

Moving to Slide 8. Our Q2 deposit balances grew by 12% during large part by the addition of over $4 billion in deposits from American National. Excluding these balances, period end deposits decreased by 1% versus the prior quarter, largely driven by the seasonality we typically see in our deposit base during the second quarter each year.

With that being said, Slide 9 shows a clearer view of the organic growth story within our deposit base, excluding the impacts of American National or short-term seasonality. As we've discussed previously, we have spent 5 years building out our capabilities to fund our loan growth sustainably over time, primarily with relationship-focused customer deposits, and those efforts are paying off.

On the consumer side, we've made significant investments to modernize our digital banking experience, enhance our product set, improve our marketing acquisition capabilities and develop a successful mass affluent program. We've enhanced our ability to attract deepen and retain customer relationships to grow our customer base organically in a way this company hasn't seen before. Year-to-date through June 30, we've grown primary checking households by 2.4% on an annualized basis, the strongest growth rate we've seen since we began tracking over a decade ago. And in commercial, we've not only grown our RM base by nearly 50%, but we've also sharpened our focus on deepening relationships across the team.

In addition to loans, we're driving other business, including deposit growth, TM, Capital Markets and HSA. As an example, our treasury management and HSA businesses are both growing double digits year-over-year. We've also officially completed the tech upgrades necessary for our deposit-focused HOA and title company vertical, which we expect to be a meaningful driver of commercial deposit growth going forward.

As we continue to attract and deepen relationships across the bank, that presents a natural opportunity to develop a stronger pipeline in the private wealth business, particularly in major metro markets where we're under-penetrated. To better facilitate the connectivity of our teams across the footprint and at the local level, we've added several talented executives to our private wealth leadership team, including our new director of private banking for major metro markets, Lisa Buetow, in the Twin Cities and another executive in the Twin Cities, Ken LaChance.

And finally, the integration of American National is proceeding as expected. We're confident that this partnership will provide opportunities to deepen relationships with existing customers, while also providing growth opportunities in attractive markets like Omaha and the Twin Cities.

Taken together, these efforts have helped us build a sustainable deposit gathering engine, that is having a real impact on our financial results. From June 30 of last year to June 30 of this year, we posted organic core deposit -- core customer deposit growth of 6% compared to 4% the previous year and 2% year before that.

Going forward, we're confident in our ability to drive sustainable core customer deposit growth, thanks to best-in-class consumer value proposition, household growth momentum, supported by increased marketing acquisition, spend in growth markets and significant enhancements to our commercial deposit gathering capabilities. We continue to expect 2026 period end total deposit growth of 17% to 19% and period-end core customer deposit growth of 19% to 21%, as compared to associated stand-alone results for the year ended December 31, 2025.

With that, I'll pass it to Derek to discuss our income statement and capital needs.

Thanks, Andy. I'll start with the yield trends on Slide 10. In Q2, we saw the yields on most earning asset categories increased following the addition of American National to our balance sheet. Of note, the yield on our auto portfolio increased by 38 basis points, reflecting the impact from deferred loan cost and fee adjustments tied to the acquisition of American National. We also saw quarterly investment yields increased by 5 basis points, following our repositioning of American National Securities portfolio earlier in the quarter. Within that transaction, we sold their securities portfolio with a book value of approximately $1 billion and reinvested the same amount at a yield of approximately 4.6%.

Overall, the yield on total earning assets increased by 12 basis points during the quarter, while the rate on total interest-bearing liabilities decreased by 1 basis point. Net free funds expanded by 2 basis points versus the prior quarter.

Moving to Slide 11. Second quarter net interest income of $370 million, increased $63 million versus the prior quarter and increased $70 million versus Q2 of 2025, after adding American National to our balance sheet. Our net interest margin increased 14 basis points to 3.17% for the quarter.

On the right-hand side of the slide, we've included a table disaggregating several key impacts to our NII and margin, following the addition of American National. The net accretion impacts from purchase accounting and adjustments for deferred loan costs and fees, combined to drive a 6 basis point improvement in our Q2 margin. After assessing the balance sheet and income statement impacts from the acquisition of American National, we now expect a total 2026 net interest income to grow by 19% to 21%, as compared to associated stand-alone results for the year ended December 31, 2025.

Slide 12 provides a reminder of the steps we've taken to put ourselves in a more neutral interest rate position. We're maintaining a repricing flexibility by keeping our funding obligation short. We're protecting our variable-rate loan portfolio by maintaining received fixed swap balances of approximately $2.45 billion. And we built a $4 billion fixed rate auto book with low prepayment risk. An up 100 ramp scenario, now represents a 1.9% impact to our NII as of Q2, while a down 100 scenario now represents a 1.2% impact. We expect to maintain this relatively neutral position going forward.

Moving to Slide 13. Total investment security balances grew to $10.2 billion in Q2, following the acquisition of American National and repositioning of their securities book early in the quarter. Our securities plus cash total assets ratio finished at 23.3% as of Q2. We continue to target a range of between 22% and 24% for the year.

Slide 14 shows a detailed view of quarterly noninterest income trends. Total noninterest income of $80 million in Q2 was up $5 million a from the prior quarter and $13 million versus Q2 of 2025. This increase was driven in part by our acquisition of American National, but we also saw a healthy growth in our legacy Wealth Management and Capital Markets businesses. American National has not historically focused on these areas and we view them as opportunities for our combined company, as we get through a conversion end of 2027. In 2026, we continue to expect total noninterest income growth of 8% to 10%, as compared to associated stand-alone results for the year ended December 31, 2025.

Moving to Slide 15. Total noninterest expenses of $272 million, increased by $53 million versus the prior quarter following the acquisition of American National, along with the addition of $24 million in nonrecurring costs, recognized in connection with the acquisition. Most of the nonrecurring cost year-to-date have landed in the personnel, legal and professional categories. After adjusting for these nonrecurring expenses during the quarter, our efficiency ratio decreased to 52.9%.

As we move forward, we will continue to invest in the growth of our franchise, but we're anchored on delivering positive operating leverage. After incorporating the impact of American National acquisition, including the nonrecurring costs included incurred as part of the acquisition. We now expect noninterest expense to grow by 20% to 21% in 2026, as compared to associated stand-alone results for the year ended December 31, 2025.

On Slide 16, our CET1 ratio finished at 10.47% in Q2. This figure was flat from the prior quarter, but up 27 basis points relative to Q2 in 2025. Our TCE ratio remained flat from the prior quarter and up 21 basis points from Q2 of 2025 at 8.27%. Our tangible book value per share finished at $22.15, down slightly from the prior quarter, but up $1.31 relative to Q2 of 2025.

I'll now hand it over to Chief Credit Officer, Pat Ahern, to provide an update on asset quality.

Thanks, Derek. I'll start with an allowance update on Slide 17. Our CECL forward-looking assumptions utilized the Moody's May 2026 baseline forecast. Forecast remains consistent with a resilient economy containing a more optimistic GDP outlook despite the higher interest rate environment, higher levels of inflation and tariff negotiations. The Moody's forecast continues to contain less total rate cuts in the latter half of 2026, compared to prior forecast. In Q2, our ACLL increased by $69 million to $494 million, with the increase driven by an equal mix of loan growth and normal credit movements. Our ACL ratio as a percentage of total loans increased to 1.36%, up 2 basis points from the prior quarter and up 1 basis point from the same period a year ago.

On Slide 18, we continue to see solid performance across our key credit quality metrics in Q2. Total delinquencies of $60 million, decreased by $28 million versus the prior quarter and we're generally in line with the levels we've seen previously. Total criticized loans increased by $290 million versus the prior quarter, with much of the dollar increase driven by the addition of American National. However, as a percentage of total loans, criticized loans were largely in line with prior quarters. Nonaccrual balances increased to $150 million in Q2, up $39 million versus Q1, approximately 1/2 of the increase in nonaccrual loans came from the American National portfolio as we aligned several credits to Associated's credit strategy and philosophies.

Q2 net charge-offs of $23 million, included $7 million of charge-offs from American National. The net charge-offs from Associated equate to approximately 18 basis points for the quarter and 13 basis points year-to-date, which aligns with our historical trends. And keep in mind, this is after 2 quarters of 7 basis points or less of net charge-offs. And finally, we booked $19 million of provision in Q2, up $8 million in the prior quarter and up $1 million from Q2 of 2025. With the merger of American National, we have taken a thoughtful vigilant approach toward both risk rating and charge-off decisions to best align with the associated process and philosophy. To confirm, we are not finding any surprises in the American National portfolio relative to due diligence, and we are tracking to our day 1 credit mark.

At this time, we have completed portfolio reviews of the vast majority of American National Credit. We remain confident in our integration, finding the portfolio modestly exceeding our expectations. We also continue to feel comfortable with the credit performance of our core portfolio. With that said, our teams remain vigilant in reviewing our portfolios and staying in regular contact with both Associated and American National customers to stay ahead of any emerging risk. We also remain diligent in monitoring credit stressors in the macro economy to ensure current underwriting reflects the impact of ongoing inflation pressures, shifting labor markets, tariffs and other 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 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.

Thank you, Pat. On Slide 19, we provide an update to our outlook following a Q2 that included continued organic momentum, the close of the American National acquisition, the incorporation of their balance sheet and the finalization of all purchase accounting marks. As we sit here today, our current expectations for the American National partnership are largely in line with the assumptions we provided when we announced the deal. As a reminder, this outlook does not assume any material incremental growth expectations for the American National businesses in 2026.

And with that, let's open it up for questions.

[Operator Instructions] Our first question comes from the line of Brandon Rud from Stephens.

My first one, if I could unpack the expense guide of 20% to 21%. I understand that's a GAAP number. So if we wanted to back into a core kind of at the midpoint for '26, is it fair to say you just grow '25 by 20.5% and then strip out the $52.5 million, that kind of gets you somewhere to a number around $980 million for 2026 on a core basis?

Yes, I would take the guide and just take out the numbers on Slide 5. It sounds like that's what you did. We're pretty much on track with our original 3% guidance for core ASB, a little bit higher as a result of deferred comp expense, which is net neutral because it's offset with fees in terms of EPS. But other than that, it's I think pretty straightforward and I think you've got it.

Okay. Perfect. And then one on the balance sheet. The outlook for the total loan growth is a bit higher, but the C&I loan growth is unchanged. Is that related to the franchise business that you mentioned earlier, Andy? Or is that coming from the commercial real estate business? I'm just curious what's driving that incremental 100 basis points?

Yes. It's largely coming from CRE and the C&I balances for us, we had a very strong first half of the year, but we pulled forward a little bit of production, and we would expect some pay downs in the second half of the year as we did at the beginning of the year. It's kind of the carryover for the industry from 2021 production. So overall, couldn't be much more pleased with the first half productivity. But the reason that, that shows a little bit of a slow in the second half is the timing of some production that hit in Q2 and then taking that off the board and probably having the payouts we expected in the CRE in the second half of the year.

Okay. And if I could just squeeze one more in. With the October conversion, is it safe to say that the first full quarter with -- I'm sorry, the first quarter with the full run rate of cost savings is the first quarter of '27?

That is fair to say, yes. But I think it will be pretty darn clear as you exit '26, what we have. We'll see a lot of the one-timers. Clearly, a lot came through in the second quarter. Preponderance of the rest comes through in the third quarter. And then you obviously after conversion, then you have a few of the cost saves that come through in the fourth. And that means that we should be heading for a very understandable year-end and a clean first quarter. Thank you, Brandon.

Our next question comes from the line of Daniel Tamayo with Raymond James.

Sorry. I just want to go back to the expense guide, just to make sure we're all on the same page here. So as we think about the year-end number, that fourth quarter number to build on in 2027, and then we get a little bit more maybe savings in the first quarter. But are you thinking the number goes down in the fourth quarter from the third quarter? Or if you're comfortable giving us something a little bit cleaner in terms of where we should target for the fourth quarter number? I just -- I'm getting a number just over 260. I don't know if that's in the ballpark of where we should be looking, but my number overall was a little bit higher than 980, based on the math I ran for the year.

Yes. I don't -- I think we're not ready to parse the quarters yet. It's not clear exactly based on the conversion date and the contract terminations, where the onetime costs will go. But I think the full year midpoint guidance that's implied minus the 52.5, gets you our full year number this year. And if you back that out and it's going to be hard to pin me down to a quarterly run rate yet.

Okay. We can get close enough, I think -- so the big increase in the guide, basically on a core basis was the deferred comp, I think, is what you were saying before, like that's how we should think about the difference.

Yes. If you go through and you're trying to reverse engineer if we've been naughty or nice, I think the only thing to take away from this is we're on track organically, except the deferred comp we would have been at the 3%, our original expense guide. We're on track with hitting our merger expenses, except for the -- actually a little bit better in the long run, except for the onetime costs are a little higher, and we're pretty transparent about that on Slide 5.

So with the increase in the cost saves from 25% to 30%, I mean, is it fair to say that from where you guys were thinking about things last quarter to where you're thinking about things now the 27 number would be lower? Or because of the deferred comp, it kind of evens out or it's higher?

No, I would say, for next year compared to our original business case, we had more tangible book value dilution. I'm going to work off of Page 5, if you're following along at home here. And there's a couple of elements to it. Well part of it is the expenses, right? We had higher onetime costs. And what we're finding after 3 months of working through this, is it looks like we're going to land at a run rate going into next year that is a better run rate than what we had originally anticipated. That helped get us our tangible book value earn back to where we expect it to be. The rest of that, and I'm going to go beyond what you asked for, we also -- and this is offsetting the mark since interest rates were higher. We had bigger marks across a couple of areas, and we expect our revenue to be higher also that showed up this quarter.

We expect it to show up the next 8 quarters to get us probably a 60% better revenue over that time period, that also helps us recapture some of that dilution. And then there's a little bit better credit quality, as Pat's gotten satisfied with what he's seen in the last 3 months of actual. So hopefully, that's helpful.

It is, Derek. And if I could just change gears here quickly and also a follow-up, ironically from the first question. But the increase in pay-downs that you were talking about, maybe, Andy, if you could give us a sense of back half breakdown by kind of pay downs versus runoff expectations versus originations? Just trying to get at like kind of core origination pace, if that's similar picking up or going down the back half.

Yes. To predict every payoff that we might have in the second half of the year would be a mistake. And so what I would tell you very simply is we had a rise in mortgage warehouse of about $150 million exiting the quarter, unexpectedly, that went back out. So to me, we have outstanding organic growth even under any measurement, but that is something that changes going into the third quarter. We have higher-than-expected productivity in CRE. We have pipelines that are significantly up. We have C&I pipelines, that are up 20% versus the same period coming off an annualized 20% growth in the first half.

So when all that hits and how that hits and what pays down when it's uncertain. But when we look at the natural course of CRE, in particular, we would expect that we would have increased payoffs in the second half. And so that's how we gauged our guidance for the rest of the year. However, I would say that for us, one of the things we're really pleased -- I'm really pleased with is our NIM. We look at the NIM going to 3.17%. And then we roughly believe that about 2 basis points of that comes organically. We're going into the second half of the year with momentum on, we believe, relative to prior periods in prior years on deposits and loans. We have momentum in our customer growth. That means that you're starting to get checking account, granular checking account growth, we haven't seen that in a long time. But June to June, we saw a 3.6% increase in that category.

We see a mix shift as a result of increasing our commercial loans and decreasing our resi. And what that means for us in a world that's always competitive is we believe that we'll have NIM expansion in the third quarter, and we believe we'll have NIM expansion in the fourth quarter. And to me, that's a really exciting story for us, as we start to hit 3.17%, and we believe we can go beyond that. With regards to specific categ dollars and payoffs by category beyond that, I wouldn't hasten a guess on that.

No, that's helpful. I know it's a tough question, but I appreciate all the color, Derek, and Andy, I'll step back.

Thanks, Daniel.

Our next question comes from the line of Casey Haire with Autonomous Research.

Yes. Great. So maybe a follow-up on the NIM, which sounds pretty positive. So, maybe can you help us out with how deposit cost trends and where new money loan yields are on a core basis versus that 5.60% level in the second quarter.

Yes. We haven't -- so where deposit trends have been, we're very pleased with it. In fact, we were -- our conclusion after we went through all these materials, because we had really strong loan growth, and we like the way that the first quarter turned out with ANC was that our deposit pricing was sort of the unsung hero of the quarter. We had strong point-to-point growth, deposit costs actually improved modestly second quarter at legacy ASB in terms of funding costs. And this is usually a quarter where we're most exposed to wholesale funding, because we have seasonal declines in our core customer deposits, even though we're up 6% year-over-year.

So, I would say in an environment where everyone is trying to understand where the strong loan demand is going to drive funding cost, we were very satisfied with the performance from that standpoint. Loan yields are still going to continue to be grinding up over time. And we think once we get through a few quarters, where we have a lot of this accretion burn through, because it comes in quickly, we've got the schedule in there that shows it, that we're going to start to continue to grind up on our margin as a result of the remix of the portfolio. And that you'll see that in spades when you look at the yields on the CRE and C&I, relative to what's happening with resi. And we also got the benefit of repositioning the securities book.

