Q2 2025 Associated Banc-Corp Earnings Call

At end of this conference copies of the slides will be referenced during today's call and are available on the company's website at investors thought associated bank Dot Com as a reminder, this conference call is being recorded.

Patrick Ahern: We expect any future provision adjustments will continue to reflect changes to risk rates, economic conditions, loan volumes, and other indications of credit quality.

As outlined on slide one during the course of the discussion today management may make statements that constitute projections expectations beliefs or similar forward looking statements associated actual results may differ materially from the results anticipated or projected in any such forward looking statements.

Andrew Harmening: With that, I will now pass it back to Andy for closing remarks. Thanks, Pat. In summary, we're pleased with our progress over the first half of the year. We continue to feel well positioned to build on our momentum in the back half of the year, and that's primarily due to our strength and profitability profile, our solid capital position and our disciplined approach to both business and growth.

Additional detailed information concerning the important factors that could cause associated actual results to differ materially from the information discussed today is readily available on the SEC website and the risk factors section of the associated <unk>. Most recent Form 10-K and subsequent SEC.

Good afternoon everyone and welcome to Associated Bank corpse second quarter 2025 earnings conference call. My name is Alicia and I'll 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. Copies of the slides will be referenced during today's call and are available on the company's website at investor associatedbank.com. As a reminder, this conference call is being recorded.

Unknown Executive: So with that, I'd like to open it up for questions. and I'll be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone. Confirmation Tone will indicate your line is in the You may press star 2 if you would like to remove your. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the button. One moment, please, while we poll for questions.

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These factors are incorporated herein by reference.

For a reconciliation of the non-GAAP financial measures to the GAAP financial measures mentioned in the conference call. Please refer to page 24 from 26 on the of the slide presentation as.

I've outlined on slide 1 during the course of the discussion today. Management may make statements that constitute projections expectations beliefs or similar forward-looking statements Associated actual results May differ. Materially from the role results, anticipated or projected, in any such forward-looking statements

Pages, 10, and 11 of the press release financial tables.

Following today's presentation instructions will be given for the question and answer session.

Speaker Change: At this time I'd like to turn the conference over to Andy Harmening, President and CEO for opening remarks. Please go ahead Sir.

Additional detailed information concerning, the important factors that could cause Associates actual results to differ materially from the information discussed today is readily available on the SEC website. In the risk factors section of associated. Most recent form 10 K and subsequent SEC filings.

Daniel Tamayo: Our first question comes from the line of Daniel Tamayo with Remy. Thank you. Good afternoon, guys.

These factors are Incorporated here in by reference.

Speaker Change: Thank you and good afternoon, everyone. We appreciate you joining our second quarter earnings call. This is Andy Harmening I'm joined once again by our Chief Financial Officer, Derek Meyer, and our Chief Credit Officer Patty.

Andrew Harmening: Hey, Daniel. Hey. And maybe just starting on the deposits, you know, I guess the seasonal decline caught us by a little bit of surprise this quarter, even though maybe it shouldn't have, but, you know, just kind of back half of the envelope here, the back of the envelope, it looks like to get to the guidance for the core customer deposit growth for 25, you need about $1.6 billion in the back half. So correct me if I'm wrong on that. But, you know, how much of that is just the seasonal rebound and how much of that is normal growth?

Speaker Change: I'll start off by sharing some highlights from the quarter from there Derek will cover the income statement and capital trends and Pat will provide an update on credit.

Following today's presentations, instructions will be given for the question and answer session.

Speaker Change: Throughout the first half of this year, we remain focused squarely on landing the plane with regards to our strategic plan and the momentum from actions we've taken over the past several quarters has continued to transform our company in several important ways first we are leveraging our best in class value proposition to grow and deepen our customer base organically and <unk>.

At this time, I'd like to turn the conference over to Andy Harmony president and CEO for opening remarks, please go ahead sir.

Andrew Harmening: And maybe just kind of walk us through how you think you'll get there.

