Associated Banc-Corp Signals Confident Growth After Record Year

Associated Banc-corp ((ASB)) has held its Q4 earnings call. Read on for the main highlights of the call.

Associated Banc-Corp’s latest earnings call struck an upbeat tone, emphasizing record profitability, robust commercial loan growth, and healthier funding, while acknowledging pockets of yield pressure, elevated commercial real estate (CRE) payoffs, and higher expenses tied to growth investments and the pending American National acquisition. Management framed 2025 as a year of execution and balance sheet upgrade, and argued that the bank now enters 2026 with strong momentum, better capital and credit metrics, and a clear roadmap for organic and acquisition-driven expansion.

Record Net Interest Income and Margin Expansion

Associated Banc-Corp highlighted a standout year for core banking profitability, reporting record quarterly net interest income (NII) of $310 million in Q4 and a 15% increase in NII for 2025. Net interest margin (NIM) reached 3.06% in Q4 and averaged above 3% for the full year, roughly 50 basis points higher than in 2020. Management attributed the improvement to disciplined balance sheet management, higher-yielding asset mix, and reduced reliance on wholesale funding, positioning the bank to generate strong spread income even as some loan yields began to compress late in the year.

Strong C&I and Overall Loan Growth

Commercial and industrial (C&I) lending was a central growth engine in 2025, with the bank adding more than $1.2 billion in relationship C&I balances. Total loans rose 1% sequentially in Q4 and 5% year over year, with C&I leading the way at roughly 2% quarterly growth and more than $200 million added in Q4 alone. Management underscored that this growth is relationship-based rather than transaction-driven, and set ambitious standalone 2026 targets (excluding the American National deal) of 9%–10% C&I loan growth and 5%–6% total loan growth.

Core Deposit Gains and Improved Funding Mix

Funding quality improved meaningfully, as core customer deposits grew nearly $1 billion in 2025, including almost $700 million of growth in Q4 versus Q3. Point-to-point period-end core deposits rose 3.5% year over year, while quarterly-average core deposits were up 5% versus 2024, highlighting underlying momentum despite some year-end account movements. The bank also continued to reduce more expensive wholesale funding, including a $161 million decrease in brokered CDs in Q4, helping to support NIM and reduce interest expense pressure going into 2026.

Record Profitability and Rising Tangible Returns

The company delivered the strongest net income in its history for 2025, with returns on tangible equity climbing into what management characterized as an attractive range. Return on average tangible common equity (ROTCE) finished Q4 above 15%, with full-year ROTCE around 13.6%. Tangible book value per share rose to above $22 in Q4, up roughly $2.30 year over year, reflecting both earnings power and balance sheet discipline. Management presented this performance as evidence that its strategic shift toward relationship-based commercial banking and better funding mix is translating into shareholder value.

Fee Income Strength and Diversification

Non-interest income provided a complementary stream of earnings, with total Q4 non-interest income at $79 million, down modestly q/q but up $8 million from adjusted Q4 2024 levels. Adjusted non-interest income increased about 9% year over year, driven by contributions from wealth management, card fees, and capital markets activities. Management emphasized continued efforts to diversify revenue beyond spread income and guided to 4%–5% growth in non-interest income in 2026 (excluding the acquisition), while cautioning that capital markets and certain fee lines can be inherently “lumpy” from quarter to quarter.

Efficiency Gains and Cost Discipline

On the cost side, Associated pointed to clear structural progress. The adjusted efficiency ratio has improved by more than 700 basis points since 2020, landing at about 55% in Q4 2025. Q4 non-interest expense rose to $219 million, up 2% sequentially due to higher equipment spending, variable compensation, and severance, yet the bank still maintained its 55% efficiency ratio. Management reiterated its focus on positive operating leverage and is planning for roughly 3% non-interest expense growth in 2026 (excluding American National), even as it invests in new relationship managers and marketing initiatives.

Pristine Credit Metrics and Conservative Reserves

Credit quality remains a clear bright spot for investors. Net charge-offs were minimal at roughly 3 basis points in Q4 and 12 basis points for full-year 2025, well below the bank’s medium-term target of 35 basis points. Non-accrual balances declined to about $100 million in Q4, and criticized loans fell by $165 million quarter over quarter. The allowance for credit losses (ACL) increased modestly to $419 million, with an ACL ratio of 1.35%, reflecting both portfolio growth and a cautiously conservative read on the macro environment.

