Associated Banc-Corp (ASB) Q4 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call summary shows strong financial performance with growth in noninterest income and ROTCE, despite a slight increase in expenses. The Q&A section highlights management's confidence in loan growth and capital markets revenue, as well as positive deposit mix changes. The market's positive reaction is likely due to strong financial metrics, optimistic guidance, and no significant risks or concerns raised. The company's market cap suggests a moderate reaction, leading to a predicted positive stock price movement of 2% to 8% over the next two weeks.
Key Financial Performance
Earnings per share (EPS) $0.80 per share in Q4 and $2.77 per share for the full year. No specific reasons for change mentioned.
Total loans Grew by 1% versus the prior quarter and 5% versus Q4 of 2024. Growth driven by C&I loans, which grew 2% in Q4 and added over $1.2 billion in balances for the year.
Core customer deposits Grew by nearly $700 million versus Q3 and nearly $1 billion versus Q4 of last year, representing a 3.5% growth rate point-to-point and 5% growth on a quarterly average basis. Growth attributed to organic household growth and strategic investments.
Net interest income (NII) $310 million in Q4, up 15% for the year. Growth attributed to enhanced revenue profile, expense discipline, and solid credit performance.
Noninterest income $79 million in Q4, up 9% versus 2024. Growth driven by wealth fees, card fees, and capital markets.
Noninterest expense $219 million in Q4, increased by $3 million from the prior quarter. Increase due to equipment expense, variable comp expense, and severance costs.
Net charge-offs Decreased to 3 basis points for the quarter and 12 basis points for the full year. No specific reasons for change mentioned.
Return on average tangible common equity (ROTCE) Increased steadily throughout the year, finishing over 15% in Q4. No specific reasons for change mentioned.
Allowance for Credit Losses (ACLL) Increased by $5 million to $419 million in Q4. Increase driven by loan growth and normal movement within risk rating categories.
Nonaccrual balances Decreased to $100 million in Q4, down $6 million versus Q2 and $23 million from the same period a year ago. No specific reasons for change mentioned.
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Operating Highlights
Completion of Phase 2 of Strategic Plan: Major investments completed in March 2025, providing strong momentum for growth in 2026 and beyond.
C&I Loan Growth: Added over $1.2 billion in relationship C&I loans in 2025, with a 9%-10% growth target for 2026.
Core Customer Deposits: Added nearly $1 billion in 2025, with a 5%-6% growth target for 2026.
Net Interest Income: Set company records for net interest income in the last three quarters of 2025, with a 15% annual increase.
Market Expansion through Acquisition: Acquired American National Corporation, providing entry into Omaha market (#2 deposit share) and strengthening Twin Cities presence.
Investments in Growth Markets: Planned investments in Twin Cities, Omaha, Kansas City, and Dallas to accelerate growth in 2026.
Marketing Spend Increase: Doubling marketing spend in Twin Cities and Omaha, with a 25% increase across all markets.
Operational Efficiency: Efficiency ratio improved to 55% in Q4 2025, with a focus on maintaining positive operating leverage.
Credit Quality: Nonaccrual loans decreased to 32 basis points of total loans, with net charge-offs at 12 basis points for 2025.
Expense Management: Noninterest expense growth limited to 3% in 2026, excluding acquisition impacts.
Strategic Shift in Loan Portfolio: Shifted focus from low-yielding residential mortgages to higher-yielding C&I loans, with a 50% increase in C&I loans since 2020.
Talent Acquisition: Hiring additional relationship managers in key markets to drive growth, with a 10% increase in RM headcount planned for 2026.
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Risk or Challenges
Credit Risk: The company is monitoring credit stressors in the macro economy, including inflation pressures, shifting labor markets, tariffs, and elevated interest rates. There is a focus on maintaining vigilance in reviewing portfolios and staying ahead of emerging risks.
CRE Loan Payoff Activity: Elevated CRE payoff activity is expected to linger in the coming quarters, which could impact loan growth and profitability.
Interest Rate Sensitivity: The company remains modestly asset-sensitive, and changes in interest rates could impact net interest income. The forecast assumes two Fed rate cuts in 2026, which could affect financial performance.
Economic Uncertainty: The company is preparing for potential economic uncertainties, including slower GDP growth, a cooling labor market, and elevated inflation levels, which could impact credit quality and overall performance.
Integration Risk: The acquisition of American National Corporation presents integration risks, including cultural alignment and operational challenges, which could impact the expected benefits of the acquisition.
Expense Management: While the company plans to invest in growth, there is a risk of expense growth outpacing revenue growth, which could impact profitability.
Supply Chain and Tariff Risks: The company is monitoring ongoing market developments and tariff negotiations, which could impact operations and financial performance.
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Guidance & Outlook
2026 Organic Growth Investments: The company plans to accelerate momentum in strategic growth markets, including the Twin Cities, Omaha, Kansas City, and Dallas. Investments include increasing acquisition-focused marketing spend by over 100% in the Twin Cities and Omaha, and a 25% increase in total marketing acquisition spend across all markets.
C&I Loan Growth: The company expects to achieve 9%-10% growth in C&I loans in 2026, driven by strong pipelines and additional relationship manager hires in key markets.
Total Bank Loan Growth: Projected total bank loan growth of 5%-6% in 2026, excluding the impact of the American National acquisition.
Core Customer Deposit Growth: Anticipated growth of 5%-6% in core customer deposits for 2026, supported by household growth momentum and increased marketing efforts.