Okay. Very good. And then switching to capital management. Just wondering, you've got, Andy now closed here. You got the conversion upcoming. Where are you guys in terms of M&A appetite? It sounds like things are going organically got very nice pipelines and NIM on the way up. Just wondering what the appetite is on the M&A front.

Casey, I almost went for a head fake thinking you're going to ask about buybacks, but I'm happy to talk about M&A. I bet you I get somebody to ask about buybacks next. But the M&A side for me, I'll answer it in this way. The primary growth strategy for our company was organic growth. The question when we did this deal back in December was, would we take our eye off the ball and lose momentum in organic growth? I don't recall having 20% annualized C&I growth as a company ever and to see the deposit growth on top of that. That has been our goal, and we're achieving that halfway through the year.

The second goal is to have continued organic growth while completing the American National integration, that is really on track. And frankly, getting through all the detailed marks and understanding where we stood on credit in particular, and seeing that we're in a good spot there and still being at the due diligence during the quarter, that was a good news, really good news for us.

The third piece of it is, hey, with ANB, can we leverage ANB with the current associated bank capabilities? Well, we do that largely after systems conversion, a little bit right now, but we're going to be adding wealth capabilities, capital market capabilities, consumer products, health savings accounts and an upgraded consumer digital platform. When you look at that in a growth market like Omaha, I can't be much more excited. I'm trying to calm down during the earnings call. But when I look at this, we say, we are well on our way to showing that ANB enhances our organic growth strategy.

And I've said this a few times, the number one thing I don't want to do is throw away 5 years of hard work to become an organic machine on a bad deal. So, that's how I'm thinking about life right now. As we get through this conversion and we execute on the way we are so far, we can have more thoughts on the M&A front. Thank you.

Our next question comes from the line of Jared Shaw with Barclays.

This is John Rau in for Jared. Really good trends. It looks like on, I guess the balance sheet as a whole. But digging into the deposit side and funding remix over the next few years, I guess what does that look like in terms of brokered balances, as a percentage of deposits and FHLB. Like what are the priorities of reducing those more non-core funding sources?

Yes. If you look at the if you treat those as fungible, so add the FHLB and brokered and network deposits. We expect even by the end of this year, for that as a mix, as a percent to be down a 1% to 2% versus what previously forecasted. So, we think we take another step in that direction. This structurally helps us, and it adds a market like Omaha, where we can put in place the wealth strategies, the mass affluent strategies, the product segmentation in a market that's growing faster and give us some tailwinds behind some of those. So we're eager to take that metro market and help it thrive and drive down that wholesale borrowing.

I think because of our overall pace of growth to target materially faster wholesale repositioning would be a challenge. We do not want to hold back the rest of the bank waiting for that to happen.

Okay. Great. That's helpful. And then maybe if you could spend just a couple of minutes on the HOA title business? How big that can be? And is there anything kind of holding that back from starting to generate deposits today?

I can thankfully say no. I can't think of anything holding that back, and I say that a little tongue in cheek. We had to build out some technology digital capabilities for that business. And so we have brought in a very seasoned team, that knows this business that had started that business at another major institution. What can that be for this for us? We think over time, it should be in hundreds of millions of dollars. The technology on that literally launched in June is time frame, and we've already seen dollars coming into that, at the end of June, beginning of July. So we think, we'll see some growth in the second half, and if I had to handicap that, leaving 2027, you're probably talking about a business that would have $200 million to $300 million in deposits, because there's just no lack of understanding of who the players in that market.

If you're starting this business and you haven't been in it, you probably have a challenge. The technology is important relationships and knowledge of people is as well. So we think that, that could have a steady significant impact to our growth over time. So, that's one piece.

Secondly, that I haven't gotten into this as much. But our treasury management sales are up over 20% year-to-date, well over 20%. The reason I care about that is not from the fees from treasury management, those are nice, but the correlation is a leading indicator to deposit growth has always been significant. So, that is pretty exciting to see for us on the go forward. And that's something we have not had at that level in the last several years. So, you combine that with HOA and title, and then you start to see the remix of where we're getting growth in our consumer checking accounts. We've not seen 3.6% growth in several years in that category.

And that comes from a customer growth that goes from negative 3% to minus 1% to 0% to 1% to 1.5% to 2%. And so we are starting to just now the tailwinds on repeatable, fungible deposit growth as a company. So, those several things together. But thank you for asking about the HOA and title business. It's very timely for us.

Our next question comes from the line of Jon Arfstrom from RBC Capital Markets.

Andy, how do you feel about buying back stock?

Oh my gosh. Yes. Oh my gosh, Okay. You got me a little. Yes. No, we've talked about this and the things that I needed to see. I need to see that we're pulling through the increased profitability profile. We clearly are. I mean you can see that in the margin. And now when I look at the rest of the year, what I see is forecasted growth in the rate curve, I feel pretty good about where that is going to be. We've also gotten through the ANB balance sheet, and we understand what it is. We understand what the marks are. And so we're in a pretty good position to deploy the already approved share repurchases in the third quarter and the fourth quarter. Thanks for the question, Jon.

Yes, you got it. That was easy. Derek, to the extent you can, can you just remind us of the typical deposit seasonality you see in the second half of the year? Just so we can understand the mix a little better.

Yes. I mean the second half of the year is when we see most of the growth, which is why we keep looking year-over-year to make sure we're tracking that way. And it really starts mid-quarter. It stabilized. It's the first half of the quarter. It's mid-quarter and then grows really strongly, both really across all our lines of business for the rest of the year. It's in our wealth, it's in our commercial business through the -- through government deposits and consumer. Everybody knows who does a lot of consumer work even outside of banking. When summer is over and the action starts really from there to the end of the year, the economic activity also drives more account acquisition. And so we start acquiring households and expanding the ones we already picked up. So it's really across the board.

And just to reiterate this, Jon. I mean we have a tracker that basically shows when the dip starts almost to the day and week each year. And the only thing different about this year is we're growing more, year-to-year than we had in the past. But the dip is all similar and probably the other thing that is different is the launch of the new vertical, the HOA title vertical that we just launched more or less in June with the technology introduction.

Okay. Just one more, I want to squeeze in here. But I don't know if it's for you, Pat or Andy, but there have been questions on other calls about the competitive environment and lending. Based on what I'm seeing in your growth and your yields, it doesn't feel like you feel like it's overly competitive, but any thoughts or comments on the environment.

Yes. I'll take that one. And certainly, Pat, you can -- since you're looking at like every deal coming across. But the thing that's interesting for us right now that's exciting for me and gives me confidence is there's always competition, and there's competition now. However, we are seeing a growth in commercial through small business, which is our smaller revenue businesses, business banking, which is the next segment up, commercial banking and community banking. So if you think about that, 4 different lines of business are all seeing double-digit growth, because we've invested in every single one of those businesses. And those businesses span significant geographies, primarily Chicago, Milwaukee, Twin Cities, Northern Wisconsin, Kansas City, St. Louis and Omaha.

And so between geographic distribution, business line distribution, we have a pretty good advantage. And then when you put on top of that, that we've expanded in geographies and we've added new verticals. It puts us in a position where we don't have to press down to take deals that we either don't like from a credit standpoint or we don't like from a return profile standpoint. It's also why I see this as a sustainable model for us.

Pat, add to that?

Yes. I mean, I would just echo the comment that there's always competition. It's always depending on the lines of business, I think to Andy's point, we're evaluating each credit as they come in to how it fits into the bank's overall strategy. So, there's the credit aspect, the return aspect but that's kind of our discipline as we want to make sure it fits to the ongoing long-term plan.

I'd say the other thing to remember is we're remixing the balance sheet, and I know you know that, Jon. But when the return profile on a commercial relationship that brings in deposits versus a noncustomers resi deal, that we have running off right now. That's why we feel comfortable that we've been kind of dripping up on our margin each quarter. And with increased productivity, you continue to see that. So those are a couple of different things in play that might be unique to us. Thank you.

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

This is Chris O'Connell filling in for Chris. So, just wanted to see if you guys could provide some color on the NPL increase for the quarter. I know credit overall has been very solid. I think half of it was driven by the ANB acquisition, but just a little bit of color on each part.

Yes, sure. In terms of the non-accruals, like you said, about half of it came from the American National portfolio. There were several credits there relatively small. It was really trying to align risk rating into our process and philosophy. Nothing, no concentrations, no overarching concerns, whether it be industry, geography, et cetera. So, we're comfortable with that. I think overall, the stuff that we saw in the ASB side was just kind of normal evolution of business cycles. We're not seeing anything emerging as an area that we're concerned about, again, relative to industries, geography, lines of business, et cetera.

And from a criticized standpoint, Again, the dollar amounts went up via the acquisition. But from a basis standpoint, we're consistent 1 or 2 basis point shift there. So, we're very comfortable with that. And we've been -- as we mentioned earlier, very pleased with the overall profile of the portfolio, it's lived up to expectations. So we're happy with that, and we'll continue our deep dives, but we've been through the majority of it, and we like what we've seen.

Great. And then in terms of the net charge-offs coming from American National, is the $7 million typical kind of run rate for them in that loan portfolio that you would think going forward? And then on the overall reserve ratio as well, given the puts and takes of the deal, bringing on the marked portfolio and the overall loan mix shift leaning more towards higher reserve C&I, maybe expectations as to if that overall reserve ratio will be more steady or kind of trend up over time?

I think from a reserve ratio, I think we're going to be pretty steady. We're not seeing anything on the horizon that's going to shift how we look at our ACLL ratio right now. In terms of charge-off rate, we took -- we accelerated a couple of credits. Again, some pretty small bite-size things that we wanted to more align with our process and philosophies and how we manage some stress credits. We don't expect that to replicate itself going forward.

Yes. I mean just for clarity, that came after a portfolio review using the ASB approach to underwriting on a granular level. So, that is not a repetitive situation. And I'll just reiterate, the approach to credit from American National Bank is very good. So, we feel comfortable that we basically identified this, but it also fit within the marked -- the expected marks that we have, because we know that as you go as deep as you can possibly go, you're going to find something within there that may not fit exactly, but we found it. And that's through extensive deep dive.

So, I feel pretty good about the fact that we, frankly, I would say found really nothing outside of what we expected from due diligence. In fact, I think we're within a few hundred thousand dollars on a multibillion-dollar portfolio on the mark, and we feel extremely well reserved overall in the portfolio for both companies.

There are no further questions. I'd like to pass the call back over to management for any closing remarks.

Well, I would just say thank you for the great questions today and for the interest in Associated Bank. We look forward to speaking with you in the near future and continuing to tell our story. Thank you very much.

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

Good afternoon, everyone, and welcome to Associated Banc-Corp's First Quarter 2026 Earnings Conference Call. My name is Kevin, and I'll be your operator today. [Operator Instructions] A copy of the slides that will be referred to 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 2, during the course of the discussion today, management may make statements that constitute projections, expectations, beliefs or similar forward-looking statements. Associated 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 a reconciliation of the non-GAAP financial measures to the GAAP financial measures mentioned in this conference call, please refer to Pages 28 and 29 of the slide presentation and to Page 9 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.

Well, good afternoon, and thank you for joining our first quarter earnings call. I'm Andy Harmening, and I am once again joined by our Chief Financial Officer, Derek Meyer; and our Chief Credit Officer, Pat Ahern. I'll start off with some highlights from the quarter. And then from there, Derek will cover the income statement and capital trends, and Pat will provide an update on asset quality. .

We entered 2026 with strong momentum as a company following a pivotal 2025 that advanced our growth strategy in several important ways, with relationship loan and deposit growth, record customer growth, and solid credit performance, combining the drive the strongest annual net income in our company's history.

In the first quarter of 2026, we remain squarely focused on maintaining momentum with our growth strategy, and our first quarter results reflect that trend. We posted annualized first quarter checking household growth of 2.2%, an encouraging result in what is typically a slower season for checking acquisition.

We delivered over $500 million of period end C&I loan growth, a 4.6% increase point-to-point versus December 31. We've also made meaningful progress on our commitment to accelerate our growth momentum in the major metropolitan markets over the remainder of '26 and into '27. Year-to-date, we've made several key hires across our revenue lines of business increased marketing acquisition spend, launched our new C&I office in Dallas and launched a new national franchise banking vertical.

To further complement and accelerate our growth momentum, we announced the closing of our acquisition of American National Bank on April 1. Upon conversion, the combined company will feature a proven relationship-focused strategy, a dynamic product suite, a modern digital experience and effective marketing acquisition engine and expanded commercial capabilities, all positioning us to grow and deepen relationships in growth markets such as Omaha and the Twin Cities.

Colleagues from both organizations continue to work closely together to facilitate a smooth and successful integration. And we expect to complete the conversion process late in the third quarter of this year. We're excited about our growth prospects at associated over the remainder of the year and beyond.

But as always, our intention is to grow in a disciplined way. Recent events have introduced volatility at the macro level, but we feel well positioned to navigate this uncertainty, thanks to our disciplined approach to risk management, our enhanced profitability profile, a solid capital position and the resilience and stability of our Midwestern markets.

We look forward to providing additional updates on Associated Bank's growth journey along the way. With that, I'd like to walk through our financial highlights for the quarter on Slide 4. We reported earnings of $0.70 per share in Q1. Total loans grew by over $600 million or 2% versus the prior quarter.

The growth was driven primarily by commercial with C&I balances growing $540 million versus the prior quarter. On the funding side, total deposits grew by $179 million, while core customer deposits grew by over $800 million versus Q4. As is typical this time of the year, the quarterly increase was impacted by strong seasonal inflows and a handful of accounts in Q1 that flow back out in Q2.

With that said, Q1 core customer deposits were up $1.3 billion or 4.5% relative to the same period a year ago. Moving to the income statement. Q1 net interest income of $307 million dipped slightly from the record quarterly NII we posted in Q4, but increased 7% relative to Q1 of 2025.

Similarly, total noninterest income of $76 million decreased by $4 million from Q4 that saw strong capital markets activity, but was up meaningfully versus the same period last year. Total noninterest expense of $219 million decreased slightly from the prior quarter, delivering positive operating leverage remains a primary objective as we continue to execute our plan.

Shifting to credit. Credit asset quality trends remained strong in Q1. Total criticized loans decreased. We booked $11 million of provision and saw just 7 basis points of annualized charge-offs for the quarter after posting 12 basis points of charge-offs in 2025.

As I mentioned previously, we've seen strong growth momentum in the early part of 2026, and Slide 5 lays that picture out in greater detail. After several years of investments to modernize our digital experience, enhance our product set and improve our marketing and acquisition capabilities, we now have a proven ability to grow our customer base sustainably over time.

In the first quarter, we posted annualized household growth of 2.2%. This number gives us a strong start to the year as we continue to focus on attracting and deepening customer relationships as a means to decrease our reliance on higher cost wholesale funding sources. We've also made significant investments to grow relationships and take market share on the commercial side with a steady cadence of leadership hires, RM hires and expansion capabilities.

In Q1, we posted over $500 million in C&I loan growth, nearly a 5% quarterly growth rate. Pipelines have remained strong on both loans and deposits, and we expect our momentum to carry throughout the year. And as mentioned, we closed our acquisition of American National Bank on April 1.

This partnership provides opportunities to deepen relationships with existing American national customers through our expanded product set and capabilities while also providing growth opportunities in major metro markets like Omaha and Twin Cities, which are both growing faster than the average Midwest.

The investments we've made in prior years are driving results in 2026, but we also expect to sustain and accelerate our growth strategy into '27 and beyond. With that in mind, we executed on several investments here early in 2026 that are intended to drive additional momentum. First, we've leveraged our best-in-class value proposition and a proven marketing acquisition and to accelerate customer growth.

As a reflection of these efforts, our marketing acquisition spend was up 23% in Q1 versus the same period a year ago. As we continue to attract and deepen relationships, we're building a stronger pipeline into our private wealth business particularly in major metropolitan markets where we're underpenetrated.

To capitalize on these opportunities, we hired Lisa Buto earlier this month as Director of Private Banking for major metropolitan markets. Based in the Twin Cities, Lisa brings more than 25 years of expertise and she most recently served as Managing Director and Private Wealth Banking Manager at Wells Fargo, where she led client-facing banking and lending teams across 11 states.

We've also taken several steps to drive incremental growth in commercial, adding another wave of talented bankers and expanding our capabilities. After launching a new C&I office in Kansas City last year and seen promising results, we expanded the team in Q1 with 1 additional RM and 2 additional professionals.

Based in part on the successful model we've developed in Kansas City, we also officially launched a new C&I office in Dallas. The commercial market leader has been hired, and we expect RM hires to begin in May. And earlier this week, we announced a new nationally focused franchise banking vertical, led by Sean Core based in the Twin Cities, Sean brings more than 30 years of experience with deep expertise in scaling specialty banking platforms and building high-performing teams.

