Associated Banc Reports Q3 EPS of $0.76, Adjusted EPS of $0.81

Associated Banc (NYSE: ASB ) reported third-quarter financial results on Thursday. The transcript from the company's third-quarter earnings call has been provided below. This transcript is brought to you APIs. For real-time access to our entire catalog, please visit for a consultation.

View the webcast at Summary Associated Banc reported a GAAP EPS of $0.76 in Q3 2026, with adjusted EPS of $0.81 after nonrecurring acquisition costs. Net interest income increased by $7 million, with net interest margin expanding by 3 basis points to 3.2%, the second-best quarter in over a decade. Core customer deposits grew by 2%, contributing to reduced wholesale funding and driving net interest income and margin expansion. The company executed $100 million in share repurchases, with plans to complete the remaining repurchase authorization in Q4.

Strategic initiatives focus on growing the customer base, expanding in metro markets, and enhancing profitability, with a future outlook of sustainable growth into 2027. Successful integration of American National Corporation assets, with significant conversion efforts completed, enhancing market reach. Commercial loan pipelines are up 36-40%, indicating strong future growth potential. Credit quality remains solid with a decrease in criticized loans and stable credit trends, despite a slight increase in nonaccrual balances.

Noninterest income rose by 8% to $87 million, with broad-based improvement across fee categories. The company maintains a neutral interest rate position and expects continued organic deposit growth and margin expansion. Full Transcript Sherry (Operator) Good afternoon, everyone, and welcome to Associated Banc's third quarter 2026 earnings conference call. My name is Sherry, and I will be your operator today.

At this time, all participants are in a listen-only mode. We will be conducting a question-and-answer session at the end of this conference. A copy of the slides that will be referenced during today's call is 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 this 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 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 the conference call, please refer to pages 26 and 27 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 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. Andy Harmening (President and CEO) 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 a 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 seven 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 are 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, 33 branches, and 70 ATMs converted over the course of a three-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 to the Twin Cities and beyond, and I'm excited for what we will continue to accomplish together as one Associated Banc 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 in 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 Banc 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 report a 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 one-time expenses tied to the American National acquisition, which was down from $24 million recognized in Q2. Capital trends remain solid.

Credit trends remain solid with $14 million of provision, a 2-basis-point decrease in our ACLL 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 ROTC 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 five 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 to set ourselves up for growth. We've modernized our digital banking experience, enhanced 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 seven 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. In commercial, we've increased our 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 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 steadily 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 and the Twin Cities with Associated's proven model to attract and deepen relationships in metro markets. This gives us another lever 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 three years to look like for Associated. While we're still finalizing our plans, you can expect a 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, non-customer resi mortgage balances.

We had 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 Associated standalone 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 deposits 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-end total deposit growth of 17% to 19% and period-end core customer deposit growth of 19% to 21% as compared to Associated Banc standalone 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.

Derek Meyer (Chief Financial Officer) 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 residential 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 Banc standalone 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 maintain repricing flexibility, we're protecting our variable-rate loan portfolio by maintaining receive-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 start emerging in 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 has 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 Banc standalone 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.