Speaker Change: Q2, we posted the best organic checking household growth we've seen since we began tracking nearly a decade ago.

Thank you and good afternoon everyone. We appreciate you joining. Our second quarter earnings call. This is Andy harmening. I'm joined once again by our Chief Financial Officer Derek Meyer and our chief credit officer. Pat Ahern. I'll start off by sharing some highlights from the quarter. Uh, from there. Derek will cover the income statement and capital Trends and path will provide an update on credit.

Andrew Harmening: Yeah, Daniel, so this is a little bit like a movie you've already seen. In fact, I mean, I'm not going to say we forecasted this to the dollar, but we're pretty close. So when we look at the second half of the year, a big piece of it is seasonal, we have we have three or four customers that every year they go down during this period. And frankly, it's actually about $100 million better if you look at the trend from the prior year. What's different going into the second half of this year is we have a commercial pipeline report on deposit.

Speaker Change: We're driving loan growth, while remixing, our asset base with over $700 million in C&I growth in the first half of 'twenty five we're well on our way to exceeding the $1 $2 billion target we set for the year. These.

Speaker Change: These balances are replacing lower yielding <unk> balances as they roll off the balance sheet.

Speaker Change: This ongoing mix shift is driving stronger profitability, our quarterly net interest income of $300 million was the strongest number we've seen in our company's history.

Throughout the first half of this year, we've remained focused squarely on Landing the plane, with regards to our strategic plan and the momentum from actions. We've taken over the past several quarters has continued to transform our company in several important ways. First, we're leveraging a best-in-class value, proposition to grow and deepen. Our customer base organically in Q2, we posted the best organic checking household growth. We've seen since we began tracking nearly a decade ago

Andrew Harmening: That pipeline has gone up $500 million in the last 12 months. Interestingly, though, it's gone up $200 million in the last 90 days. So we have that as a backdrop. Starting in August and September, the vertical that we hired people for the technology fixes that we need to launch that, those two things go in place. Over the course of 12 to 18 months, that'll be worth, we think, a few hundred million dollars in growth to us. We actually hit household growth of 2% in the first half of the year. As you probably know, you don't immediately get the in those.

Speaker Change: And finally, our enhanced profitability profile enables us to accrete capital, while still supporting balance sheet growth. We added another nine basis points to CET one capital in Q2.

Second, we're driving loan growth. While remixing, our asset base with over 700 million, in cni, growth, in the first half of 25, we're well on our way to exceeding. The 1.2 billion dollar Target, we set for the year,

Speaker Change: <unk> added 19 basis points of <unk>. So far this year following the completion of our balance sheet repositioning.

These balances are replacing lower yielding resi, balances, as they roll off the balance sheet.

Speaker Change: As always credit discipline remains a focus for us given the uncertain macro backdrop, we continue to proactively manage our portfolios and meet with customers to stay on top of any emerging risks.

This ongoing mix shift is driving stronger profitability. Our quarterly net interest income of 300 million was the strongest number we've seen in our company's history.

Andrew Harmening: Those come in 30, 60, 90 days after you have it. We've not had that kind of trend in the past. We started at negative one to two. We went to zero. We went to positive one. Now we're at two. And then we look at our customer satisfaction, which is the leading indicator as to what you're going to run off. It's as high as it's ever been in our company. So we look at the second half of the year and we say, gosh, if we're just average to last year, we're going to hit the numbers that we've forecast.

Speaker Change: We remain well positioned to play offense in the back half of this year. Thanks to the stability of our markets and the building momentum of our strategic strategic plan. We also remain well positioned to play defense if necessary. Thanks to our disciplined approach to credit.

And finally, our enhanced profitability profile enables us to create Capital while still supporting balance sheet growth. We added another 9 basis points to cet1 Capital and Q2, and I've added 19 basis points of C1 so far this year, following the completion of our balance sheet repositioning.

Speaker Change: With that I'd like to walk through some additional highlights for the quarter beginning on slide two.