Most recently, she led the National Franchise Banking division for Bremer Bank. We also brought on a new RM and 3 other professionals to round out Sean's team. As we work to accelerate growth across the company, the successful integration of American National is a key priority to position our combined company for long-term growth and success.

On Slide 6, we provide a reminder of the expected benefits of the partnership and an updated time line of the integration process. And 3 weeks post close, we are on track. In the days immediately following the close on April 1, we had over 40 legacy associated colleagues on the ground in Omaha. We've completed culture surveys, repositioned their securities portfolio, completed the colleague decisioning process and achieved several other integration milestones.

Along the way, we've been impressed by the passion, enthusiasm and cultural fit. Our new colleagues have shown within the combined organization and the professionalism they've exhibited as a navigate change. Maintaining a strong local leadership presence in our newest market as a top priority.

And last week, we announced Jason Hanson as a business segment leader for Commercial Banking and our new market president for Nebraska and Western Iowa. Jason most recently served as President of American National Bank and he's uniquely qualified to position our combined company for a long-term growth and success in Omaha and beyond, having joined American National Bank in 2000.

Looking ahead, colleagues from both organizations continue to work closely to ensure a smooth integration process, and we are on track for conversion of accounts, systems and branches in late Q3 of this year. We expect to finalize purchase accounting adjustments later this quarter. On Slide 7, we recap our plan to drive sustainable growth in 2026 and beyond, and it starts right here in Wisconsin.

We have a 165-year foundation of long-standing loyal relationships in the Badger State that provide us with strong funding base for growth. Looking forward, we see plenty of opportunities to grow and deepen relationships across the state. But we also see clear opportunities to accelerate our growth momentum with an expanded presence in major metro markets.

We're already seeing the strategy pay off in legacy Upper Midwest metros like Milwaukee, Chicago and the Twin Cities, where we're growing households and driving relationship loan and deposit growth. We're seeing similar success stories emerge in newer markets like Kansas City, where we've already expanded a commercial team that launched just a year ago. And already in 2026, we're further expanding our presence in the strategic growth markets. through the American National deal, which provides entry into Omaha and deepens our presence in the Twin Cities and through the new C&I office we launched in Dallas.

Based on the strong results we've seen through the first quarter, and the additional investments we've made in early 2026, we're on track to achieving our targets for household growth and C&I loan growth in 2026, and we expect our ongoing efforts to drive growth momentum sustainably over time. Shifting to our core financial results. We highlight our quarterly loan trends on Slide 8.

We saw strong loan growth in Q1, particularly in the back half of the quarter, with total period-end loans up 2% or $635 million relative to Q4. I -- as has been the case in the past several quarters, C&I loans led the way with nearly $540 million of period-end loan growth during the quarter.

We also saw total CRE balances increased by $143 million as loan production outpaced lower-than-expected payoffs during the quarter. We continue to expect payoffs to materialize throughout the year. After including the impact of American National acquisition, we now expect 2026 period-end loan growth of 17% to 19% as compared to Associated stand-alone results for the year ended December 31, 2025.

Shifting to Slide 9. Period-end deposits grew by $179 million during Q1, while core customer deposits grew by 3% or $820 million. As mentioned, the strength in some core customer balance flow was impacted by seasonal inflows we typically see towards the end of the quarter in a handful of accounts.

With that said, Q1 core customer deposits were up 4.5% relative to the same period a year ago over the course of the quarter. We also saw balances shift away from brokered CDs and network transaction deposits and into customer deposits and wholesale sources such as FHLB and other wholesale. We also accelerated our funding in Q1 to keep pace with strong loan growth we saw during the quarter.

Over the remainder of 2026, we're bullish on our ability to drive incremental core customer deposit growth, thanks to a best-in-class consumer value proposition, household growth momentum supported by increased marketing acquisition spend in growth markets and significant momentum in our commercial deposit gathering capabilities.

After including the impact of American National acquisition, we now expect 2026 period end total deposit growth of 17% to 19%, and period end customer deposit growth of 19% to 21% as compared to associated stand-alone results for the year ended December 31, 2025. With that, I'll pass it over to Derek to discuss our income statement and capital trends.

Thanks, Andy. I'll start with yield trends on Slide 10. In Q1, the yields on our largely floating rate CRE and commercial books both decreased by 29 basis points during the quarter. We also saw an 11 basis point decrease in auto yields, but slight increases in the investment portfolio on resi mortgage. Total interest-bearing deposit costs decreased by 17 basis points in Q1 and were down 47 basis points since Q1 of last year.

In Q1, total earning asset yields decreased 14 basis points to 5.2% and while interest-bearing liabilities decreased 15 basis points to 2.67%. The benefit in net free funds compressed by 5 basis points.

Moving to Slide 11. I First quarter net interest income of $307 million decreased $3 million versus the prior quarter and increased $21 million versus Q1 of 2025. As Andy mentioned, the timing of our strong loan growth during the quarter outpaced the natural run rate of our deposit battery. As such, we accelerated our funding to match, which put some short-term downward pressure on both NII and margin. With this in mind, our net interest margin decreased 3 basis points to 3.03% for the quarter as compared to the same period a year ago, our NIM increased 6 basis points.

Looking ahead, we continue to assess the balance sheet and income statement impacts from the acquisition of the American National Bank that closed at the beginning of the month. As it stands today, balances are generally in line with our due diligence assumptions.

We expect to share an income growth of 8% to 10% in 2026 as compared to associated stand-alone results for the year ended December 31, 2025. Moving to Slide 15. Total noninterest expense came in at $219 million in Q1, slightly lower versus the prior quarter. During the quarter, we saw slight increases in FDIC assessment technology, legal and professional fees, offset by quarterly decreases in business development, equipment and other expenses.

In Q1, our adjusted efficiency ratio increased slightly from 55.2% to 55.8%. Throughout the year, we continue to invest in the growth of our franchise, but we're anchored on delivering positive operating leverage. We expect to share an updated noninterest expense outlook for the next quarter following the finalization of purchase accounting adjustments tied to the acquisition of American National.

On Slide 16, our CET1 ratio finished at 10.47% in Q1. This figure was up 36 basis points from Q1 of 2025, but decreased slightly quarter-over-quarter due in part to the strong loan growth we saw in the quarter. Our TCE ratio also decreased slightly from the prior quarter to 8.27%, down 2 basis points versus Q4 but up 31 basis points versus Q1 of 2025.

We've continued to see our tangible book value per share expand on a quarterly basis with Q1 finishing at 22.23 up nearly $2 versus Q1 versus last year. I'll now hand it over to our Chief Credit Officer, Pat Ahern, to provide an update on asset quality.

Thanks, Derek. I'll start with an allowance update on Slide 17. Our CECL forward-looking assumptions utilized the Moody's February 2026 baseline forecast. The forecast remains consistent with a resilient economy containing a more optimistic GDP outlook despite the higher interest rate environment, higher levels of inflation and tariff negotiations.

The Moody's forecast now contains less total rate cuts in the latter half of 2026 compared to prior quarter forecast. In Q1, our ACL increased by $6 million to $425 million. The increase was primarily driven by commercial and business lending and CRE construction, which largely stemmed from a combination of loan growth, plus normal movement within risk rating categories.

Our ACL ratio as a percentage of total loans has remained stable for the past several quarters. Here in Q1, the ratio decreased 1 basis point to 1.34%. On Slide 18, we continue to review our portfolios closely amidst ongoing macro uncertainty, but we continue to see solid performance in Q1. We Total delinquencies increased versus the prior quarter to $88 million with $43 million of the increase being driven by 2 managed credits, in which an extension process carried into Q2.

We remain comfortable with the delinquency trends we've seen over the past several quarters. Total criticized loans decreased by $29 million versus the prior quarter with decreases in the special mention and substandard accruing categories being partially offset by an increase in nonaccrual loans. Nonaccrual balances increased to $111 million in Q1 and up $10 million versus Q4 but down $24 million from the same period a year ago.

We remain confident there hasn't been a material shift in the credit portfolio of the portfolio that would result in a corresponding risk of loss. Finally, after booking just $2 million of net charge-offs in Q4, we booked $5 million in net charge-offs here in Q1. Our net charge-off ratio for the quarter was just 7 basis points.

We also added a modest provision of $11 million during the quarter. Here in 2026, our teams remain diligent in reviewing our portfolios and staying in regular contact with customers to stay ahead of any emerging risks. We also remain diligent in monitoring credit stressors in the macro economy to ensure current underwriting reflects the impact of ongoing inflation pressures, shifting labor markets, tariffs and other 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 further provision adjustments will 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.

Thanks, Pat. On Slide 19, we provide an initial update to our outlook following the close of American National acquisition. As we sit here 3 weeks post close, we haven't seen any major surprises, and our current expectations are largely in line with the assumptions provided when we announced the deal. .

This outlook does not assume any material incremental growth expectations for the American National business in 2026. We expect to update this 2026 outlook with estimates for the net interest income and noninterest expense categories following the finalization of purchase accounting adjustments, which are expected to be completed later this quarter. With that, I'll open it up to questions.

[Operator Instructions]

Our first question today is coming from Jared Shaw from Barclays. Jared?

You could just help us with how we should think about 2Q. I know you're still finalizing some of those marks. But I think you said in the commentary that you sold all the securities and reinvested. So I'm guessing that there's no real accretion coming from the securities book.

But maybe just walk through a couple of the puts and takes on margin and as we're going into the second quarter, if you can?

Yes. The puts and takes on margin relative to the AMB acquisition will not be any different than what we have disclosed before because, as you know, we took over April 1. We haven't closed a month, and we need to get through the marks. However, we haven't seen anything that really surprises us to this point, and we had initially forecasted a potential increase of 5 to 10 basis points.

That's where we would sit today, Jared, is the potential impact once we get through the marks in the second quarter.

Okay. All right. And then this sort of separately, looking at some of the new growth markets that you're talking about and the ability to hire RMs there. How competitive is it to find good people out in some of these markets?

We're hearing from other people that they're targeting some of the same areas -- are you able to -- are you starting to see pricing run up there? And how much growth do you expect to get for those markets over this year?

No, I'd equate this to start in a 40-yard dash and we already had a running head start. So we've been in the acquisition of new colleagues for a little bit. And what happens is when you hired at the top and you get a really strong person which we did and fill Trier, and then you get market leaders along the way over the course of the last 4 years that are very strong.

And then you start to get RMs underneath there. I'd say this long explanation because what's happening is we are able to get quality folks in each market. And so Kansas City, a great example of that, where we've not only grown, but we've doubled down on that bet because of the leader we got in that market.

We have -- we just hired this week, Brandon White from the legacy middle market team with Comerica, who has a fantastic reputation personally, but also the banking for their middle market was significant. So the way I see this, Jared, outside of just the $500 million of growth is, we started 2025, and we basically had 4 major metropolitan markets we're operating in Milwaukee, Chicago, Twin Cities and St. Louis.

We added Kansas City in 25. We added Omaha in 26. We added Dallas in 26, and that just gives a tailwind to what we're doing, and then we expanded in Twin Cities. So the talent that we're able to bring in, there's a lot of word of mouth at this point, and that's good for us.

And when somebody wants to find out what it's really like working here. what is the culture really like? What is the support to get a deal done? What is credit really like?

Look, they'll interview with Pat Ahern, if they need to, our Chief Credit Officer, they'll interview with me but mostly, they're taking care of that with the local hiring manager. So it's a very different game we're playing right now than one year ago, 2 years ago, or 3 years ago on the hiring front. We're in a really good position. I just spent time with our commercial team our top 60 leaders in the company and the energy in that room and the connectivity to our culture was palatable.

If I could just put one more in there. On the deposit funding side, some pretty good trends there, good data so far. -- without any more rate cuts, how much more do you think you can squeeze from funding costs -- deposit funding costs?

Derek, do you want to take that?

Yes. So I think there's still opportunity for remixing because we have most of our growth for the rest of the year coming from products like interest checking and savings, which are relationship-based and not as expensive as CDs, although we also have CD growth in there. But what we've seen based on our overall NII outlook at the legacy ASP part, given where our loan growth came in is probably some upside opportunity from -- on net interest income versus our original guidance. And so we don't think funding is going to stop that.

Next question is la from Casey Haire here from Autonomous Research.

Yes. Great. Thanks. Maybe taking the flip side of the deposits, the loan yields. Where do we expect those to trend going forward? And then in your expansion markets, how do the new money yields in your expansion markets compare to your core footprint?

Yes. We don't give out the market by market yield. I think we look for where the best opportunities are, where we're going to get most of the household growth. I think if we punch through the loans, you're still going to see most of our growth, as we've outlined in our guidance coming from C&I and CRE, which are still higher yields than the rest of our [indiscernible] categories. So that's favorable. And obviously, it's more favorable for us given the no cuts outlook and the fact that those are more closely tied to the short end of the yield curve.

We don't expect yields to go up in auto. Those are trickling around the areas we've seen. They took a step down, but we've seen that happen before, and that should moderate. So if we do get rate cuts, that will still help us as a hedge and we still expect resi to continue to trickle upwards a few basis points a quarter. So net-net, given the outlook on rate cuts, it's very favorable compared to what we thought about at the beginning of the year.

Okay. Great. And then on the capital front, apologies if I missed this, the Basel III impact from the proposal and then any updated thoughts about share buyback appetite with A&B now closed.

Yes. A&B is closed, but we're working through the marks, which is the important part of understanding the balance sheet. So that hasn't really changed as a result of the close, but it will be very informed over the course of this quarter.

I'm very bullish on where we are if we just looked at our forecast for the year relative to the legacy stand-alone ASP and what that means is we would be forecasting net interest income likely above the range that we have today.

Well, when you start to do that and you start to get a return that puts you in a positive position to free capital and grow at the same time, which is why we got the original $100 million authorization.

I fully expect that we'll use that this year.

With regards to the regulatory changes, you want to touch on that? I mean it's in the comment period.

Yes. It's in the comment period. There's obviously the -- 2 ways you can go on that, depending on whether we opt in or opt out on the methodology. So we'll see which 1 makes sense given the cost. We expect that to go to be favorable for us. a scenario, but we don't think that's going to change the near-term outlook on the repurchase.

And then the reality is we're very comfortable with the guidance we gave with CET1 in the 10% to, 7.5% range. When we get to the comment period, we only see that would likely have an upside for us to comment on the specific number on that would be premature because we don't have final guidance, but -- if you think about the fact we're bullish on our NII and our return profile and if there is a regulatory change, that could only be good for us. I think that puts us in a great position to have flexibility with capital.

The next question is coming from Brandon Rud from Stephens.

If I could touch quickly on the C&I growth. I'm just curious how much of that was seasonality. And I ask, I think on Page 22, it looks like a little over $100 million came from the mortgage warehouse business. So I'm just curious how much of that is based on seasonality and how much should stay on the balance sheet a bit longer?

Yes. I mean the mortgage warehouse business has become a fairly small part of the balance sheet, but seasonality on that piece is there is a benefit there. I would say the rest of it you don't typically see getting out of the gate this fast in commercial.

So I'm very bullish on C&I growth for the year. I think we've forecast is 9% to 10%. And I would tell you, I would put us at the high end of that range today. Because when you get done with a quarter where you grow 540-ish million, I think, is the number you get through that quarter and then you look at your pipeline. And we have a pipeline after getting through that where the same period prior year, we're up 20%.

So, I'm from a pipeline standpoint. So I feel very, very good about that. We we've hired a team on the franchise business that I expect will start to add to that during the year. And that's a pipeline we don't even have yet. And we expect that because of their knowledge of the marketplace, we'll have some good benefit there.

And getting open in the Dallas market. It will take time in 90 days, but I would expect in 90 days, we'll start to have a pipeline there that's not even part of the increase. So we have tailwind there, and we're seeing pull-through of pipeline, and I'm very bullish on our ability to meet the high end of the guidance on C&I loan growth for the year.

Got it. And maybe just one more. The 2.2% annualized checking household growth, is that primarily still coming from the legacy markets and as the marketing spend hits the newer markets. Would that -- would you anticipate that number continues to accelerate?

I feel like I wrote that question, Brandon. Thank you. The answer is, it has nothing from the new market. It has nothing from Omaha. Obviously, we're in the Twin Cities, but it doesn't have anything from those new branches.

The time that you turn on that spike is when you get done with systems conversion typically on the marketing side. So as we -- assuming a late third quarter integration, you start the marketing in the fourth quarter. And so when we think about the efficacy of our company and what that means to things like fee income, debit card fee income, credit card fee income, we're actually experiencing a tailwind right now for the first time in probably 20 years.

When we get done with that, we have a major growth market in Omaha that we will market heavily into. So I think this is where we say, hey, can we get above 2% this year in our legacy markets and then go into 2027, challenge the team to get to 2.5%. As we start to get to 2.5%, I think we'll be in the top quartile or decile of the peer group in that category.

