Associated Banc-Corp (ASB) Q3 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
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.
Key Financial Performance
Net Interest Income (NII) $305 million in Q3 2025, up 16% year-over-year from Q3 2024. The increase was driven by a mix shift in the balance sheet, including growth in high-quality C&I loans and core deposits, and a reduction in low-yielding wholesale funding.
Earnings Per Share (EPS) $0.73 in Q3 2025. No year-over-year change explicitly mentioned.
Total Loans Grew by 3% year-over-year from Q3 2024, with a 5.5% adjusted growth after accounting for a loan sale in January. Growth was led by nearly $1 billion in C&I loans year-to-date, driven by deepened customer relationships and the expiration of noncompete agreements.
Core Customer Deposits Increased by 4% year-over-year, or $1.2 billion, from Q3 2024. Growth was attributed to seasonal inflows and strategic efforts to attract and retain deposits.
Noninterest Income $81 million in Q3 2025, up 21% year-over-year from Q3 2024. The increase was driven by capital markets revenue, wealth fees, and a one-time asset gain of approximately $4 million tied to deferred compensation plans.
Noninterest Expense $216 million in Q3 2025, up $7 million from the prior quarter. The increase was primarily due to performance-based incentive programs and incremental healthcare costs.
Return on Average Tangible Common Equity (ROATCE) Over 14% in Q3 2025, a 250 basis point improvement year-over-year from Q3 2024. The improvement was driven by enhanced profitability and capital generation.
Net Charge-Offs Flat at 0.17% in Q3 2025, consistent with prior quarters. No significant year-over-year change mentioned.
Allowance for Credit Losses (ACLL) Decreased by 1 basis point to 1.34% in Q3 2025. The decrease was attributed to stable credit quality and proactive portfolio management.
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Operating Highlights
Product Upgrades: Additional product upgrades planned for late Q4 of '25 and into 2026 to attract and retain checking households.
Market Share in Commercial Lending and Deposits: Positioned to take market share in commercial lending and deposit acquisition by hiring talented RMs in underpenetrated metro markets.
C&I Loan Growth: Added nearly $1 billion in C&I loans year-to-date, with pipelines remaining strong and additional growth expected as noncompete agreements expire.
Net Interest Income (NII): Achieved record NII of $305 million in Q3, up 16% from Q3 2024.
Core Deposits: Core customer deposits increased by $628 million in Q3, up 4% year-over-year.
Efficiency Ratio: Efficiency ratio decreased for the third consecutive quarter, now below 55%.
Balance Sheet Remix: Shifting from low-yielding resi mortgages to high-quality C&I loans to diversify asset base and enhance profitability.
Credit Discipline: Maintaining focus on high-quality commercial relationships and prime/super prime consumer borrowers.
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Risk or Challenges
Macro uncertainty: The company continues to monitor risks tied to macroeconomic uncertainty, which could impact its growth strategy and financial performance.
Interest rate environment: The company acknowledges the potential impact of elevated interest rates on its portfolio and continues to conduct interest rate sensitivity analysis to mitigate risks.
Credit risk: While credit discipline remains foundational, the company is proactively managing its portfolios to address emerging risks, including potential stresses from inflation and shifting labor markets.
Commercial Real Estate (CRE) exposure: The company expects elevated CRE payoff activity in the coming quarters, which could impact loan growth and profitability.
Tariffs and trade policy: Ongoing trade policy negotiations and tariffs pose risks to clients, although the company is in contact with clients to mitigate these risks.
Nondepository financial institutions (NBFIs): Although NBFI balances are minimal, the company is monitoring this sector closely due to recent industry news and potential risks.
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Guidance & Outlook
Loan Growth: The company expects total bank loan growth of 5% to 6% for 2025, driven by strong pipelines and additional lift from newly hired relationship managers as noncompete agreements expire.
Deposit Growth: Core customer deposit growth is expected to be at the lower end of the 4% to 5% range for 2025. However, the company remains confident in its ability to grow granular, low-cost core customer deposits over time, supported by product upgrades planned for late Q4 2025 and into 2026.
Net Interest Income (NII): Net interest income growth is projected to be between 14% and 15% in 2025, assuming two additional Federal Reserve rate cuts in 2025.
Noninterest Income: Noninterest income is expected to grow by 5% to 6% in 2025, excluding nonrecurring items from 2024 and early 2025.
Noninterest Expense: Total noninterest expense growth is forecasted to be between 5% and 6% in 2025, with a focus on driving positive operating leverage.