Speaker Change: For the second quarter, we reported earnings of <unk> 65 per share.

Speaker Change: Total loans grew by 1% quarter over quarter and by 3% versus Q2 of 2024 adjusted for the loan sale. We completed in January total loans in Q2 were up by nearly 6% versus Q2 of 2024.

Daniel Tamayo: We don't feel like we're average the last year, so whether we get that additional lift in the second half of 2025 or we get the additional lift in 2026, we see a path for where it's coming to us. So the forecast itself, we think, is pretty disciplined and pretty right on line with what we've seen in the prior years. Terrific. Thanks for that.

As always, credit discipline, remains a focus for us given the uncertain macro backdrop, we continue to proactively manage our portfolios and meet with customers to stay on top of any emerging risks.

Our loan growth has been led by commercial is our middle market expansion continues to gain momentum we added another $356 million of C&I loans in Q2, and we've now grown C&I loans by over $700 million through the first six months of 2025.

We remain. Well, positioned to play offense in the back half of this year. Thanks to the stability of our markets and the building momentum of our strategic plan. We also remain, well, positioned to play defensively. Thanks to our discipline approach to credit.

With that. I'd like to walk through some additional highlights for the quarter beginning on slide 2 for the second quarter. We reported earnings of 65 cents per share.

Derek Meyer: And is it fair to say that the increase on the total deposit guide relative to core deposit is just Well, let me ask you, what drove that in?

Speaker Change: As expected our Q2 deposit levels were impacted by seasonal outflows, but compared to the same period a year ago core customer deposits were up four 3%. We remain confident in our full year outlook for customer deposit growth. Thanks to our steadily improving household growth trends our commercial RM hires.

Derek Meyer: Yeah, Dan, this is Derek. That's just wholesale funding of brokered CDs. So that's a gap number. But what we're focused in on is the a customer number that Andy is referring to, and we were right on budget the whole, both first and second quarter. So for us, this has not been a surprise and we're sort of right on schedule, which is why we're pretty confident.

Total loans, grew by 1% quarter over quarter. And by 3%, versus Q2 of 2024 adjusted for the loan sale. We completed in January total loans in Q2, were up by nearly 6% versus Q2 of 2024.

Our loan growth has been led by commercial as our Middle Market expansion continues to gain momentum.

Speaker Change: The seasonal inflows, we typically see in the back half of the year.

Speaker Change: Moving to the income statement, our Q2 net interest income of $300 million was the strongest market. We've seen in company history, and was up $43 million or 17% versus the same period a year ago. We also posted noninterest income of $67 million during the quarter, which was up three <unk>.

We added another 356 million of cni loans in Q2, and we've now grown cni loans by over 700 million dollars through the first 6 months of 2025.

Derek Meyer: Okay, but the overall balance sheet is just expected to be slightly larger then, and that's funding kind of securities or cash then, is that the way to think about it? Well, that's exactly right. is a little bit of more CD's, broker CD's versus FHLB. So you have to, if you're gonna give a gap guidance, then you have to include that. That's all. Understood.

As expected, our Q2 deposit levels were impacted by seasonal, outflows, but compared to the same period a year ago.

Core customer. Deposits were up 4.3%.

Speaker Change: <unk> versus Q2 of last year.

Speaker Change: Total noninterest expense finished down slightly from the prior quarter at $209 million here in Q2, driving positive operating leverage and continue to be a primary focus as we execute our plan. We also continue to monitor credit quality closely in Q2, our non accrual loans are down 16%, we booked 17 basis.

We remain confident in our full year outlook for customer deposit growth. Thanks to our steadily improving household growth Trends. Our commercial RM hires, and the seasonal inflows. We typically see in the back half of the year.

Patrick Ahern: And then maybe one for Pat. This is just kind of a question I think that should be asked every few quarters. If you could just give us kind of an update on the Office CRE portfolio. You give a lot of good color in the slide deck. But, you know, just curious kind of if you could give some color around how you see that portfolio, what trends look like. You know, if there's a differentiation between the A and the B that you talk about, the class is there. And then if you have a number for participations, if you do any of that with the Office portfolio, that would be helpful.