So when I think about our ability to continue to grow, I'm pretty optimistic based on what we've put together so far and then putting that out into the Omaha market.

Your next question is coming from Daniel Tamayo from Raymond James.

You I'll take a swing at the expenses. I completely understand that you guys don't have a number out there yet for the all-in. But a lot of good revenue opportunities and trends you're talking about here, Andy. Is it fair to say the stand-alone expense numbers are drifting up off the original guidance as well?

No. Actually, it's probably one of the things I'm most proud of. I mean we went from fourth quarter to first quarter and almost flat as a pancake. I mean we could say we went down, but it's $300,000. So let's say, flat in the first quarter.

And our legacy stand-alone ASB business because we made difficult decisions at the end of each year, we are in a position to meet the expense number while we are seeing NII forecast creeping up and noninterest income forecast at the high end of the range or above as well. So no, I believe the legacy business will manage to that 3% number.

Great. And then I guess as we think about the expansion markets here, talk a lot about the loan growth. Still no branches, I think, in Dallas or Kansas City how should we think about the infrastructure build that's planned over the next couple of years there? And if you're -- I'm assuming going to attempt to capture perhaps some retail deposits as well.

Yes. Yes, maybe we will, maybe we won't. I mean, really, what's on my mind and stop me if you've heard this I want organic growth, first and foremost. And we did these deals because we thought very strongly that in Twin Cities by getting a little bit bigger, that actually advances our marketing capabilities in that market.

So it increases our exposure, our visibility, the places we can drive business into. So that's the first thing. The second thing is Omaha, an incredible market. It is the fastest-growing major metropolitan market outside of Dallas, where we have branches, it's the fastest growth market of any major metro we have.

And so our ability to grow that we think is going to be significant for us. With regards to adding infrastructure, really, what I want to do is execute on this integration. We've executed on Phase 1 and Phase 2 of our plan, and it's driving a profitability profile that helps the bank significantly in capital accretion and return. We believe once we close on the -- once we finish the integration on the AMB deal, because we have such similar cultures, we actually think we'll start the growth on that one in a significant way, and it will accelerate our organic growth. Beyond that, really, to me, organic growth is the #1 question as opposed to building out expensive infrastructure that's difficult to pay for.

Understood. And probably the last most important question here. who are the packers going to take tonight?

I don't think we have a first round pick. I'm going to punt on that -- that's almost a jab and unintended jam at the end of the questions.

Next questions coming from Scott Siefers from Piper Sandler.

And you actually already answered my question on sort of disaggregating the underlying loan growth versus what's coming from the American National transaction. It's obviously really good there. I was hoping you might please just sort of share your thoughts on the same thing on the deposit side. sort of legacy associated how those expectations might have change if we weren't layering in A and B?

And then maybe as you think about the mix of deposits going forward through the remainder of the year, how do you see sort of noninterest-bearing levels sort of trending as a percentage of the total?

Yes. I mean a couple of good questions in there. So the way that I think about ASP overall, if I just think about the stand-alone, which we don't -- we debated whether we have the stand-alone because we're not stand-alone anymore, and we don't want to act like we are.

However, we want to be transparent. So on loans, we're at the high end of our guidance.

On deposits, we are the same as when we started the year. We're tracking exactly to where we expected to be. net interest income, we're above the range that we had. Noninterest income, we're at the high end of the range or above that range and expenses we are at that -- we're at our 3% number.

So what you probably can take out of that is the change in the view on rate cuts that helps our company. Our loan growth momentum, that helps our company. The accelerated deposit growth in the second half of the year, that helps our company.

The short-term nature of our contractual liability obligations puts us in a really good position to navigate the rate environment. So that foundationally is where the legacy associated bank is -- right now, you asked a second question. Sorry, I forgot that one.

No problem. And by the way, that was very good color on the first one. And it was just sort of mix of deposits as you look through the remainder of the year, especially if you can talk to the noninterest-bearing.

Yes. So I mean, everyone would love to have noninterest-bearing grow like a weed. It's just not the way it works in banking. And so what I would say is a couple of things and Derek and I discussed this all the time, I'm really, really pleased with the direction of our household growth. I mean I really think we're moving towards ultimately a best-in-class.

And that helps your demand deposit growth over time. If somebody is growing at 2.5% and the market is growing at 0, where you're growing at 2% and the market is growing up 0. Over time, you're going to inch up in that category. So the goal is that you are not moving backwards in demand deposits as we saw the market do for a long time.

We've stabilized and now we have a faster growing customer base. But I would expect the interest-bearing would dominate that category. And right now, the thing that's probably most interesting to me is we have HSA business that is one of the fastest organic growth in HSA business in the country. And it's being fueled largely by our retail and commercial teams. We have an HOA title business that is launched right now and has a pipeline that we can actually execute because we did the technology already.

We have a platform on consumer that is adding growing at a 2.2% annualized pace and maintaining the quality of the customer. And so we're not adding customers just to add them. And frankly, our attrition is one of the lowest in the business because we have products out there that keep them and deepen them. So as we head into the second quarter and the second half of the year, I expect to have a good deposit growth and acquisition in the second half of the year with modest increase from demand deposits as you would expect.

Our next question is coming from Chris McGratty from KBW. --

This is Chris O'Connell filling in for Chris. Yes, no problem. So I just wanted to touch on the balance sheet and interest rate positioning following the close of the American National deal. Just any updates there as to how it impacted the balance sheet? And then was the securities repositioning, I guess, a part of bringing you back to -- towards the stand-alone positioning?

Derek, I'll have you take that.

Yes. So you're going to get a little bit, and then we'll probably give you the rest in when we closed the books for second quarter. So the easiest thing to say without the marks is that the loans and deposit balances came in, unmarked came in right where we expected during due diligence.

That gives us comfort in the first step telling us that we're materially on track from a balance sheet standpoint with what we expected during due diligence. Now the impact of the rate changes since then and how those affect the marks on capital and then the accretion of earnings after that.

We're going to wait until we actually do work through the market process and then report it, and then we'll give you the -- how that accretion that we expect to impact NII and NIE going forward when you look at CDI also. So that's probably the best I can tell you because we have done the securities repositioning, but that's only one part of it, and you really can't get a grip on the whole impact, but we still think we're materially on track.

Okay. Got it. And then just as a follow-up on the same vein as you guys have closed the acquisition taking a look at the overall loan portfolio. Is there any areas that are contemplated in terms of further balance sheet runoff or pockets of the portfolio that you guys might shy away from?

No, the portfolios that they're in and the business that they do largely looks like what we do. Pat has Ahern has commented on the strong kind of credit write-up and process that they had. The fact is that their Chief Credit Officer, we were keeping him, he's staying on board because he's good, and their approach to credit is good. .

And so there have been no surprises on that front. We got through a lot of those credits during due diligence and felt like we knew the portfolio very well. And frankly, since close, there has been no change to that.

The next question is coming from John Arfstrom from RBC Capital Markets.

Just a few follow-ups. One on the commercial growth in the pipelines, Andy, I don't know if there's a way to separate this, but in your mind, what would you say the kind of the legacy associated client utilization looks like.

I know you've got a lot of new hires that are driving the pipelines higher. But for the clients that have been around for a long time and associated. What is the pipeline like for clients like that?

Are you asking about the individual RM productivity or I'm not -- if you could just clarify that, Jon.

No, I'm just asking for how much of your pipeline growth is driven by the new hires and the new RMs versus the people that have been there for a while. And I'm just trying to get a gut check on like utilization from the typical metal vendor of Oshkosh or something like that. Does that make sense? Does that make sense, what I'm asking? .

Yes. I mean it's a little bit hard to answer at this point because they are becoming us so quickly now. And so what I mean by that is we're up 44% in RM since I started. So there are a lot of new folks in what we do, and some are 1 year, 2 year, 3 year, 4 year. What I would say is that the legacy, if you want to call something over 2 years or 3 years legacy, they are driving more of the pipeline.

They should. They're more of those folks. However, the gap is being bridged on the productivity per person. So we are seeing, whether it goes from 50% to 75%. And now as we head into the year, we have absolutely no non-solicitation agreements which we have very strictly lived up to.

And so we have a team that there is upside from what we are doing today with the existing team, which is why I think we've seen another bump in what we see in the pipeline now versus 12 months ago. And that's what gives me a lot of confidence as we get through the rest of this year that we are at the high end of that we're at the high end of that forecast.

But more of it has been done by legacy colleagues, but the -- just on a per person basis, we're bridging the gap and they're getting closer and closer to 100% productivity.

Okay. So broad and deep, you would say, the pipeline increases?

No, absolutely yes, yes.

Yes. Okay. Derek, one for you. Slide 9 that customer CD increase. I understand that you have deposits that ebb and flow in the first quarter, but kind of what's the strategy behind that? And it looks like it was more of kind of a period-end increase.

Yes. I mean that's where you saw -- when we saw during the quarter, I think we came into this quarter with a 41% increase in the pipeline on the C&I loan side. And we started to see that pipeline come through, and we were a little bit below market on CD rates. We decided to raise our rates and try and make sure that we weren't looking into funding all of that growth that started to look like it was going to hit this quarter, which is well above our annual run rate, which is pretty high guidance anyways.

And so we decided to go ahead and front load that production. And the easiest way to do that in this market with these rates, I want to do it with the CDs. Now those CDs are all 7 months that's the promo rate and we still stay very short on all our contractual fundings, which you'll see later in the deck. So we thought it was a good move. Ended up, we were right because the spot balance loan growth was very strong. And so we feel pretty good about it, but we'll have a chance to reprice all of that before the year ends.

Yes. Okay. Makes sense. And then just last one, Slide 19, the guidance. I'm assuming this is the case. But any material changes to like the core guidance that you gave last quarter. Is there any puts and takes there if you take American National off the bat slide?

I think the biggest one is net interest income. Our guidance was 5.5% to 6.5%. If you look at where our balances ended this quarter. And if you recognize the fact we're asset sensitive, we don't have 2 rate cuts our guidance would be more like 7% to 8%.

We reached the end of our question-and-answer session. I'd like to turn the floor back over to Andy for any further closing comments.

Yes. I'll just make a couple of quick comments. One, if you try to separate this into 2 pieces and hopefully, very soon, we won't anymore. It will be one company particular to this. But the legacy guidance on ASB basically improved from last quarter, if we break that out in the specific categories.

And I'm very bullish on the trends that I'm seeing that back that up. With regards to [ AMD, ] there are a lot of questions in a lot of different ways. And I just want to give a quick summary on that. One is we have a strong reinforcement that we have cultural alignment. That is a big deal. We have detailed plans to achieve our noninterest expense takeout that is right on track.

There's an ability at some point here to advance growth and it's becoming more clear based on FX, wealth, syndications, balance sheet size, common credit background, consumer products at digital platform and marketing acquisition capabilities. That's a long list, which gives me confidence that we will hit in some or many of those and that will be impactful. We're on track on systems integration and the time line there.

We will work through our purchase accounting marks in the second quarter. And most importantly, I saying all that is the AMB deal is what we had hoped it would be. So that's our story. We appreciate your interest, and we look forward to continuing to provide updates throughout the year.

Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.

Good afternoon, everyone and welcome to Associated Banc-Corp's Fourth Quarter 2025 Earnings Conference Call. My name is [indiscernible] and I will be your operator today. [Operator Instructions]

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 2, 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 a 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 Harmening, President and CEO, for opening remarks. Please go ahead, sir.

Yes. Thank you for the introduction, and good afternoon. Welcome to our fourth quarter earnings call. This is Andy Harmening. 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 the 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 2 of our strategic plan. Those investments gave us strong momentum throughout 2025, and 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 4 quarters of 2025.

We're growing and remixing our balance sheet simultaneously. In 2025, we added over $1.2 billion in relationship C&I 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 3 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 #2 market deposit share. and strengthening our position in the Twin City 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 associate it 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 banks 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 4. We reported earnings of $0.80 per share in Q4 and $2.77 per share for the full year. Total loans grew by another 1% versus the prior quarter and 5% versus Q4 of 2024. C&I has continued to be a primary growth driver for us throughout the year. We grew C&I loans another 2% in Q4 and added over $1.2 billion in C&I balances for the year. On the funding side, core deposits grew by nearly core 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 noninterest 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 noninterest income grew by 9% versus 2024.

Total noninterest 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 nonaccruals dipped to 32 basis points of total loans. Net charge-offs decreased to just 3 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 5, 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 C&I loans by over 50% since 2020, with pipelines remaining strong and a few more noncompetes 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 nonrelationship rate mortgage balances as they roll off.

Since 2020, we 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 3 consecutive quarters of record NII and a NIM north of 3% 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 ROCE increased to 13.6% in 2025. In Q4 of '25, our ROTCE 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 company. We believe the momentum from these investments will carry well into 2026. And with that said, we also see additional opportunities to incrementally build on our momentum in '26.

On Slide 6, 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 to bolster market leadership add counted 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 2 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, [indiscernible], and our new market President, Mike Levin. 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 in both the Midwest and national averages.

Our #2 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 on 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 with the addition of C&I presence in the Lone Star state.

Moving to Slide 7. We're going to accelerate organic growth in these major metropolitan markets through 2 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 this 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 2 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 5 more RMs in the Twin Cities, 2 in Kansas City and 4 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 C&I 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 8, 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 have 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 9, we show an annual view of loan trends. In this broader view, you can clearly see the growth and remix story that has [indiscernible] since 2021. We've decreased our concentration of low-yielding noncustomer 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 C&I where we achieved our $1.2 billion growth target for the year, with pipelines remaining strong and additional lift expected as our last few noncompete [indiscernible] we expect continued momentum in C&I into 2026. As such, we expect C&I 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 stand-alone 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 of larger accounts 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 our best-in-class consumer value proposition, household growth momentum supported by increased marketing acquisition spend in 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. We Auto and investment yields also saw slight decreases. These decreases were modestly offset by a slight uptick 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 5.3% and while total interest-bearing liabilities decreased 21 basis points to 2.8%.

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 2 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 of between 5.5% and 6.5%. This forecast assumes 2 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 obligation short. We're protecting our variable rate loan portfolio by maintaining a received fixed swap balances of approximately $2.45 billion, and we build 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 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 noninterest income trends for the quarter. After posting $81 million in noninterest income in Q3, we followed that up with another strong quarter in Q4. Total noninterest income of $79 million was down $2 million from the prior quarter, but was up $8 million from our adjusted Q4 2024 number. 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 noninterest income higher over time. As such, we expect noninterest 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 velocity 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 noninterest 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 quarter. 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.

Thanks, Derek. I'll start with an allowance update on Slide 19. Our CECL forward-looking assumptions utilized the Moody's November 2025 baseline forecast. This forecast remains consistent with a resilient economy despite the higher interest rate environment. It contains continuing rate cuts in early 2026, slower but positive GDP growth rates, a cooling labor market continued elevated levels of inflation and continued monitoring of ongoing market developments and tariff negotiations.

In Q4, our ACLL increased by $5 million to $419 million, this increase was primarily driven by commercial and business lending, which largely stemmed from a combination of loan growth, plus normal movement within risk rating categories. Our ACL ratio remained largely remained flat throughout the year in 2025. In Q4, the ratio increased 1 basis point from the prior quarter to 1.35%.

On Slide 20, we continue to review our portfolios closely amidst ongoing macro uncertainty, but we continue to see solid performance in Q4. Total delinquencies ticked up slightly versus the prior quarter to $61 million but were down $19 million versus Q4 of 2024. We remain comfortable with the benign delinquency trends we've seen over the past several quarters. Total criticized loans decreased by $165 million versus the prior quarter, with decreases in all 3 major components of the metric. The decrease in Q4 reflects continued resolutions with some of these stressed credits with liquidity present in the market in terms of both payoffs and loan re-margin. We remain confident that there hasn't been a material shift in the credit profile of the portfolio that will result in corresponding risk of loss.

Nonaccrual balances decreased to $100 million in Q4, down $6 million versus Q2 and down $23 million from the same period a year ago. Finally, we booked just $2 million in net charge-offs during the quarter, and total net charge-offs for the year represented just 12 basis points of average loans. We also added a modest provision of $7 million during the quarter. As we shift our focus to 2026, our team remains vigilant in reviewing our portfolios and staying in regular contact with customers to stay ahead of any emerging risks. We also remain diligent in monitoring credit stressors in the macro economy to ensure current underwriting reflects the impact of ongoing inflation pressures, shifting labor markets, tariffs and other 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 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.

Thank you, Pat. In summary, we're very pleased with the strong organic growth momentum and the record-setting financial results we delivered as a company in 2025. We're entering 2026 with stronger profitability, better capital generation and discipline on credit and expenses. With that said, we feel like our growth story is just beginning to emerge at Associated Bank.

