ASSOCIATED BANC-CORP Q1 FY2025 earnings call

• Phase 2 of the strategic plan was completed, including commercial banking team expansion, entry into the Kansas City market, addition of family banking, and sale of $700 million in residential mortgage loans.
• Achieved over $500 million in loan growth and over $500 million in core customer deposit growth, with 16 basis points of margin expansion and 12 basis points of charge-offs.
• Consumer value proposition is strong with record high customer satisfaction, and the commercial team is expanded to take market share in key metros like Milwaukee, Chicago, etc.
• Reduced residential mortgage loan concentration from 29% in Q3 2023 to 23% in Q1 2025.

Total period-end loans increased by 2% or $526 million point-to-point. Segment growth was led by the CRE investor category, with the commercial real estate category increasing by $196 million. Commercial and industrial loans grew by $352 million, and auto finance balances grew by $69 million. Core customer deposits grew by $502 million, up 4% compared to Q1 2024. Net interest income increased $16 million to $286 million, with the margin expanding to 2.97%. Non-interest income was $59 million, and non-interest expense was $211 million, including a $4 million OREO write-down.

• Expect net interest income growth of 12%-13% in 2025, assuming four rate cuts.
• Non-interest income expected to grow 0%-1% excluding non-recurring items.
• Total non-interest expense expected to grow 3%-4% in 2025.
• CET1 ratio expected to be within 10%-10.5% for 2025.
• Balance sheet growth and capital accretion are anticipated, with forward-looking guidance affirmed.

• Uncertainty from tariffs and trade negotiations impacting the economy.
• Emerging macro uncertainty and recent trade policy announcements affecting portfolio reviews.

Q: Trying to gauge the second quarter NII, it looks like there's quite a few tailwinds that you guys are benefiting from, whether it's the end-of-period loans versus the average or the DDA end-of-period versus average. Can you just help frame kind of beyond the 3 basis point recognition on the mortgage book, just how second quarter is shaping up from some of these late 1Q actions?

A: Sure. When we think -- when I think about second quarter, I agree there are some clear tailwinds going into it, whether that's the sale of portfolio part of the way through and the increase that we've seen through the quarter. We've benefited as have many from a deposit market that we've been able to reprice in I would think that the repricing, you'll be able to continue that, but there'll be a little bit lesser gain on that across the industry as those CDs that come due come in at a little bit lower rate, even though you're pricing down at a little bit lower rate, the mix is just slightly different, similar volume. And for us, we've seen cyclical growth in the -- on the deposit side, but we have a lot of deposit levers that we pull overall. So, we feel good about deposits, but that -- we won't have as big of uptake possibly in the second quarter. So, all-in-all, we do have momentum going into the second quarter. We do think that translates into NII for the second quarter and that we think we're in a relatively good position when you balance loan growth, deposit growth, margin, repositioning of pricing, customer growth, you add all that together, we think we're in a relatively good position heading into Q2.

Q: Maybe just on the commercial real estate, the investor commercial real estate growth there, how much more growth should we be expecting from that? Or how much should that be contributing to growth going forward? Was that more opportunistic this quarter? Or is there something more there that's going to sustain that for a little longer?

A: It's a little -- it's a couple of things, and I'll have Pat fill in the details, but it's really properties transitioning into income producing from construction. So, there's actually a stability in that type of property where it's hitting some thresholds. And then paydowns have been a little bit slower than we had expected based on the market and -- but that still allows us to convert those into amortizing loans. Pat, do you want to put a little more color on that?

A: Yes, I think the positive point that Andy is bringing up is that the loans that are moving out of construction have met hurdles, have continued to meet the original underwriting, and they're staying with us in the income-producing investor bucket. So, we're comfortable with that. We like -- the sponsors have lived up to what we originally had both underwritten. And they would -- I'm certain, they would like to use the markets to go with long-term financing. But right now, they fit our underwriting criteria and they're solid loans that we want to keep.