Strategic M&A and Market Expansion via American National

The pending acquisition of American National stands out as a key strategic lever. Announced in December 2025, the deal will give Associated an entry into the Omaha market and a deeper presence in the Twin Cities. Management described the acquisition as financially attractive, noting an internal payback period of roughly 2.25 years and highlighting its role in accelerating deposit and household growth. While full financial guidance including the acquisition has not yet been provided, the bank positioned the transaction as a natural extension of its growth playbook in adjacent, attractive markets.

Executing a Proven Growth Playbook

Management repeatedly pointed to a “proven playbook” built since 2020, emphasizing a pivot toward commercial growth and more diversified revenue. C&I balances are up more than 50% since 2020, while the concentration in residential mortgages has fallen by more than 10 percentage points, reducing rate and concentration risk. As of December 2025, the loan pipeline was about 43% larger than a year earlier. The bank plans to add roughly 11 relationship managers in 2026—a roughly 10% increase—and significantly boost marketing, particularly in the Twin Cities and the new Omaha footprint, to drive another $1.2 billion of relationship C&I growth.

Yield Compression and CRE Payoff Headwinds

Despite the strong topline and volume trends, management acknowledged emerging yield pressure. Yields on largely floating-rate CRE and commercial portfolios declined about 24 and 27 basis points, respectively, in Q4, pulling total earning asset yields down by 16 basis points to 5.34%. Elevated payoff activity in CRE also weighed on balances, with period-end CRE loans down about $88 million quarter over quarter. Executives indicated that elevated CRE payoff activity is likely to persist for at least the near term, potentially constraining CRE growth even as other categories expand.

Deposit Seasonality and Short-Term Volatility

While core deposit trends are broadly positive, the bank flagged some noise in the headline numbers. The 3.5% year-over-year point-to-point growth in period-end core customer deposits was influenced by seasonal flows in a couple of large accounts late in the year, creating a gap between that metric and the stronger 5% growth in quarterly-average core deposits. Management framed this as normal account behavior rather than a structural issue, but acknowledged that such movements can introduce short-term volatility into reported deposit figures.

Investment-Driven Expense Growth and Integration Risk

Investors were also reminded that the next phase of growth will not be costless. Q4 non-interest expense rose by 2% sequentially due to equipment spending, variable compensation, and severance, and management is planning for ongoing expense increases in 2026 to support new relationship managers, higher marketing, and integration costs around American National. While the underlying efficiency ratio has improved sharply since 2020, management conceded that integration and execution risk around the acquisition—as well as timing of cost saves and revenue synergies—could introduce some variability into 2026 results.

Macro and Provisioning: Managing Through Uncertainty

The bank’s provisioning decisions continue to be informed by a cautious macro outlook. CECL assumptions are based on a baseline scenario that includes expected rate cuts in 2026, slower economic growth, a cooling labor market, and persistent inflation pressures. Management is monitoring ongoing risks such as inflation dynamics, tariffs, and labor market shifts, and increased the ACL by $5 million in Q4 as a modest nod to these uncertainties. While current loss experience is benign, executives signaled that provisions may move higher if conditions deteriorate.

Constructive 2026 Guidance and Strategic Priorities

Looking ahead to 2026, management laid out constructive standalone guidance that does not yet factor in the American National transaction. The company targets 9%–10% C&I loan growth and 5%–6% total loan growth, supported by roughly $1.2 billion of planned relationship C&I additions. Core customer deposits are expected to grow 5%–6%, with NII projected to rise 5.5%–6.5% assuming two Federal Reserve rate cuts. Non-interest income is guided up 4%–5%, while non-interest expenses are expected to increase about 3%, reflecting continued investment but an emphasis on positive operating leverage. The bank intends to maintain a securities-and-cash-to-assets mix around 22%–24%, preserve a largely neutral interest rate stance—with a 100-basis-point down-rate scenario estimated at less than a 1% hit to NII—and leverage its fixed swaps and fixed-rate auto book to stabilize earnings.

In sum, Associated Banc-Corp’s earnings call painted the picture of a regional bank that has rebuilt its earnings engine and balance sheet over the last several years and now sees a clear runway for further growth. Record NII and net income, strong C&I and core deposit growth, improved funding and efficiency, and clean credit metrics underpin a generally positive outlook. While investors will need to watch for yield compression, CRE payoffs, seasonal deposit swings, rising expenses, and acquisition integration risk, management’s guidance and tone suggest confidence that disciplined execution can keep returns trending higher into 2026 and beyond.