In 2026, we expect continued organic growth tailwinds from our prior investments in RMs in products and in marketing. But we also intend to accelerate our momentum through the American National acquisition and another wave of investments to double down in major metropolitan growth markets across the footprint. We look forward to providing additional updates along the way. And with that, we'll open it up for questions.

[Operator Instructions] Our first question comes from Daniel Tamayo with Raymond James.

Good afternoon, everybody. First thing, I guess, on the net interest income guidance, it's excluding American National, I'm just going to try and see what you can say about that on an all-in basis. So just curious if there's anything you can give us in terms of thoughts around how that net interest income line might look including American National, whether it's from a purchase accounting perspective or balance sheet. I know we talked about potential balance sheet actions post close. Just trying to get to a kind of an all-in number there.

Yes, Daniel, we don't have a lot of updates on that on the financial end of that. Obviously, we're going through the approval process, and we're hopeful to close in the second quarter and integrate in the third quarter. What I will tell you is what we've realized very clearly is the franchises are very well aligned from a strategic standpoint, from a product and go-to-market standpoint. That matters just in trying to validate what our initial payback period was, which was 2.25 years. So we're feeling more bullish. We're on track with our plan on the integration plan. And what we're seeing is continued opportunity in both of their major metropolitan markets, both in Omaha, where we know we can bring some capabilities but they already have a very good presence and very good growth pattern. And in Minneapolis, where there'll be additional additions to customer base conversations that make us believe that we can grow on top of that. What we haven't done is really projected any of the upside growth we have. So we don't have -- the transaction is pretty logical to us internally, but we don't have an update from a financial side. We'll have to wait until we get approval and get to maybe legal day 1 in the next quarter to give a little clear view there.

Okay, maybe something that might be a little bit easier to talk about then on the investments that you really clearly laid out there in terms of the 4 cities where you're going to be investing in 2026, including a couple of new cities. Can you provide any kind of color around the -- from a quantitative perspective, what that may look like including kind of pace and just trying to think through how this could affect the pace of expense growth as the year moves on. .

Yes. I mean we've given the expense target -- expense growth target at 3% and just as in every other year, we've made some hard decisions on where to cut cost to invest. The expectation is that these investments -- we get asked sometimes the question is how do you believe that you have sustainability in your earnings. And the way that you get sustainability is you do something on the consumer side and commercial side, but you also -- you show that you've been able to do that in legacy major metropolitan markets. So we have that in Chicago, and we have that in Milwaukee, we're able to show that. When you get into markets that grow a little faster, it's the same it's the same game plan. And so from an expense standpoint, the significant increase in marketing expense for overhauls not going to come until we get systems conversion because for logical reasons. In Minneapolis, we have momentum there right now. So we'll start in that market throughout the probably end of first quarter, second quarter, third quarter. With regards to RMs, we want them on the ground right now. So we have outlined where we're going to make our hires there. I expect half of those hires to happen in the first quarter. In fact, 2 of them started this week. So we're not waiting for that to occur. And really what this does for us, it gives a clear -- it gives us a clear path on how we're going to be able to maintain our gross structure, our balance sheet remix, which as you know, drives our profitability profile. .

Okay. Great. And just, I guess, lastly, following up on that, would you say there's at least some benefit in the loan -- on the loan side and the deposit side in guidance from these hires that are happening in 2016? Or is that mostly a '27 and beyond story?

Well, what we saw in Kansas City, when we did a team lift out is significant loan growth in the first 12 months. So we -- it is in our numbers. It is in our forecast, and we believe that it will lead to additional growth over what we would have had previously. And We've, again, given the guidance that we believe that we'll grow another $1.2 billion roughly in C&I growth, loan growth in 2026 and the path that we see is really clear. And it's fun to talk about what you might get from the new people. But remember that we have expiring nonsolicitations every quarter. And in case you're wondering if we've lost momentum, I would tell you our pipeline December of 25 is 43% higher than it was in December of 2024. So we think this is a replicable model -- and the exciting thing for us is we've proven we can compete in major metropolitan markets, Milwaukee and Chicago. Now we've proven it in Kansas City, -- and so the idea of getting into Omaha, the idea of expanding again in Kansas City and the idea of moving into Dallas, where we have already begun interviews with some very, very talented commercial lenders. It gives us a bit of confidence heading into the year.

Our next question comes from Scott Siefers with Piper Sandler.

So Andy, really great to see that strong C&I growth expected next year, and I think you sort of hit on all the reasons there. Also it kind of feels like some of the targeted reductions are beginning to fade a little more of the headwind. I guess just in your view, maybe where are we with regard to some of those pieces of portfolio that have been kind of dragging dynamics for the last few quarters? .

Scott, I'm not totally following you. Well, some of the -- whether it's residential real estate, these areas that have been sort of headwinds.

There have been net drag. Where are we like whether you want to go.

Yes. Yes. We think the resi will continue to run off at a pretty similar pace. I think it was down just over Derek, I think just over $250 million decrease in 2025. We see that as a good thing. In fact, that pace if it expanded wouldn't bother me a bit. And so what it's allowing us to do is really get our sea legs under us on the C&I side by having one of the slower amortization markets in recorded history. So it is shrinking by nature, and those are low margin. And what we think is happening. We don't think is happening. We know what's happening is it just allows us to slowly expand our margin each quarter. as that's running off. And we're getting the commercial loans, but we're also getting the deposits. So our deposit production is significantly up. And heading into 2026, frankly, I think the deposits should be a very good story for us, whether that be because of household growth, the launching of a new vertical in the second quarter. The fact that our new RMs are getting deposits at a faster pace that we've had double-digit HSA growth, and we're expanding into higher-growth major metropolitan markets. When you take all that together, I see that, Scott, as the full piece, but the resi will be -- continue to be a drag for years to come on that. But frankly, we see a path to replace that. And and still have strong loan growth. And I think probably the story that's really going to emerge nicely for us is the deposit growth in 2026.

Perfect. Okay. And then Derek, I know you had suggested in your prep remarks, the capital markets line, those references can be lumpy. I sort of remember last quarter thinking that it was that line specifically was elevated and might have to come back down. But just looking -- it's been over $9 million a quarter for 3 -- like 3 of the last 5 quarters. Are you thinking of this just a new level? I mean I'm guessing from what I can sort of into the guidance you're thinking maybe comes back down. But is there any specific reason to believe that it could come back down? Or is that just a level of conservatism baked in your guidance? How are you thinking of those things? .

Scott, I'm going to let Derek asked that because you asked him, but the first answer is yes, it is repeatable. Derek, what are your thoughts?

Feel look very strong and is repeatable. Yes, I think the point, Scott, you were right last quarter, we were drilled strong capital markets was in our fees overall. When you look at wealth and you look across the board. And I think we're -- we built the -- our go-forward plan, our growth plan, for relationship banking, and this should be 1 of the line items that we benefit from. I think probably before you get very aggressive in guidance on it. We want a more durable pattern that we model into our forecasting. We do see it developing very strongly with the production dynamics we see in the pipeline growth. and we'll be happy to share that and get more and more confident with the level of granularity in those forecasts going forward. But we -- you could hear us last time, we were excited about it and didn't want to get over our skis on it. And we're thrilled that it it's becoming more repeatable.

Perfect. Okay. And actually just one super quick ticky-tack one. Just to be ultra clear, all the guidance for 2026, that's all based off of GAAP numbers for 2025, right? In other words, reported numbers with no adjustments, right? Yes. We're trying to -- we had a clean year and we're giving clean guidance.

Our next question comes from Terry McEvoy with Stephens.

Maybe a question for Derek. When I look at the loan-to-deposit growth 5% to 6% and then NII up to on a kind of core basis, that suggests limited core margin expansion. And I'm wondering what your thoughts are on the NIM ex the acquisition and embedded in that, what are you thinking for interest-bearing deposit betas within the NII guide?

Yes. So we don't give, as you know, NIM guidance. You are correct, it implies some expansion. We've been in all of our forecast scenarios, I've been saying this for a few quarters. We typically see our NIM trickling up is a natural remix into the portfolio, and that's been pretty durable. Our guidance contemplates 2 cuts April and July. So then what really comes down to, if you think about upside, is what -- and I've said this before, it's still true, is how are competitors going to behave on the deposit side. And our incremental deposit cost going to be rational and well behaved? Or are they going to be hot. So far, we've seen in the last 2 quarters, things have been very rational to end a little bit hot. And then somewhat rational again. So I think that range is prudent. There's -- and I think it's balanced. There's some upside potential. If things get really competitive on the deposit side, that would put pressure on that.

And then as a follow-up, Andy, in your prepared remarks, you talked about deepening your customer base, which my impression would be your customers using more products. Can you just share some data points or where you're seeing this among your customers?

[Audio Gap] as we continue to grow that capital base, what it does is it gives us options. And so today, what I would say is, and I hope you hear it very, very clearly from us. Our #1 priority is organic growth. We're in the middle of a deal. And our main priority of that is execution and with that then organic growth. So if we execute on those 2 things, it should open the door on profitability. It should open the door on ROTCE expansion, margin expansion, capital accretion and really what a great position that puts us in to make decisions at that point. on what to do with the money -- the dollars and the capital. But today, I want to be very clear. Our goal is organic growth.

Okay. Great. And then just on credit, metrics were all really strong this quarter, low charge-offs, NPLs and criticized both lower. But can you provide any potential color on any portfolio verticals or geos that are more stressed or causing more concern right now?

Yes. Thankfully right now, we don't have anything that kind of sticks out. We're continuing to watch what's going on in the economy. We're kind of working through the real estate stuff that started in the pandemic, and there really hasn't been any new issues there. So it's just kind of watching everything across the board as it sits right now.

In fact, the paydown on the CRE, we saw is a good sign. It took projects that have been completed and went to the permanent market. So to us that actually was more of a sign of a health than a concern, had those lingered on and not been refinanced. That would have been a growing concern, but the fact that we saw, frankly, a few hundred million dollars in in paydowns in the quarter in CRE, we saw as a big positive.

Next question comes from Jon Arfstrom with RBC Capital.

A couple of questions here on deposits. I don't know if it's Slide 11 or Slide 32, but how do you expect the deposit mix to change over time as the RMs gain some traction, and I'm assuming treasury is part of this. Just kind of curious more what you think Slide 32 could look like in a year. And then Derek, you referenced some seasonal flows. Just how material is that so we can kind of understand what flowed out. Do you want to take that, Derek?

Yes. So typically, the second half of the year, you see much more seasonality flowing into all of our nonmaturity deposit buckets. And so you saw a lot of growth in those. It's similar to last year. some of its acquisition, but a lot of that is also just seasonal flows. It helps our margin. And with RMs, those happened with the C&I focus and relationship focus -- those are the same buckets you -- on the commercial side where you see growth in the long run. So obviously, that's not the CD bucket, which we have -- which has grown over the last few years is mostly comes from the consumer side. So that's how I think about things going forward is more in the nonmaturity and that's also where we see some of the seasonality. I'm not sure if that answers it, but that should give you a sense of it.

Jon, I would say, generally speaking, I don't have a specific forecasted number because we haven't forecasted this publicly. But part of the strategy was that we were leaking households and customers by 1% to 2% a year for an extremely long period of time. We did that again the first year I got here, then we moved towards 0, then we moved towards 1% growth, then we moved to 1.4% growth. What you're doing is acquiring noninterest-bearing and interest-bearing demand accounts. And so we celebrate being at 1.5%, roughly 1.4% last year. But if you net that out over the 4 or 5 years, it's pretty close to 0% growth. So now we're evolving that trend. We've switch that trend around. And so we're getting -- we're focusing on getting to 2%. And that will have -- that will, over time, have meaningful growth in what our deposit mix is in a positive way. We're doing the same thing on commercial by focusing on RMs and focusing on full relationships. So I'd expect demand deposit accounts on the commercial side to improve as well. and the deposit vertical that we're launching next quarter on title is going to be one that has a pretty positive margin view on it as well. And we think that will get started in $100 million to $200 million in growth this year and then continue on from there. So our expectation is that by going to market the way we are by growing households, both on the consumer small business and commercial side, we'll start to see a shift towards demand deposit accounts, which over time will be a good thing for the company.

Okay. Good. That's very helpful. That's what I was getting at. The other 1 I wanted to ask about, which is kind of random, but on Slide 6 you show your Chicago growth in deposits and C&I. And you don't talk about that very much. I'm just curious, it's a real success story, but I'm curious on your outlook and opportunity in Chicago and maybe if you're willing to size Chicago for us, I think that would be helpful as well. size it in terms of what the size of the portfolio is in Chicago.

Yes. We haven't gotten into disclosing at that level. We'll think about what is the most helpful way to disclose that in the past in the future. Jon, really, for us, what we wanted to show here very clearly, because we've heard the question is why is this sustainable? And can you grow in major metropolitan markets. And so the message is clearly that we can, and we are, and these are legacy markets, and we're doubling down and getting into markets that are even faster growth and we have talent either in those markets already or adding that. Today, I don't have a breakout for the size of that. We'll talk about getting into more granular detail. But I think for the purposes of this page, the message was that this is a sustainable model. In fact, we're entering the year in a substantially different situation than we were in 2025. So if you look at what's really happening is we have sustained growth in Chicago and Milwaukee, However, we didn't -- going into '25, we didn't exist in Kansas City. Now we've already shown that we can have significant growth there. And you can see that in the $1.2 billion in growth that we've had in C&I, we would not have that if we hadn't added on in that market. And so the message is of one of sustained ability to sustain growth in those spaces, but we haven't really broken out specific dollar amounts for those markets. Yes. Yes. I'm just curious because that was -- it's a legacy market for you and that's a big growth number. So -- but I appreciate what you're saying. Yes. And Jon, by the way, just so you're not scared of that growth market because we've all heard the comment, if it's growing like a weed or if it looks like it's growing like a weed, it probably is, -- we just add a bunch of people, and we got really good people. And so for us, the good news on this front and [indiscernible] have really put a lot of energy into the recruiting path. And -- it turns out when you hire good folks and they know each other and they bring a friend. And so we've been able to recruit in these markets quite effectively. And that's really 1 of the reasons behind the growth is the increase in quality RMs in Chicago, in Milwaukee, Twin Cities, Kansas City, soon to be Dallas. So what I think you could take away from that is we've picked the right people and it's leading to growth.

At this time, there are no further questions. This now concludes our question-and-answer session. I would like to turn the floor back over to Andy Harmening for closing comments.

Yes. First, I'd just like to thank everyone that joined today. We're really pleased on how we're exiting 2025, and we're even more excited about what's in store for us for '26. We look forward to sharing that, whether that be on the quarterly call or one-on-ones. Thank you. Have a great night.

Ladies and gentlemen, thank you for your participation. This concludes today's conference. Please disconnect your lines and have a wonderful day.

Good morning, everyone, and welcome to Associated Banc-Corp's conference call. My name is Rob, and I will be your operator today. [Operator Instructions] 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. During the course of the discussion today, management will 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. Accordingly, I will ask you to note the forward-looking statements discussion on Slides 1 and 2 of the presentation we are referencing for this call, which addresses important factors that could cause Associated's actual results to differ materially from the information discussed today. Following today's presentation, instructions will be given for the question-and-answer session.

At this time, I would like to turn the conference over to Andy Harmening, President and CEO, to discuss this announcement in more detail. Please go ahead, sir.

Well, good morning, and thank you for joining us both on short notice and after a holiday weekend. This is Andy Harmening, and I'm joined by our Chief Financial Officer, Derek Meyer; and our Chief Credit Officer, Pat Ahern. We are very excited this morning to share that Associated has announced a merger with American National Corporation, a leading community bank headquartered in Omaha, Nebraska. This transaction represents another important milestone in our journey to build a strong, high-performing and diversified Midwestern banking franchise, one that's deeply rooted in our communities and focused on profitable, sustainable and long-term growth.

Today, we'll walk you through the highlights of the transaction, including the strategic rationale, market expansion benefits and financial impact. But before we do that, I'd like to briefly acknowledge the strategic journey we've been on and what we've achieved to date and how today's transaction advances that strategic journey. Since I joined Associated in April of '21, we've been hard at work building a stronger and more profitable bank that is positioned to take advantage of organic growth opportunities in markets across the Midwest. We've made a series of investments to bolster key leadership across the bank, create a best-in-class value proposition for consumers and small businesses and expand our commercial banking presence in metro markets where we were underpenetrated, all while adhering to our legacy foundation as a bank with strong credit culture, expense discipline and positive impact in the communities we serve.

Here in 2025, these investments are already paying off and positioning us for future performance. We're proving that we can grow and deepen our customer base organically and take share in major metropolitan markets. We're seeing strong customer satisfaction scores. We posted net household growth each quarter so far in 2025, and we're on pace to deliver our strongest year for organic household growth since we began tracking almost a decade ago. We're also proving that we can grow and remix our balance sheet simultaneously, delivering stronger profitability as a result. And importantly, our plan is delivering results for our shareholders. Since announcing Phase 1 of our strategic plan, we've delivered total shareholder return of 53%, which is more than double the KBW Regional Bank Index over that same period. We're proud of how far we've come over these past 4 years, and today's announcement presents a unique opportunity to further build on our momentum.