Capital Ratios: The company expects to manage its CET1 ratio within a range of 10% to 10.5% for 2025, supported by strong capital generation.
Market Positioning: The company is positioned to take market share in commercial lending and deposit acquisition, with momentum expected to carry through 2026.
Asset Sensitivity: The company has positioned itself to be relatively neutral to interest rate changes, with a down 100 basis point scenario representing just a 0.5% impact to net interest income as of Q3 2025.
Product Upgrades: Additional product upgrades are planned for late Q4 2025 and into 2026 to enhance the consumer value proposition and drive growth in checking households.
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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 happens when the remaining RMs come off of their noncompete? Will the growth rate accelerate?
A:Andrew Harmening stated that there is still a lag in production, but production is up 12% and the pipeline is up 31%. As nonsolicitations end, production is expected to increase slightly next year. Deposit production is also up 23%, with the pipeline up 46%. The company expects strong C&I growth above the market in 2026.
Q:Why was fee income impressive in 3Q, and what is the expectation for 4Q?
A:Fee income in 3Q was boosted by a one-time portfolio asset gain, which is not likely to repeat. However, underlying benefits in capital markets and commercial production, along with favorable rate trends, suggest a positive outlook for 2026. The quarter-over-quarter growth in 4Q is not expected to be as high.
Q:How is the company thinking about further improvement in ROTCE with rate cuts?
A:Derek Meyer mentioned that the opportunity for improvement exists, with the margin side being the bigger lever. Early responses to deposit rate cuts have been positive, and the outlook remains good. The company expects ROTCE to continue improving, though it may fluctuate quarter-to-quarter.
Q:Why did deposit costs increase in 3Q?
A:Derek Meyer explained that the increase was due to seasonality and higher rates in certain accounts. The company is not concerned about the overall impact and noted positive customer responses to deposit repricing after rate cuts.
Q:What is the plan for additional hires and solicitation agreements?
A:Andrew Harmening stated that the company is open to hiring quality relationship managers year-round and will be opportunistic in markets with disruption. There is no stated plan to increase hires, but opportunities will be considered as they arise.
Q:What is the outlook for loan growth, particularly in areas like resi real estate and CRE?
A:Andrew Harmening noted that resi real estate is a planned headwind, with balances expected to decrease unless rates drop significantly. CRE payoffs may increase with rate drops, but the company has increased production in commercial real estate to offset this. Short-term impacts are possible, but the outlook through 2026 remains positive.
Q:What is the approach to entering new markets like Oklahoma, Kansas City, and Denver?
A:Andrew Harmening emphasized a strong bias towards organic growth. The company evaluates opportunities that fit its expertise and execution capabilities, whether organic or inorganic.
Q:What is driving the increase in lending pipelines?
A:Andrew Harmening attributed the increase to new hires and market share gains, rather than borrower optimism. The company has brought in high-quality talent and provided tools to support their success.
Q:What is the near-term margin outlook with potential rate cuts?
A:Derek Meyer stated that the company is focused on stability, with remixing generating slight margin improvements. While there may be short-term fluctuations, the overall outlook is stable or slightly positive.
Q:What is the updated view on deposit beta through the cycle with potential rate cuts?
A:Derek Meyer estimated a cumulative beta range of 55% to 58%, slightly better than previous expectations.
Q:How should personnel expenses, particularly incentive compensation, be viewed going forward?
A:Derek Meyer explained that deferred compensation is tied to market value and should remain stable unless there are significant market changes. Incentive compensation will align with performance and guidance.
Q:What details are available about the new deposit system or system upgrade?
A:Andrew Harmening mentioned that the system upgrade is focused on product enhancements, particularly in wealth management and HOA title businesses. These initiatives are expected to drive growth and are already included in the expense structure.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on the timing of CRE payoffs and the exact impact of rate changes on resi real estate balances. Additionally, while they mentioned being opportunistic in hiring and market entry, no concrete plans or numbers were shared.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Associated result
CI balance
CI loan
Chief Credit
Credit Officer
Pages
asset base
asset gain
balance book
bank loan
capital generation
checking household
core customer
core deposit
cost core
decade
deposit core
development
gain compensation
income record
loan CI
loan date
market wealth
negotiation
noncompetes
personnel expense
point CET
point Slide
priority
record NII
return profile
shift profitability
strength
tariff
trade policy
uncertainty
valuation adjustment
wealth fee
yield interest
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Associated Banc-Corp (ASB) Q3 2025 Earnings Call Transcript
Positive10-23
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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