Associated Banc-Corp Q3 FY2025 earnings call

Management Statement and Operational Highlights:

• Focused on execution and strategic growth investments, with 9 months into 2025 showing strong current results and future positioning.
• Organic household growth: Net household growth each quarter in 2025, on pace for strongest organic checking household growth in a decade.
• Balance sheet remix: Added nearly $1 billion in high-quality C&I loans YTD, worked down low-yield resi mortgages; added over $600 million in core deposits in Q3, working down wholesale funding mix.
• Record financials: Q3 net interest income $305 million (record), return on average tangible common equity over 14% Q3.
• Credit discipline: Focus on high-quality commercial relationships and prime/super prime consumers, managing portfolios proactively.
• Strategic investments: Transforming return profile, positioned to take market share in commercial lending and deposit acquisition.
• Loan trends: C&I lending leading growth, auto and CRE trends noted.
• Deposit trends: Core deposits up, working down wholesale funding; core customer deposits up over 4% Y/Y.
• Noninterest income: Strong Q3, driven by capital markets, wealth fees, and a $4 million onetime asset gain.
• Expenses: Up $7 million Q3, driven by performance-based incentive programs.

Segment Performance:

• Loans: Total loans grew 1% vs prior quarter and 3% vs Q3 2024. C&I loans grew nearly $1 billion YTD, auto balances up $72 million in Q3, CRE balances slightly up but down $160 million on average. Total bank loan growth expected 5%-6% for the year.
• Deposits: Core customer deposits up $628 million from Q2, up over 4% or $1.2 billion relative to same period a year ago. Core deposit growth enabled working down wholesale funding balances.
• Income Statement: Q3 net interest income was $305 million, a record, up 16% Y/Y. Noninterest income $81 million, up 21% Q/Q. Noninterest expense $216 million, up $7 million Q/Q.
• Capital: CET1 capital up 13 basis points in Q3, TCE ratio 8.18% in Q3, up 12 basis points vs prior quarter.
• Credit Quality: Delinquencies flat, nonaccruals 34 basis points of total loans, net charge-offs 17 basis points, ACLL 1.34%.

Guidance:

• Net interest income expected to grow 14%-15% in 2025, assuming 2 additional Fed rate cuts.
• Noninterest income expected to grow 5%-6% in 2025 excluding nonrecurring items.
• CET1 capital expected to be within 10%-10.5% range in 2025.
• Core customer deposit growth expected towards lower end of 4%-5% growth range for 2025.
• Expect strong C&I growth above market in 2026.
• 2026 expense increase expected less than 25%.

Risks:

• Macro uncertainty risks.
• Interest rate risk, though steps taken to dampen asset sensitivity (e.g., maintaining short funding obligations, fixed swap balances, fixed rate auto book).
• Credit risks related to ongoing trade policy negotiations and potential impact on clients.
• Potential short-term impact on CRE from rate cuts, but positioned with additional lending to offset.