Moving to today's transaction on Slide 4. The acquisition of American National complements our strategy and presents a natural opportunity to expand our franchise across attractive Midwestern markets and enhance our long-term organic growth strategy. The transaction enables us to enter the vibrant Omaha metropolitan area with a #2 deposit market share. We also strengthened our position in the Twin Cities, adding over $800 million in deposits and achieving a #10 pro forma deposit market share. The transaction is also attractive from a financial standpoint with achievable cost savings, underpinning ROTCE accretion and CET1 capital enhancement.

We expect the transaction to deliver EPS accretion in 2027 and modest tangible book dilution with a short earn-back period of just over 2 years. And importantly, Associated and American National are a natural fit for one another due to the cultural similarities between the 2 companies. We both have roots going back to the mid-1800s and emphasize a local approach in serving our markets. We both have customer-centric approach to decision-making, segmentation and operating systems. We both have conservative credit cultures with strong asset quality and we both care deeply about supporting and uplifting the communities we serve.

In getting to know the American National leadership team and business through this process, we've been especially excited about the shared vision we have for our clients and communities. To that end, we're pleased to say that American National Co-CEO, Wende Kotouc, will join Associated's Board of Directors upon closing, and we will be forming a new Omaha Advisory Board. We believe that our plan for partnership post transaction will support a seamless experience for clients, team members and communities alike.

On Slide 5, we lay out some of the key terms of this transaction. The transaction is structured as all stock with a fixed exchange ratio, whereby American National shareholders receive a 36.25 shares of Associated stock for each share of American National stock. This represents total deal value of approximately $604 million based on Friday's closing price. At closing, Associated shareholders will own 88% of the combined company and American National shareholders will own 12%. The transaction value represents 1.14x tangible book value, 9.2x 2026 estimated earnings or 6.8x inclusive of cost synergies and a 1.6% core deposit premium.

Leadership and operational alignment is critical, and we look forward to having Wende Kotouc, American National Bank's Co-CEO and Co-Chair join Associated's Board of Directors. But we'll also have John Kotouc, American National Corporation's Co-CEO and Co-Chair, remain in a consultancy role post close to ensure a smooth integration. As mentioned, we're establishing an Omaha-based advisory board to ensure deep local engagement and community presence. We'll also continue to honor all of American National's community contributions. The transaction has been approved by the Boards of both companies as well as the voting shareholders of American National. We expect the transaction to close in the second quarter of 2026, subject to customary regulatory approvals.

Turning to Slide 6. American National is a client-centric community bank with local scale, strong financial track record and disciplined approach to growth. They have a 160-plus year history of serving their clients and communities with a strong focus on relationship banking. The bank manages $5.3 billion of assets, $3.8 billion of loans and $4.7 billion of deposits. The diversified loan portfolio and strong liquidity profile supported by relationship-based core deposits are a complement to Associated's balance sheet strength and priorities. Their leadership position in Omaha and presence in the Twin Cities creates a natural geographic fit with our existing franchise.

On Slide 7, we provide a bit more detail about these 2 MSAs specifically. Omaha and the Twin Cities are among the most attractive and resilient markets in the Midwest with solid population growth, favorable household income characteristics and diversified local economies. Combined, we will have approximately $3.4 billion of deposits in Omaha, ranking #2 in deposit market share and $3.3 billion in the Twin Cities, ranking #10 in deposit market share. Together, these 2 metros will represent nearly 20% of our total deposit base, adding scale in markets that have healthy growth outlooks and stronger wealth characteristics than both the Midwest and the national average.

Growing in these markets also provides meaningful long-term organic growth opportunities for Associated. Our entry into Omaha is particularly compelling as it's a community-centered market with a mix of commercial, retail and wealth clients, highly aligned with our core strengths and priorities. In the Twin Cities, we already have momentum. We've recently invested in a new high-profile branch and corporate office space in the heart of downtown Minneapolis. By partnering with American National, we're building on an already meaningful franchise, giving us more reach with middle market and business banking customers.

And with that, I'll pass it to Derek to talk a little bit more about the financial impact and benefits of this transaction.

Thanks, Andy. Turning to Slide 8. This transaction reflects our continued focus on driving strong financial performance and shareholder returns. The transaction is expected to deliver 2% of EPS accretion in 2027 with modest tangible book value dilution of 1.2% and a crossover earn-back period of 2.25 years. The transaction has a compelling IRR of 24%. We also expect to enhance our pro forma profitability, including ROAA, ROATCE and efficiency ratio. Underlying this transaction is a highly achievable cost savings assumption of 25% or $29.2 million of American National's expense base with 50% realized in 2026 and 100% thereafter.

This transaction strengthens Associated balance sheet position and drives prudent scale and relevance as a leading Midwest banking franchise. Pro forma, we will reach approximately $50 billion in assets with $40 billion in deposits and $35 billion in loans. As we've consistently said, enhancing our capital position is a focus, and this transaction will drive our CET1 approximately 5 basis points higher upon closing. We have strong conviction in our ability to deliver on the financial benefits of this transaction.

On Slide 9, we provide more detail on the pro forma franchise. American National meaningfully enhances our combined scale, client base and balance sheet strength across the Midwest. Pro forma, we will have a top 10 deposit market share position in Green Bay, Madison, Milwaukee, the Twin Cities and Omaha, and 76% of our deposits will be concentrated within the 10 largest upper Midwest markets. The addition of approximately 79,000 new client deposit accounts broadens our reach and creates meaningful opportunities for relationship expansion, particularly among middle market, commercial and family-owned businesses, which are at the heart of both of our organizations.

On the consumer side, American National adds a very high-quality auto business with more than 25 years of consistent super prime lending throughout the Midwest, providing a strong complement to our diversified consumer platform and strategy. On the funding side, the transaction further strengthens our core deposit base, adding granular relationship-driven deposits and long-tenured client relationships. Together, the combined franchise will have a strong liquidity position and funding stability, providing a solid foundation for continued organic growth and disciplined balance sheet management. Associated and American National both share a deep cultural alignment founded on strong community engagement and relationship banking, which positions our combined company as the premier Midwestern relationship bank.

Turning to Slide 10. Our combined loan portfolio will continue to be well diversified and fully consistent with our strategic priorities. On the commercial side, American National brings a high-quality middle market franchise with long-standing client relationships and strong credit performance. Similarly, on the consumer side, this partnership reinforces our focus on strong risk-adjusted returns through the addition of American National's super prime auto portfolio. The combination enhances our loan yield while maintaining the disciplined credit culture that defines Associated. On the funding side, the transaction strengthens our core deposit franchise and broadens our relationship base.

Turning to Slide 11. As we've said all along, we are focused on our strategic priorities with a prudent and disciplined approach to driving sustainable and profitable growth. Our teams have followed a rigorous due diligence process involving comprehensive and extensive reviews of all the areas you see noted on the right side of Slide 11. We've also completed an extensive credit file review and are highly confident in strong alignment in underwriting and credit cultures between our organizations. Integration planning is already well underway. We're leveraging our proven playbook from our previous experiences while also building on to it to ensure a seamless transition for our clients and employees alike. Both organizations share a conservative risk appetite, community and client-first values and a commitment to disciplined growth, making this a rational transaction with meaningful upside.

With that, I now pass it back to Andy for closing remarks.

Thanks, Derek. I will conclude by reiterating that we're excited about today's announcement and what it will mean to our continuing our growth strategies in new and existing growth markets for Associated Bank. But I'd also like to take the opportunity to welcome our new American National team members to the Associated Bank family. I look forward to meeting all of you, learning from you and working together to build a stronger community-focused bank.

And with that, let's open it up for questions.

[Operator Instructions] Our first question comes from the line of Timur Braziler with Wells Fargo.

Can you maybe just give us a little update as to what this deal means for the ongoing strategic focus for Associated? First 2 phases since Andy and the team came over were very much internally focused. Phase 2 is coming to an end here. Is this kind of indicating that what you wanted, the heavy lifting on the kind of organic front is done and now that lens is widening to include M&A in the coming phase? Maybe just if you could give us a sneak peek as to what Phase 3 might look like and what that might look like from a composition of organic expansion, additional hiring versus using M&A as a tool for some of these tuck-in deals?

Yes, Timur. So I'd maybe say it a little differently than you did. So what I would say with regards to Phase 2 is I feel like we're just getting started and hitting our stride there. If you think about the fact that we have nonsolicitations expiring, we continue to grow very strongly in our C&I business. And so for me, this is not a detour from organic growth. It's an enhancement of organic growth. When you think about getting into the Minneapolis market and getting a top 10 position and having market branding and visibility, that's only going to enhance the work that we're doing there. When you look at the Omaha market, they have a very strong team on the ground on the commercial side of our business.

We have spent almost 5 years building out our product set. When you think about equipment finance, you think about ABL, you think about deposit verticals, you think about consumer products, you think about what we're doing on the wealth side and the mass affluent side, we literally can take this amazing local team in Omaha and layer our capabilities on that. So from an organic growth standpoint, it hasn't changed a thing. There are still legs left in Phase 2 of what we do. And importantly, I think what you see is we've built a team that's built to execute. So when you think about execution, this is a very straightforward transition in pretty -- a few major metros, 2 major metros in particular. So we think we'll be able to effectively integrate this with a team that's culturally aligned. So we think it keeps -- if you want to call it Phase 2.5, you may. However, this is just good banking in areas that we understand, and we think that it's something that it will be a 1 plus 1 equals 4 for us.

Okay. That's great color. Maybe as my follow-up, just looking at the credit mark relative to I guess, the third quarter mark for American. Just the 1.9%, I think their 3Q mark was like 1.15% of loans. Could you just maybe talk us through where incremental provisioning or incremental reserves have been kind of set aside for their portfolio?

Yes, it's a great question. I'm going to turn that over to Pat. But before I do, I'll remind you that Pat Ahern, our Chief Credit Officer, is the same person that has executed on the no surprises tour. So going into this deal, we don't want any surprises on credit. We've done a very deep dive, and I'll have Pat speak to where the -- how the mark came to be.

Yes. I would say we did take a conservative approach, and it was a bottoms-up approach to review the portfolio. That included over 50% of the commercial loans and also over 60% of CRE loans. So we feel that we did a nice due diligence. We feel comfortable with the mark. And I'll remind you, they've had a pretty stable credit history. They're averaging, I think, 15 basis points of net charge-off over the last 10 years. So we feel good about the mark right now.

The next questions are from the line of Casey Haire with Autonomous Research.

I guess I wanted to start on the footprint expansion into Omaha and Nebraska. Just I think that's a little bit surprising. What is it about that market that gives you comfort that you guys can take the Associated playbook there? And what other markets down the line would be of interest from an M&A perspective?

Yes, Casey, you say surprising, I say contiguous. When I look at Omaha, I think what a great banking market. First of all, its population and economic growth are extremely strong. When you think about what we've been able to do in our footprint, this market actually grows faster than many of the markets that we're in today. We've been able to grow by taking market share. We've been able to grow commercial. We've been able to grow households. You enter into a market with low unemployment and you enter into a market with very good growth and being very strong on the commercial side. But what's unique about Omaha that I really like in this transaction is this is a very local market. And by that, I mean it is very civic oriented, very giving back oriented.

And you have 2 amazing family in the Kotouc family and Lozier family that have been the owners of this and are incredibly involved both in the bank and in the community. So if you're going to buy a bank in Omaha, you darn -- you better have connectivity to the community and we do. Secondly, you better have an operating model that looks at full relationship banking and they do. So when I think of entering Omaha, a very good contiguous growth market with a lever already into the community vis-a-vis the management and an ongoing relationship with those owners and a leadership team that actually expands relationships, and we put on top of that products and services on the consumer side, on the private wealth side and enhanced verticals and opportunities on the commercial side, that's what makes this a very attractive transaction or merger for us.

Okay. Very good. And just following up on the margin, Slide 10. It looks like the American is pretty similar to you guys from a yield -- loan yield and deposit cost perspective. They are a little bit more liquid. So I'm just wondering, do they drive -- where does their NIM come in relative to you guys?

Derek, do you want to take that?

Yes. So their NIM is a little higher than ours, the most recent quarter for both institutions. The biggest economic driver of the transactions really are the cost takeouts, but we would expect, I would call it, 9, 10, 11 basis points of yield improvement for ourselves post transaction.

Our next questions are from the line of Daniel Tamayo with Raymond James.

Yes. Maybe first, I'm just curious, 20% of American National's loan book is auto. You guys are familiar with that business. Maybe give us a sense of how that book compares to yours and your level of comfort around American National's business and plans for the auto business on a pro forma basis going forward?

Yes. Great question, Daniel. So when we look at the auto book, the first thing that jumps out to you is they've been in this business for 25 years. They're doing business with people they know and have known for quite some time. From a risk standpoint, this is a super prime portfolio, very much like ours. So a lot of similarities in the auto book. In fact, they have a little bit better yield than we do. When I think about the auto book for our company, the combined companies overall, we've stated that we want to stay in the 10% to 12% exposure range for auto. We're right in the middle of that with this transaction. And what we've always liked about the auto book is the convexity of the portfolio. These aren't 30-year mortgages. They have a duration of 2 to 3 years. So you can make decisions strategically on flexing that portfolio, and I think American National has over time. And I think that we will on the go forward. I think the most important thing is that they're doing business with people they know in a very responsible credit manner and getting a pretty decent return.

All right. That's helpful, Andy. And then I guess, anything else within the lending space for American National that is other than the C&I and the CRE books that we see there that's unusual or something that you're not planning to keep going forward? Just from a balance sheet perspective, curious if you think the total loan number is a good one to grow off if there's going to be some movement there post close.

Yes. I think the thing that's frankly unusual is how strong a credit culture they have. For a bank this size, their expertise is impressive to me. I feel like it has John Kotouc's fingerprints all over it. John's run this bank in whole or in part for over 40 years. And he has a strong sense of keeping control of credit. The cleanness of the files, the expertise they've exhibited in each of the kind of -- they don't call them verticals, but verticals, whether that's CRE or pieces below that. So when we look at this book, I think their sophistication and attention to detail for a bank this size is impressive to us. And as a result of that, we don't see anything that we're going to have to exit to keep in line with what our credit culture is.

Our next question is from the line of Chris McGratty with KBW.

Andy, the -- just following up on that last question about optimizing the balance sheet. Anything beyond the loan book on either side of the sheet, yours or their company that might be considered heading into '26 in terms of restructuring or optimizing?

No, not really. What I think, Chris, is more interesting is when you think about how strong they are and knowledgeable they are in the local markets, we actually think for us, this is -- we can actually be additive to them. I mean we have equipment finance, ABL, HSA lines of business. We have capital markets capabilities and a bigger balance sheet. So we don't have to teach them how to do commercial banking. We can just expand the capabilities that are available to them. So when the deal closes and we get into integration, we actually only see potential upside to that. But there is no restructuring that will be required on this book.

Okay. Great. And then just to follow up, I just want to make sure I got the numbers and the messaging right. Derek, you said the 9 to 11 basis point, that was a margin comment or a loan yield comment, ultimate margin?

NIM, yes. Net interest margin.

Perfect. And then the question about -- I think it was Timur's question about future acquisitions, like we've seen some peers be able to string a couple together. Is the message that you might consider another deal? I know that organic is the focus. I'm just trying to understand the pivot between the capital usage.

Yes. Not much of a pivot really, Chris. It's the right question, but this is more of a right deal, right partner, right time, right market situation for us. So when you think that it's in our footprint, getting bigger in Minneapolis has always been a stated goal of ours. And then being in a growth market additionally in Omaha for us with the work that we put in and the product set that we have was natural for us. And so this really feels more to us like a continuation of our organic growth strategy enhanced by an acquisition as opposed to becoming a serial acquirer. That's not our intent.

Our next question is from the line of Jared Shaw with Barclays.

Is there any lockup for the shareholders? Or could you walk through what the lockup is for the 2 shareholders coming on board?

Yes, Jared, all that information will be made public with the 8-K that we'll file at the end of the week. But the short answer is yes, there is a lockup.

Okay. Okay. And then I guess sort of following up on Chris' question about the potential for more deals. I guess, how would you say your -- how would you describe your capital priorities for '26 beyond the organic growth? Is this something we could start to see the buyback be more active given that capital is growing coming out of this deal? Or how should we think about capital and capital deployment?

I always defer to Derek Meyer on all buyback questions because my simple quick answer is when we run out of good ideas, we'll start the buybacks. Right now, we feel like we're doing a deal that's really good from an acquisition standpoint. However, we have a lot of ambitions to continue to grow organically and a lot of ideas in our kind of baseline strategic planning going forward that we think will make very, very good use of capital. If something out of the ordinary would occur in the future that we thought there was a great option and it was in the best benefit of our shareholders, then we would consider a buyback, but it's not priority 1 and it's not priority 2 from my perspective. And I said I'd let Derek answer that when I always slip up. Derek?