Moving to the income statement, our Q2 net interest income of $300. Million was the strongest market we've seen in company, history and was up 43 million or 17% versus the same period a year ago.

Speaker Change: Net charge offs, and we added $18 million in provision.

Speaker Change: And finally, we posted a return on tangible common equity of 12, 96% in Q2, a 62 basis point improvement from Q1.

We also posted non-interest income of 67 million during the quarter, which was up, 3% versus Q2 of last year.

Total non-interest expense finished down slightly from the prior quarter at 209. Million here in Q2

Speaker Change: Moving to slide three the strategic actions, we've taken have put us in a position to enhance our profitability by growing and remixing both sides of our balance sheet and we're doing just that you can see it in commercial where C&I balances have grown by over $700 million year to date with pipelines continuing to build and <unk>.

driving positive, operating leverage and continue to be a primary focus as we execute our plan.

We also continue to monitor credit quality closely in Q2. Our non-accrual loans are down 16%. We booked 17 basis points of net charge offs and we added 18 million dollars in provision.

Patrick Ahern: Yeah, I would say overall, you know, office continues to to evolve, probably in a better spot than it was a couple years ago. And I think the clients that we're working with who have addressed their assets and have been proactive in improving and providing amenities that the market's looking for, have benefited and that's what we're seeing in our portfolio. Certainly not completely out of the woods in terms of CRE as an office, as an asset class, and I think the industry would agree with that. But, you know, the way we're down considerably in what we would deem kind of the more stressed office credits in the portfolio.

Speaker Change: Several more noncompete from recently hired RM set to expire in the coming months, we expect our momentum to carry into the back half of the year and into 2026.

And finally, we posted a return on tangible. Common Equity of 12.96% in Q2 a 62 basis, point improvement from q1

Speaker Change: These higher yielding relationship focus C&I loans are replacing lower yielding resi mortgage loans that have historically been concentrated on our balance sheet and as those balances continue to roll off we have been able to decrease that concentration and diversify our asset base.

moving to slide 3, the Strategic actions, we've taken have put us in a position to enhance our profitability by growing and remixing, both sides of our balance sheet and we're doing just that

Speaker Change: This dynamic sets us up to drive more profitable growth without sacrificing our disciplined approach to credit and.

In Q2, our net interest margin climbed above 3% and we posted record NII. We see additional opportunity ahead as we continue to grow and remix our asset base, while supporting that growth primarily through lower cost customer deposits.

Patrick Ahern: We've had a fair amount of exits. In fact, the one payoff from the delinquency I noted was a CRE office deal that sold. So I think we feel confident where we're at right now, and we just continue to watch it because that's still an evolving story, as you know, with return to office and where the assets are performing. And I, you know, in terms of SNCC, in terms of office, I don't have a number off the top of my head. Most of the stuff we're doing there is going to be direct with sponsors we've worked with for a long, long time.

Speaker Change: On slide four.

Speaker Change: We highlight our loan trends through the second quarter total average quarterly loans increased by nearly $400 million versus Q1, and while total period loans increased by 1% or $300 million point to point in both cases. This growth was led by C&I.

Higher, yielding relationship, focused. Cni loans, I replacing lower yielding resi. Mortgage loans that have historically been concentrated on our balance sheet. And as those balances continue to roll off, we've we've been able to decrease that concentration and diversify our asset base.

This Dynamic sets us up to drive more profitable growth without sacrificing our disciplined approach to credit.

Patrick Ahern: We don't get involved in a lot of big bank SNCC deals in the, with the office class. That's why we don't have a lot of downtown urban exposure there. Got it. Okay. Very helpful. That's all I had. Thanks very much, guys.