Net Interest Income (NII) Growth: Expected NII growth of 5.5%-6.5% in 2026, assuming two Federal Reserve rate cuts during the year.
Noninterest Income Growth: Forecasted growth of 4%-5% in noninterest income for 2026, excluding impacts from the American National acquisition.
Noninterest Expense Growth: Expected increase of 3% in noninterest expenses for 2026, excluding the impact of the American National acquisition.
American National Acquisition: The acquisition is expected to deepen the company's presence in the Twin Cities and provide entry into the Omaha market, with a top 10 pro forma deposit market share in the Twin Cities and #2 market deposit share in Omaha.
Credit Quality and Risk Management: The company will maintain a low-risk profile with a focus on high-quality commercial relationships and prime, super prime consumer borrowers. Credit discipline remains foundational to the strategy.
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Shareholder Return Plan
The selected topic was not discussed during the call.
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Key Q&A
Q:What is the net interest income guidance excluding American National?
A:The management does not have a lot of updates on the financial end of the net interest income guidance excluding American National. They are hopeful to close in the second quarter and integrate in the third quarter. They have not projected any upside growth yet and will provide a clearer view after legal day one in the next quarter.
Q:Can you provide quantitative details about investments in four cities for 2026?
A:The expense growth target is set at 3%. Investments in Omaha will see significant marketing expenses post-systems conversion, while Minneapolis will start seeing investments by the end of the first quarter. Half of the hires for RMs are expected in the first quarter, with two already started. This investment strategy aims to maintain growth structure and profitability.
Q:Will there be benefits on the loan and deposit side from hires happening in 2026?
A:Yes, management expects significant loan growth in the first 12 months from new hires, as seen in Kansas City. They forecast $1.2 billion in C&I loan growth in 2026. The pipeline in December 2025 is 43% higher than December 2024, indicating a replicable growth model.
Q:What is the status of targeted reductions in the portfolio, such as residential real estate?
A:Residential real estate is expected to continue running off at a similar pace, with a $250 million decrease in 2025. This allows for margin expansion and increased deposit production, which is expected to be a strong story in 2026.
Q:Is the capital markets revenue line repeatable?
A:Yes, management feels strongly that the capital markets revenue line is repeatable. They are building confidence in its durability and expect it to benefit from their relationship banking growth plan.
Q:Is the 2026 guidance based on GAAP numbers for 2025?
A:Yes, all the guidance for 2026 is based on GAAP numbers for 2025 with no adjustments.
Q:What are the thoughts on NIM excluding the acquisition and interest-bearing deposit betas?
A:NIM is expected to trickle up naturally due to portfolio remixing. The guidance includes two rate cuts in April and July. Competitor behavior on deposit costs will influence outcomes, with recent trends being rational to slightly hot.
Q:What data points show customer base deepening?
A:Customer base deepening is evident in higher-value new customers, improved deposit production, increased fee income, and successful cross-referrals between commercial, consumer, and private wealth segments. New product sets for private wealth launched in December show early positive signs.
Q:What are the plans for capital allocation, including buybacks?
A:The primary goal is organic growth and execution of the current deal. Capital allocation decisions, including buybacks, will be considered after achieving profitability and ROTCE expansion.
Q:Are there any stressed portfolio verticals or geographies?
A:No specific verticals or geographies are causing concern. Paydowns in CRE are seen as a positive sign of health.
Q:How is the deposit mix expected to change over time?
A:The deposit mix is expected to shift towards demand deposit accounts due to household growth, RM focus, and new deposit verticals like title. This will positively impact the company's deposit mix over time.
Q:What is the outlook for Chicago's growth in deposits and C&I?
A:Chicago has shown significant growth in deposits and C&I due to effective recruitment of quality RMs. Management sees this as a sustainable model and plans to replicate it in other markets like Dallas.
Q:Review of Unclear Management Responses
A:Management avoided providing a direct answer to the net interest income guidance including American National, citing the need to wait until legal day one in the next quarter for a clearer view.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
American National
CI loan
Chief Credit
Cities Kansas
Cities Omaha
City Dallas
Credit Officer
Kansas City
National acquisition
Omaha market
Slide view
Twin Cities
acquisition Slide
acquisition market
acquisition marketing
basis customer
core customer
credit front
end core
entry Omaha
fee card
forma deposit
household bank
investment momentum
loan CI
market Milwaukee
market household
market momentum
marketing acquisition
opportunity momentum
opportunity success
presence
relationship CI
remix
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Associated Banc-Corp (ASB) Q4 2025 Earnings Call Transcript
Positive1-22
The earnings call summary shows strong financial performance with growth in noninterest income and ROTCE, despite a slight increase in expenses. The Q&A section highlights management's confidence in loan growth and capital markets revenue, as well as positive deposit mix changes. The market's positive reaction is likely due to strong financial metrics, optimistic guidance, and no significant risks or concerns raised. The company's market cap suggests a moderate reaction, leading to a predicted positive stock price movement of 2% to 8% over the next two weeks.
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The earnings call revealed solid financial performance with improved ROATCE and stable credit quality. Despite a one-time boost in fee income, underlying trends are positive. Management's optimistic outlook on loan growth and market expansion, alongside a proactive approach to hiring and market entry, suggests a favorable future. The Q&A highlighted strong pipeline growth and market share gains, which are reassuring. Although there are short-term headwinds, the overall sentiment is positive, likely resulting in a 2-8% stock price increase over the next two weeks.
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