You did well.

Thank you for the affirmation.

Okay. And if I could just have one final one. When you look at this expansion into Omaha, is there any plan to supplement that with additional relationship manager hiring in that market? Is this a market you feel you could maybe leg into a little bit and continue to take even more market share there? Or do you feel that the platform that's there is sufficient to do what you need to in the market?

Yes. It's a little bit too early to talk about staffing. However, if you look at the track record and their ability to grow their deposit market share and when you talk to their local leaders, they have strong local leaders. And so my optimism in that market is high. And usually, when we find optimism, we find opportunity, we're going to look very closely at what opportunity looks like. But we are entering something that is not only not broken, but on an upward trajectory. So marrying what they're doing and how ingrained they are into that local market, a growth market with what we do and the capabilities we've built over the last 4 to 5 years, I really -- it gives me a great deal of optimism. And we didn't make huge bets in the model. We just think that we can be additive with the strength they already have.

Our next question is from the line of Brian Foran with Truist Securities.

I don't know to the extent you can speak to this. I guess I'm a little surprised this bank would have traded at such a low tangible book multiple. Was there some challenge they were facing? Was there something unique as a partner? Is it possible at all to speak to just -- it seems like a really attractive opportunity and yet they're selling at 1.1x tangible book. What kind of bridges that gap?

Well, I'd say a few things. First of all, the way they go to market and the book that they have is very similar to us. And when you have similarities, that brings comfort. And so from a cultural alignment standpoint, we're there. From an understanding of auto, we're there, from a supportive -- from an idea of going to market locally, I think that we offer that opportunity more than others. So basically, you have 2 really clean banks with the promise that we're going to move forward in the markets that they're in that they care about that they've built over an extended period of time.

Great. And if I could follow up as well on the contiguous question. I mean I definitely appreciate your points about cultural similarities between the markets. If I just look at Slide 9, though, I mean, I think some people simplistically will say, well, now there's -- something's got to happen in Iowa and Illinois over time. Is physically contiguous important in your mind long term? Or is this a different world and the old days of filling in the branch map doesn't apply?

I think what you really want to do is you want to make sure that you're familiar with the markets and that you understand the markets and you understand the leadership team and there are no surprises in the credit book and you like how they go to market and you like that they -- that you have cultural alignment. All of those things check the boxes for us. We know the Midwest. We understand the Midwest. And frankly, I'm familiar in past lives with covering the Omaha market. It's been a good market for a long time. And by the way, they're not just in Omaha, they're in Minneapolis and so -- in the Twin Cities. And so we really like that footprint. For a bank like us, we're not intending to go to California. That's not our sweet spot. And so when we think about this, we are a Midwest bank, and we want to be in markets that we understand. And in this case, it's both Midwest and we understand it. So we thought it was a very logical fit for us.

The next questions are from the line of Jon Arfstrom with RBC Capital Markets.

A couple of just cleanup questions. But Andy, what are the revenue synergies that you're thinking about? And how material could they be? And how quickly could they have an impact?

Derek, do you want to touch on that?

Yes. Yes. So part of that is a little bit on the too early answer. But you can imagine things like we have a strong private wealth offering. We've talked about that as being important for all the metro areas we're going into. And so we see that as an opportunity in Omaha also. Same with mass affluent and then the whole product offering that comes with our product segmentation and technology on the consumer side. And then there could be expansions. I think it was asked earlier, would you put more RMs into a market or anything like that? And we have not contemplated that for the deal. But as things progress, we'd expect to evaluate all of that as incremental opportunities.

And Jon, I would piggyback on that and just say we expect that we can be very strong and enhance what they're already very good at, which is the commercial side of the book. I would say that the products and services and the digital capabilities that we have on the consumer bank are as strong as any regional, super regional or national bank in the country. And to me, that's almost like blue sky for us. Because they have such a good reputation to be able to marry that commercial with the consumer, which is what's happening at our company at Associated Bank today, we see a very logical path. If they had relationships where they just did a loan and didn't get the deposits, I wouldn't see that immediate opportunity, but they actually are getting both. And we're going to be able to enhance the consumer side day 1 of systems integration.

Okay. Just -- I wasn't going to ask this, but I'll ask it since you brought it up. What is the consumer strategy at the company, the consumer strategy in Omaha? Or is this just all, in your view, primarily commercial?

They have a consumer base. But when you think about building out that consumer product set, which we've talked about ad nauseam, which we think is the driver of customer sat and household growth and having kind of the key levers of people willing to bring more to you and refer, I would say that this will be an enhancement to that strategy. Their customers like them. And when you think about a segmentation strategy on mass affluent, that will be new with the product set that we have that we've just enhanced 1 week ago and brought to our own company. So when you think about layering that on, it's not a matter of whether they have it, they do have a consumer bank, but they will have a product set that can go toe to toe with any fintech, any community bank, any savings and loan, any national bank on day 1, that will be different for them. And because their customers already like them, I think we'll be off to the races once we get through the integration.

Okay. Good. And then just one last one, Derek, for you. The $47 million in charges you're taking at Associated, I don't know if that's a big number or a small number, but anything notable in there? Or would you just call that typical merger charges?

Yes, nothing unusual there. It's normal course of business for these type of transactions.

Our next question is from the line of Terry McEvoy with Stephens.

This is Brandon Rud on for Terry. I have 2 quick ones. The first one, just a follow-up on the buyback. Does the deal preclude you from repurchases until the deal closes over the next couple of quarters?

It does not.

Okay. And the second one, just on Page 9, I think St. Louis is the only market there where there is not a top 10 deposit market share. Can you just discuss opportunities, particularly in the St. Louis market?

Well, what I'd say with regards to the St. Louis market is I'm really excited about Omaha and Minneapolis today. And then I'd sprinkle Iowa in there as part of this deal. With regards to St. Louis, I would say it's a major metropolitan market with opportunity. We do not have a significant branch network in the metropolitan area today, but we do have a pretty decent-sized business in the surrounding areas. So the someday machine could something happen there potentially. We like that market, but we're really pretty much outside of the metropolitan market in St. Louis today from a retail standpoint. We've been significant in commercial and in commercial real estate there for some time.

At this time, I'll hand the floor back to management for further remarks.

Well, the first thing I'll say is thank you for the interest that you've shown both by showing up the day after a holiday weekend and for the very good questions that you had on this. We're excited about this merger, and we are going to quickly go from announcement to execution, and we appreciate your interest in the growth story and the organic growth story and how this will piggyback on the growth story in growth markets. Thank you.

Thank you. This will conclude today's conference. You may disconnect your lines at this time. We thank you for your participation, and have a wonderful day.

Good afternoon, everyone, and welcome to Associated Banc-Corp's Third Quarter 2025 Earnings Conference Call. My name is Diego, and I will be your operator today. [Operator Instructions]

Copies of the slides that will be referenced during today's call are available on the company's website at investor.associatedbank.com. As a reminder, this conference call is being recorded.

As outlined on Slide 1, during the course of the discussion today, management may make statements that constitute projections, expectations, beliefs or similar forward-looking statements. Associated's actual results could differ materially from the results anticipated or projected 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 a reconciliation of the non-GAAP financial measures to the GAAP financial measures mentioned in this conference call, please refer to Pages 24 through 26 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 Harmening, President and CEO, for opening remarks. Please go ahead, sir.

Well, good afternoon, everyone, and thank you for joining us for our third quarter earnings call. This is Andy Harmening. I am joined once again by our Chief Financial Officer, Derek Meyer; and our Chief Credit Officer, Pat Ahern. I'll start some highlights of the quarter. Derek will cover the income statement and capital trends, and Pat will provide an update on credit quality.

Over the course of 2025, we've been squarely focused on execution and delivering on the strategic growth investments we've made across our company. 9 months into the year, we continue to see several trends that are both leading to strong current results and positioning us for future performance. We're proving that we can grow and deepen our customer base organically. We've posted net household growth each quarter so far in '25 and are on pace to deliver our strongest year for organic checking household growth since we began tracking a decade ago.

We're also proving that we can grow and remix our balance sheet simultaneously. On the asset side, we've added nearly $1 billion in high-quality C&I loans year-to-date while working down our mix of low-yielding low-relationship value resi mortgages. On the liability side, we added over $600 million in core deposits in the third quarter, enabling us to work down our wholesale funding mix.

As this mix shift continues, it enables us to drive stronger profitability after delivering quarterly net interest income of $300 million in the second quarter, a record for our company. We posted another record of $305 million in Q3. And with this enhanced profitability comes enhanced capital generation. We added another 13 basis points of CET1 capital in Q3 and have now added 30 basis points year-to-date. This capital generation enables us to support our growth while continuing to execute on our organic strategy.

Now I'll remind you, just because we're growing assets doesn't mean we're stretching. Credit discipline remains foundational to our strategy, and our growth is focused on high-quality commercial relationships and prime/super prime consumer borrowers, which is consistent with our conservative credit culture built over the last 1.5 decades.

We continue to manage our existing portfolios proactively and meet with our customers regularly to stay on top of emerging risks. As we look at the remainder of 2025 and '26, Associated Bank has strong momentum that continues to build. While we continue to monitor risks tied to the macro uncertainty, our growth strategy puts us in a position to grow and deepen our customer base, take market share, remix our balance sheet and improve our return profile without having to rely strictly on a hot economy or a perfect rate environment.

With that, I'd like to walk through some additional financial highlights on Slide 2. In Q3, we reported earnings of $0.73 per share. Total loans grew by another 1% versus the prior quarter and 3% versus Q3 of '24. Adjusting for the loan sale we completed in January, we've grown loans by 5.5% over that same time period. C&I lending has continued to lead the way as we deepen relationships across our markets and see noncompete agreements from our new RMs expire, we grew nearly $300 million of C&I loans and we've now grown C&I loans by nearly $1 billion year-to-date.

Shifting to the other side of the balance sheet, seasonal deposit positive inflows came back as expected during the quarter, with our core customer deposits up 2% or $628 million from Q2. With that said, we're seeing more than just seasonal strength core customer deposits were also up over 4% or $1.2 billion relative to the same period a year ago.

Moving to the income statement. Our Q3 net interest income of $305 million set a new record as the strongest quarterly NII we've seen in our company's history. Our NII was up 16% relative to Q3 of 2024. We also saw strong quarterly noninterest income of $81 million in Q3, a 21% increase from the prior quarter. The increase was driven primarily by capital markets revenue, wealth fees and a onetime asset gain of approximately $4 million tied to deferred compensation plans.

Total noninterest expense was $216 million in Q3, up $7 million from the prior quarter. The quarterly increase was primarily driven by performance-based incentive programs, delivering positive operating leverage continues to help us post strong quarterly operating results and is a primary objective as we execute our plan.

Managing credit risk is also a top priority, and we remain pleased with asset quality trends. In Q3, delinquencies were flat and nonaccruals were just 34 basis points of total loans. Net charge-offs were also flat at 17 basis points and our ACLL decreased 1 basis point to 1.34%. And finally, we posted a return on average tangible common equity of over 14% in Q3, a 250 basis point improvement from Q3 of last year.

On Slide 3, we provide a reminder of how our strategic investments are transforming our return profile and setting us up for additional momentum over the remainder of this year and into 2022. First, we're positioned to take market share in commercial lending and deposit acquisition, thanks to a strategy predicated on hiring talented RMs in metro markets where we're underpenetrated.

In fact, we've already seen results from our efforts. Through the first 9 months of the year, we've already added nearly $1 billion in C&I loans to our balance sheet with pipelines remaining strong and several more noncompete set to roll up between now and the first quarter of next year, we expect our momentum to carry through '26.

And as those relationship C&I balances come onto the books, they're replacing lower-yielding nonrelationship resi mortgage balances that are rolling off, positioning us to diversify our asset base more profitably without changing our conservative approach to credit. This mix shift is driving enhanced profitability. Over the past 2 quarters, we saw our margin climb above 3% and posted back-to-back quarters of record NII. As we continue to grow and remix our asset base and support it with low cost core deposits, we see additional opportunity ahead.

On Slide 4, we highlight our loan trends through Q3. On both an average and period-end basis, quarterly loans grew by 1% versus Q2. And that growth was once again led by the C&I category. On a spot basis, C&I loans grew by 3% or nearly $300 million versus the prior quarter. After adding nearly $1 billion in C&I balances to our balance sheet year-to-date, we feel very well positioned to meet or exceed the $1.2 billion growth target we originally set for ourselves in 2025, thanks to the strength of our pipelines and the additional lift from newly hired RMs as our noncompetes expire.

Auto balances also grew by $72 million in the third quarter as we've continued to be, to selectively add prime and super prime balances to our book. Total CRE balances grew slightly for the quarter, but decreased by $160 million on a quarterly average basis. We expect elevated CRE payoff activity in the coming quarters as rates continue to fall. Overall, we continue to expect total bank loan growth of 5% to 6% for the year.

Shifting to Slide 5. Total deposits and core customer deposits both bounced back as expected in Q3 following Q2 seasonality. Core customer deposits increased by over $600 million point-to-point with gross spread across most key categories. Relative to the same period a year ago, core customer deposits were up 4% or $1.2 billion. And growth in our core deposit book has enabled us to work down our wholesale funding balances.

Here in Q3, overall wholesale funding sources decreased by 2% versus Q2. Based on our latest forecast, we now expect core customer deposit growth to come in towards the lower end of our 4% to 5% growth range for the year, but we remain confident in our ability to grow granular low-cost core customer deposits over time for 2 key reasons. First, our consumer value proposition stacks up well against any bank or fintech in the industry, and we have additional product upgrades planned for late Q4 of '25 and into 2026. This gives us an engine to attract deep and retain checking households over time, and it's already driving results. After posting the strongest organic primary checking household growth numbers we've seen since we began tracking a decade ago back in Q2, we followed that up with another quarter of solid growth in Q3.

Second, we've refined our focus on commercial deposits by moving to a balanced scorecard, hiring relationship-focused RMs, launching a new deposit vertical and most recently, hiring Eric Lien as our new Director of Treasury Management. With pipelines growing and several noncompetes set to expire in the coming months, we feel very well positioned for growth in 2026. We continue to expect that our efforts to drive growth in lower-cost core customer deposit categories, will enable us to further decrease our reliance on wholesale funding sources over time.

And with that, I'll pass it to Derek to discuss the income statement and capital trends.

Thanks, Andy. I'll start on Slide 6 with our yield trends. In the third quarter, total earning asset yields remained flat at a 5.5% and interest-bearing deposit costs also held flat at 2.78%, while total interest-bearing liabilities ticked up 1 basis point to 3.03%.

Within our major asset categories, slight decreases in commercial, CRE and auto yields were offset by slight increases in mortgage and investment yields. While total interest-bearing deposit costs were flat compared to Q2, they were down 55 basis points from Q3 of 2024.

Moving to Slide 7. Third quarter net interest income of $305 million was up $5 million versus the prior quarter and $42 million versus Q3 of 2024. Q3, net interest margin held firmly above 3% at 3.04%, which was flat compared to Q2 but 26 basis points higher relative to Q3 of 2024.

Based on our latest expectations for balance sheet growth and mix, deposit betas and Fed action, we continue to expect to drive net interest income growth of between 14% and 15% in 2025. This forecast assumes 2 additional Fed rate cuts in 2025. Given the potential for additional rates, we've provided a reminder of the steps we've taken to dampen our asset sensitivity on Slide 8. Over time, we put ourselves in a more neutral position to minimize interest rate risk. We've maintained repricing flexibility by keeping our funding obligations short we've protected our variable rate loan portfolio by maintaining received fixed swap balances of approximately $2.45 billion, and we built a $3 billion fixed rate auto book with low prepayment risk. While we're still modestly asset sensitive, a down 100 ramp scenario now represents just a 0.5% impact to our NII as of Q3. We expect to maintain this relatively neutral position going forward.

Moving to Slide 9. Total securities increased to $9.1 billion in Q3 as we've continued to modestly build our AFS book. Our securities plus cash to total assets ratio climbed to 23.4% for the quarter. We continue to target a range of 22% to 24% for this ratio.

On Slide 10, we highlight our noninterest income trends for the quarter. In Q3, total noninterest income of $81 million was up 21% relative to both the prior quarter and the same period last year. The increase in Q3 was primarily driven by strength in capital markets and wealth fees with an additional boost from nonrecurring asset gains. In the capital market space, in particular, the increase was due to an elevated level of activity in our syndications and swaps businesses.

The asset gain booked during the quarter was approximately $4 billion for deferred compensation valuation adjustment. Given the strong quarter, we now expect a total of -- we now expect total 2025 noninterest income to grow by 5% to 6% relative to 2024, after excluding the nonrecurring items that impacted our fourth quarter 2024 and first quarter 2025 results from the balance sheet repositioning we announced last December.