Speaker Change: CRE construction loans grew by $140 million during the quarter, but this growth was more than offset by $227 million and net outflows in CRE investor bucket. After a light first quarter of payoffs, we saw payack payoff activity in CRE pick up towards the end of the second quarter and we expect this activity to remain elevated over the remainder.

In Q2, our net interest, margin climbed above 3% and we posted record. Nii we see additional opportunity ahead as we continue to grow and remix our asset base while supporting that growth primarily through through lower cost customer deposits.

On slide 4.

Scott Siefers: Thank you. This presentation comes from a line of Scott Siefers with Piper Sandler. Good afternoon, guys. Thank you for taking the question. Derek, was hoping you could help to kind of codify where the margin could go and the puts and takes that get us there. I remember, like, earlier in the year, we sort of talked about a, call it a 3% margin with some upside if rates stayed elevated. But, you know, now it feels, and correct me if I'm wrong, but it feels like remixing within loan portfolio could be as powerful a factor as the level of rates.

Speaker Change: They're of the year.

Speaker Change: Finally auto finance balances grew by $91 million in Q2, as we've continued to diversify our consumer book as such we continue to expect total bank loan growth of 5% to 6% for the year.

We highlight our our loan Trends to the second quarter total average. Quarterly loans increase by nearly 400 million dollars versus q1 and we'll to Total period loans increase by 1% or 300 million dollars point to point. In both cases, this growth was led by cni.

Speaker Change: Moving to slide five.

Speaker Change: Total deposits and core customer deposits, both dipped slightly during the quarter due to seasonality, we typically see in the spring. However, both total deposits and core customer deposits are up more than 4% as compared to the same period a year ago.

CRA construction loans, grew by 140 million during the quarter. But this growth was more than offset by 227 million in net. Outflows in in CRA investor bucket after a light first quarter of payoffs. We saw a Pay Act payoff, activity in CRA, pick up towards the end of the second quarter. And we expect this activity to remain elevated over the remainder of the year.

Derek Meyer: So, just curious how you're thinking about all the, kind of all the things sloshing around in there where ultimately we could end up going.

Speaker Change: This reflects our efforts to attract and deepen customer relationships with a best in class value proposition. It also is a reflection of the RMS required in our sharpened focus on whole relationships in commercial we're confident.

Finally Auto Finance, bounces grew by 91 million in Q2 as we've continued to diversify our consumer book.

As such we continue to expect total bank loan growth of 5 to 6% for the year.

Derek Meyer: So what I think you anchored on the right point, I think the piece that we have that has the most predictable impact on our margin strength is the asset side. And we've set the table and are getting the growth in the asset classes where we made the investment, the CNI book, and then stopped adding or let the old third-party resi roll off. It really is grinding up the asset yields in a sustainable way, even if rates come down a few clicks. So what, and so that, we feel really good about that. We think we've demonstrated that consistently and it came through again this quarter.

Moving to slide 5.

Speaker Change: And our ability to grow core customer deposits in the back half of the year for three reasons first our consumer value proposition gives us an engine to attract and deepen customer relationships sustainably over time.

Speaker Change: In fact here in Q2, we just book the strongest organic primary checking household growth numbers, we've seen since we began tracking a decade ago.

Total deposits and core customer deposits. Both dip slightly during the quarter due to seasonality. We typically see in the spring, however, both Total deposits and core customer deposits are up more than 4% as compared to the same period a year ago.

Speaker Change: <unk>, our sharpened focus on commercial deposits is gaining momentum with pipelines growing RM noncompete expiring and the addition of a new deposit vertical.

This reflects our efforts to attract and deepen customer relationships with the best-in-class value. Proposition, it also is a reflection of the RMS we fired and our sharpened focus on whole relationships and Commercial.

Speaker Change: And finally as we saw in 2020 for our annual deposit growth has historically weighted towards the back half of the calendar year.

We're confident in our ability to grow core customer deposits in the back half of the year for 3 reasons. First, our consumer value proposition gives us an engine to attract and deepen customer relationships sustainably over time.

Speaker Change: Ultimately, we expect our efforts to drive growth in lower cost core core customer deposit categories that enable us to further decrease our reliance on wholesale funding sources over time.

Derek Meyer: So, and that also gave us confidence to raise the guidance, both the growth and where we finish the quarter.

in fact, here in Q2, we just booked the strongest organic primary, checking household, growth numbers we've since seen since we began tracking a decade ago,

Derek Meyer: I think probably the most uncertainty, there's the same opportunity of remixing our deposits going forward, but it'll be unclear on how big that opportunity is. It'll be dependent on where the market takes deposit rates. So most of our guidance is again, maintaining the margin that we've established and then growing our NII through growing the balance sheet rather than making a bet on that interest rate. Got it.

Speaker Change: Recent pipeline and household trends give us confidence in our growth outlook for the year and as such we continue to expect core deposit growth by 4% to 5% in 2025 and with that I'll pass to Derek to discuss our income statement and capital trends.

Secondly, our sharpened focus on Commercial deposits is gaining momentum with pipelines growing RM. Non-competes expiring and the addition of a new deposit, vertical,

Derek: Thanks, Andy I'll start with yield trends on slide six in the second quarter, our net interest margin of 3.0% to 4% was driven by a five basis point increase in earning asset yields and a four basis point decrease in interest bearing liability costs, we saw a slight uptick across the board in most asset categories.

And finally, as we saw in 2024, our annual deposit growth is historically, weighted towards the back half of the calendar year. Ultimately, we expect our efforts to drive growth and lower cost. C Core customer deposit, categories. That enable us to further decrease, our Reliance on wholesale, funding sources over time.

Derek Meyer: Okay, thank you.

Derek Meyer: And then maybe if you can actually expand on something to which you alluded toward the end of that response, but the sort of the deposit pricing side, maybe any update on kind of strategies there. I guess the background of the question is, I know, like, there are the seasonal nuances and balances, and then I think there are some, some kind of higher cost roll offs. But just the sequential downdraft in interest bearing deposit costs was much larger than most of what we're seeing this quarter, meaning good things. So, just curious, you know, how's the overall strategy looking?

Derek: <unk> uptake was led by the commercial business category, which increased by seven basis points versus Q1 on.

Derek: On the liability side total interest bearing deposit costs decreased to $2, 78% in Q2, a 13 basis point decrease from the prior quarter and a 52 basis point decrease versus Q2 of 2024.

Recent Pipeline and household Trends, give us confidence in our growth outlook for the year. And as such we continue to expect core deposit growth by 4% to 5% in 2025 and with that I'll pass it to Derek to discuss our income statement and capital trends.

Derek: We remain pleased with our ability to reprice deposits downward over the past several quarters, particularly the high rate categories such as Cds.

Derek: Uh thanks Andy. I'll start with the yield Trends on slide 6 in the second quarter, our net interest. Margin of 3.04% was driven by 5 basis point increase in earning asset yields and a 4 basis point decrease in interest. Bearing liability costs.

Derek: On slide seven our second quarter net interest income of $300 million increased by $14 million versus the prior quarter and $43 million versus the same period, a year ago, our net interest margin of 3.0% to 4% expanded by seven basis points versus Q1, and 29 basis points versus the same period a year ago.

Derek Meyer: What would be the outlook going forward, sort of best guess?

Derek: We saw a slight uptick across the board in most asset categories. This uptick was led by the commercial business category, which increased by 7 basis points versus q1

Andrew Harmening: I'm going to take, this is Andy, I'm going to take that one. First, I'd say the discipline we have around pricing is significant, whether that is with the entire back book of the portfolio, or it's the coming due nature of the CD book. The retention of our CDs and the strategy around that, we're hovering around 84-85% retention and getting pricing that's been good and helped to become creative. The thing I'm pretty pleased with in the second quarter, even though we had the seasonal decrease that we expected, the ability to manage the interest bearing aspect of that during that time and still expand margin was really significant.