Moving to Slide 11. Third quarter expenses of $216 million were up $7 million versus Q2, with much of the increase attributed to performance. The increase came in personnel where we booked $4 million of additional expense for the same deferred comp valuation adjustment that was recognized as a gain in our noninterest income. Another large component was a $4 million increase in variable compensation expense the result of strong execution against our strategic plan.

During Q3, the personnel bucket was also impacted by approximately $1 million of incremental health care costs relative to Q2. Outside of personnel expense, we also saw quarterly increases in technology, business and development and advertising expenses, offset by decreases in legal and professional fees, loan and foreclosure costs and other noninterest expense.

As we've stated previously, we continue to invest to support growth, but driving positive operating leverage remains a top priority. Here in Q3, our efficiency ratio decreased for the third consecutive quarter coming in below 55%. Based on our latest forecast, we now expect total noninterest expense growth of between 5% and 6% in 2025 off our adjusted 2024 base.

On Slide 12, capital ratios increased across the board once again in Q3. Our TCE ratio of 8.18% in Q3 was up 12 basis points versus the prior quarter and 68 basis points versus Q3 of 2024. Our CET1 ratio increased to 10.33%, a 13 basis point increase relative to the prior quarter and a 61 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 to manage 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 additional updates on credit quality.

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

In Q3, our ACLL increased by $3 million to $415 million. This increase was primarily driven by an increase in commercial and business lending, which largely stemmed from a combination of loan growth, plus normal movement within risk rating categories. Our ACL ratio decreased to 1.34%, down 1 basis point from the prior quarter.

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 our loan portfolios and continue to see solid performance in Q3. Total delinquencies were flat at $52 million in Q3. These delinquency trends are largely in line with the benign trends we've seen for the past several quarters. Total criticized loans ticked higher in Q3 with an increase in substandard accruing partially offset by decreases in the special mention and nonaccrual categories.

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With the current industry guidance. As a reminder, we do not feel that recent trends in this category are an indication of a material shift in the credit profile of the portfolio nor has there been a corresponding risk of loss. In fact, we continue to see resolution with some of our more stressed credits and liquidity remains present in the market in terms of both payoffs and loan re margin.

Nonaccrual balances decreased to $106 million in Q3, and down $7 million versus Q2 and down $22 million from Q3 of 2024. Finally, we booked $13 million in net charge-offs during the quarter and $16 million in provision. Our net charge-off ratio held flat at 0.17%. All 3 of these numbers remain squarely in line with the figures we've seen over the past several quarters.

In response specifically to tariffs and ongoing trade policy negotiations, we remain in contact with clients as the trade policy discussion continues. I would note that clients have been planning for tariff changes for some time, and we feel comfortable with the positioning of their strategies and the ability to execute when more clarity exists.

Going forward, we remain diligent on monitoring other credit stresses 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. And finally, given the recent industry news surrounding nondepository financial institutions or NBFIs, I'd like to provide a brief update on where we stand.

NBFI balances represent a minimal part of the bank's total loans largely comprised of REITs, mortgage warehouse lines and insurance company lending. These facilities have historically performed very well with relationships that average over 10 years with the bank.

With that, I will now pass it back to Andy for closing remarks.

Thanks, Pat. In summary, we're really pleased with the results, both in the third quarter and year-to-date over the first 9 months. We feel very well positioned based on the actions we've taken. And believe that the enhanced strength and profitability profile, solid capital position and disciplined approach to growth will serve us well going forward. With that, we'll open it up for questions.

[Operator Instructions] And our first question comes from Timur Braziler with Wells Fargo.

C&I growth has been and remains pretty impressive here. I guess I'm just wondering what happens when the remaining RMs come off of their noncompete? To what extent should we expect that growth rate to accelerate? Is the expectation of that -- that growth rate accelerates from the area as they come online?

Yes. Well, good question. Look, we still have quite a bit of lag, we think, left in this. There are a couple of things that I look at, specific to this initiative I look at what is our production this year? Well, that production is up 12%. What does our pipeline look like? Our pipeline is up 31%. That's on the loan side.

So as we head into the end of the year and you start to see some of the nonsolicitations and about half of them are already off. So we're getting up to that point where production, we would expect it to go up just a little bit next year.

You may have a little more amortization because your portfolio has grown. What we believe though is we're set for a strong C&I growth above the market in 2026, probably as exciting and something we don't talk about. We thought there would be a lag effect to deposit production on commercial, and it's panning out the way that we thought we're adding some very good new names on the deposit side. But when we pull up our deposit production right now, our deposit production is up 23%. Now that's not seasoned, and we'll roll that into our seasonality and be able to forecast very clearly. But it's a very good omen because the pipeline itself is also up 46%.

And I've been asking continually each quarter to our Head of Commercial Banking. When will we see that production start to catch up with the pipeline? And the answer is right now.

That's good color. And then looking at fees this quarter, obviously very impressive. The guide does imply a pretty large step down in 4Q. Can you just maybe talk through some of the success you saw in 3Q and what the expectation is for decline in the coming quarter?

Yes. I mean, the fee income in some categories can be a little lumpy. We did have a onetime benefit through a portfolio asset gain. So that's not likely as repeatable at that level. However, when I look towards 2026 versus the fourth quarter, so it was a little bit higher in the fourth quarter but some of the underlying benefit that we're getting in capital markets, commercial production is up. Rates are trending down and likely to continue. That makes fixed rate conversion more attractive. Pipelines are up.

And with fixed rate likely up and more popular in 20 -- or fixed rates likely more popular in 2026 and production trending up. We think that bodes pretty well for the forward view. The linked quarter-over-quarter is not likely to be quite as high for the reasons that I mentioned in Q4.

Okay. And then just last for me. ROTCE, 14% this quarter continues to grind higher, 15% seems to be in striking distance. I guess how are you thinking about further improvement here in these next couple of quarters with rate cuts? Is there an ability here to continue grinding that higher? Or does that trend maybe take a step back a little bit as you digest these hikes or these cuts?

Derek, do you want to take that?

Yes. Thanks, Tim. Yes. I think the opportunity is there. I think, again, I was just going to come back to the market's response to rates vis-a-vis deposits because obviously, the big, we had a nice uptick in fees we expect the hiring to help that continue, but it will still be choppy.

So I see the opportunity on the margin side in the long run still being the bigger the bigger lever. And based on what we saw the first couple of weeks after the rate cut in September and the response to how we rolled out our deposit back book rate cuts and what we're seeing in the market response, the outlook is pretty good.

So I think we have the ability to continue to grind that higher. I think it's going to bounce around quarter-to-quarter while we do that. But it feels like everything is on track.

Your next question comes from Daniel Tamayo with Raymond James.

Maybe just to follow up on the deposit side. You talked about the momentum you have there, certainly evident in the numbers. We did see deposit costs overall up a bit in the third quarter. Is there a read-through there on an increase in competition? Or something unusual. I'm just curious what you saw in the third quarter that drove those costs modestly higher?

Yes. I don't think there's a lot to read you there. Part of our benefit, I know you remember the first part of the year and then the last year, we have seasonality that's in addition to account acquisition that affects the rates.

And what happens this quarter is some of that seasonality is in accounts that are at the higher end of pricing. So as those things came back in, they came in at the higher rates relative to the back book and put a little bit of pressure on the overall yields. But I don't think we're uncomfortable with what we netted out altogether. Again, why my early canary in the coal mine read on deposit pricing is what happened when we went and looked at the $11 billion, $12 billion of managed rates we had to reprice right when the Fed cut and where are we able to execute on it and what was the response from the customers, and that went very well.

Great. That's helpful color. Appreciate it. And then maybe for you, Andy, on the hires. You talked a lot about the solicitation agreements that those folks will be coming off. They are coming off and more coming. Just curious in terms of additional incremental hires that the pace around that timing if there's the time of the year, beginning of the year when that tends to happen.

Yes, I feel like we're open for quality relationship managers year-round. We've shared with our Head of the Commercial Bank that if there is a team that is well known in a market, that has a following that is interested in joining us, we'll consider that any quarter of the year. We don't have a stated plan to increase off of what we have because we know that what we have will lead to pretty solid growth next year. But we'll be opportunistic in a market where we see disruption in dislocation.

When you see the M&A activity in the world, that usually leads to opportunity for those banks that have a good reputation in the space. I'll say, as you start to track talent as you start to do deals, you get a reputation that's positive. And so what I would say to that, Daniel, is we will be opportunistic, we won't have a stated number of new RMs, but should that opportunity arise. And I suspect it will during the year, we'll take advantage of that.

Your next question comes from Scott Siefers with Piper Sandler.

Let's see. So Andy, I just wanted to follow up a little on the loan growth discussion. I mean like the C&I really it speaks for itself. Maybe just a thought or 2 on where we stand with some of those areas that have been more of headwinds on total growth, like resi real estate rundown the CRE payoffs.

I know you mentioned those in particular, will likely stay elevated in coming periods. But any reason that either of those or are there any recent headwinds would either accelerate or decelerate in coming periods? Just trying to get a sense for kind of likely interplay between the momentum in C&I and the things that have held back even stronger net growth.

Yes. No, that's a great question. You characterized resi as headwind. It's a headwind in terms of balances. It's a benefit in terms of having that run off and what that leads to, and it's purposeful, as you know. Certainly, if rates go down, they'd have to go down pretty significantly, say, 1% to 2% because of the position that those are in today to have a meaningful adjustment.

But we plan for the decrease that we're seeing. So that's within the plan. The part that is maybe -- I'm not sure what adjective, a little bit less predictable but expected is CRE. So on the CRE front, as rates go down, there'll be a little bit of pent-up demand for pay downs, not just with us but across the industry. We're expecting that. So does that happen in 90 days? Does it happen in 120 days? Does it happen over 180 days? It's hard to say. So it could have a short-term impact.

However, we've already gone back out to market. And the production on the commercial real estate side has increased versus the prior year. So we're up, for instance, about $100 million above the prior year in construction lending. And those are loans that will help offset some of that in 2026.

So you could see a short-term impact if a couple of rate drops and there's an opportunity for some of our customers to refinance in the permanent market. So that would be a short-term thing. It doesn't worry me through 2026 because I think we've positioned ourselves with additional lending to make up for that. But probably on the CRE side, that's one where you might see it a little more quickly if rates become advantageous.

Got you. Okay. Perfect. And then separately, just sort of following up on that last question about like sort of team and RM lists and stuff like that. I think during the third quarter, you made some comments about perhaps entering some new markets, I think, in particular, you sort of talked out like Oklahoma, Kansas City and Denver. I know you already -- or I believe you already did the team lift in Kansas City.

But when you think about adding to the footprint, are you thinking still the bias is strongly organic? Or would M&A become a possibility at some point?

Well, I mean, the bias is strongly organic. We feel like we have a proved it out year, and we're 3 quarters into proving it out. We feel like we're stacking up quarters. So we're really pleased with that. but we want to do that through the fourth quarter.

So that remains number one. And Scott, what I would say is I've been here 4.5 years. So I'm in year 5. And the focus has been the same. It's been execution and opportunity. And so when we see things -- and it has to be within our wheelhouse. It has to fit what we understand and what we know and what we can execute on. So that won't change. Does that mean it's organic or inorganic? I would leave it with we continue to evaluate opportunities in a way that's very similar to everything we've done over the last 5 years.

Your next question comes from Jon Arfstrom with RBC Capital Markets.

Andy, a question for you on the pipelines. When you talk about the lending pipeline increases, is that from new hires and market share gains? Or is it borrowers expanding and becoming more optimistic. Can you just kind of separate the two?

Yes. I don't think it's from the latter. I think you have an economy that's been -- news has been bouncing around and forecast of kind of perhaps a little bit slower GDP. What we've said is whether GDP is 1.5%, 2%, 2.5%, we believe we can grow. And so this is, I think, largely from the approach from the folks that we have brought into the team, these are A players. They are folks that could get a job anywhere in the country at any bank.

And so being able to bring that kind of talent in. And then we've surrounded it with tools that we continue to establish to make it easier for them to do business. But I think the lion's share of this is on the pipeline, and I'm really pleased to see the production pulling through now. I mean that to me is what we've been waiting to see. We've seen it a little bit more each quarter. But I would say it's, by and large, it's mostly people.

Okay. Good. Derek, one for you, just a follow-up on the margin. I appreciate Slide 8, but what is the message on the kind of the near-term margin outlook from here if we get a couple more cuts? You're talking about reducing asset sensitivity, but I'm wondering, are you signaling a little bit of a dip in the margin? Or do you think the mix shift is enough to keep the margin stable and moving higher?

I think we believe that we've been very focused on stability. So generally speaking, our remixing generates a basis point or 2 of margin improvement. That's been true for many forecasts now. You could have a blip in any given quarter based on strange behavior in the market with deposit pricing or movements in the portfolio related to payoffs or nonaccrual reversals or pay downs.

But I think over a quarter or 2, it's still mostly stability. And I know you're asking that because frequently, if there's a long lag in repricing deposits, you can get compression. But that's why I keep harkening back to what were the first steps that we were able to take and how did I see customers respond and do we see anything strange in the market that would take us off course and make everyone hesitant. And that hasn't -- I haven't seen a lot of that. It's still early, but it gives us confidence in committing to a pretty stable outlook.

Jon, I just -- I agree with everything Derek said, but I'd also add on to that is every time we go from a negative 2% to negative 1% to a 0% household growth, 2.5% to 1% to 1.5%. We intend to continue that trend as we head into next year. It's small incremental movements, but those are operating accounts that we're bringing in. That is the cream of the crop when it comes to how you think about managing your margin and your funding sources.

And then we go into next year with, really, frankly, again, more tools than we've had before, whether it's a focus on wealth, the product mix that we're going to launch before year-end or it's the expansion of the vertical and HOA and title, that is significant and those are things we just haven't had. There are more quivers that fit into that.

So the household growth as in addition to additional capabilities, that is what allows us to believe that we're able to remain either flat or slightly up as we go through the course of the next several quarters regardless of the multiple interest rate changes.

And your next question comes from Jared Shaw with Barclays.

Tying into the margin, I guess it was this time last year that we got a little bit of an update on thoughts around beta on the deposits through the cycle. If we get the 2 cuts or if we get 2 more cuts this quarter, where do you see with the changes in the deposit base, where do you see that sort of cumulative beta moving from there?

Yes. I think the range I'm thinking about now is about 55% to 58%, I think that's a little bit better potential. I think last time, it was more like 55%, 56% to the cycle. So again, things look good. And I also think we get more confidence as we get closer to the additional verticals rolling out because it gives us more options on how to manage levers and handle the higher-priced accounts.

Okay. And then on the expense, especially on -- specifically on the personnel expense, you called out a couple of things. As we look at fourth quarter, should we assume that the incentive comp stays in the numbers going forward? Or is that more of a onetime catch-up? How should we think of that?

Yes. So the deferred comp is largely tied to market value. So if -- so that -- it should stay where it is, unless the market goes up a lot from here were down from here. So set that aside. We tie that largely to our forecast. So as long as if we are consistent with our guidance, we would expect that to stay at similar levels, not step up from here. but we're not going to complain if we blow through our guidance, and we have to share some of the comp for it.

And just to piggyback on that, too, Jared, you didn't ask necessarily about what we're expecting next year, but that usually is the next question. And we're planning for '26 expense increase to be -- the increase to be less than 25%.

We've been opportunistic this year when we see opportunities to drive revenue and drive return and improve operating leverage, we've taken it. But those are manageable and we've already planned for going into if we don't have the exact same scenario.

Okay. All right. And then, Andy, I think in your comments, you mentioned something about a new deposit system or a system upgrade that can help drive maybe some incremental growth. Any details around that? And is that fully baked into the expense structure?

It is baked into the expense structure. The capability, really, it's a product enhancement first, on the wealth side that we expect to launch by the end of November that is substantial in the value proposition that we've had, which we've largely not built out before.

So we focused on the consumer, growing that, mass affluent, growing that, commercial growing that, and it kind of meets at wealth management. So we believe that's one of the opportunities. The HOA title is a business where we have a very good team that's ready to go. And they have helped us with what capabilities their customers require in detail. And so that will be an ongoing road map.

We expect to launch something either by the end of the year, if not the first part of January but then we think we'll have additional pieces in second quarter and third quarter. That will be a priority for us. It won't raise the cost. We'll do that at the expense of something else that is not such a large opportunity for the bank.

And ladies and gentlemen, there are no further questions at this time. So I'll hand the floor back to Andy Harmening for closing remarks.

Well, look, we leave here pleased with the third quarter. We expect to land the plane in the fourth quarter and are optimistic about the fundamentals going into 2026.

And as always, we appreciate your interest in Associated Bank.

Thank you. And with that, we conclude today's call. All parties may disconnect. Have a good day.