Derek: on the liability side, total interest bearing deposit cost decreased to 2.78% in Q2 a 13 basis. Point decrease from the prior quarter and a 52 basis point decrease versus Q2 of 2024.

Derek: Based on our latest expectations for balance sheet growth and mix deposit betas and fed action. We now expect to drive net interest income growth of between 14 and 15% in 2025. This forecast assumes three fed rate cuts in 2025.

Derek: We've remained pleased with our ability to re-priced deposits downward over the past several quarters. Particularly the high rate categories such as CDs

Derek: Moving to slide eight we continue to see a well positioned for any potential fed rate changes that may materialize in the coming months. Thanks to our modestly asset sensitive balance sheet. We've kept funding obligation short to maintain repricing flexibility. We've maintained receive fixed swap balances of approximately $2 $4 5 billion.

Derek: On slide 7 our second quarter, net interest income of 300 million increased by 14 million versus the prior quarter and 43 million versus the same period a year ago. Our net interest margin of 3.04%, expanded by 7 basis points versus q1 and 29 basis point versus the same period a year ago.

Andrew Harmening: was was really strong on our part. So when we look at the rest of the year, we have we have the same discipline and approach and forecasting out of each one of those buckets and categories. What we expect, then, is with both the seasonal flow and the increase in kind of BAU, we forecast our NII based on being relatively flat and nimb. So if deposit pricing doesn't become irrational, we think there could be some positive upside, but we don't want to bet on that just yet.

Derek: We build a $3 billion fixed rate auto book with low prepayment risk and strong credit characteristics.

Derek: Based on our latest expectations for balance sheet growth and mix deposit, betas and fed action. We now expect to drive net interest income growth of between 14 and 15% in 2025.

Derek: These actions will reduce our asset sensitivity over time with the down 100 ramp scenario now representing about a 1% impact to our NII as of Q2.

Derek: This forecast assumes 3 fret rate Cuts in 2025.

Derek: We expect to maintain this modest <unk> sensitive position going forward.

Derek: Moving to slide 8, we continue to feel well positioned for any potential Fed rate changes that may materialize in the coming months. Thanks to our modesty asset sensitive balance sheet.

Derek: On slide nine our securities book increased to $9 million in Q2, as we continue to modestly build our <unk> portfolio. The overall yield in our investment securities portfolio increased two basis points from the prior quarter to $4 two 4%.

Derek: Work with low prepayment risk, and strong, credit characteristics.

Derek: Our securities plus plus cash to total assets ratio climbed to 23, 4% for the quarter, we expect to manage this ratio in the 22% to 24% range throughout 2025.

Andrew Harmening: All right. Perfect.

Andrew Harmening: Thank you both very much. Thank you.

Derek: These actions have reduced our asset sensitivity over time with the down. 100 RP scenario. Now representing about a 1% impact to our knee as of Q2

Derek: We expect to maintain this modesty sensitive position going forward.

Unknown Executive: This question comes from...

Derek: Yeah.

Derek: Our noninterest income trends for the quarter are highlighted on slide 10, we posted total noninterest income of $67 million in Q2, a 14% increase over Q1 that was largely driven by the $7 million loss on mortgage sale, we recognized in the prior quarter.

Terry: Good afternoon, guys. Terry. I guess I'll just start with a question based on this afternoon's news, kind of your updated thoughts on acquisitions, your capitals growing, your stocks outperformed, your business models generating performance above expectations. So we'd love to get your updated thoughts on M&A. I liked all those things you said, Terry. In fact, if you repeated that question, I could hear it over and over. I'd say a couple of things. One, Thanks. Look, if something came to us, it would have to be a really good fit. Strategically, it'd have to be a good fit.

Derek: On slide 9. Our Securities book increased to 9 billion in Q2 as we continue to modestly, build our AFS portfolio. The overall yield in our investment Securities portfolio increased 2 basis points from the prior quarter to 4.24%

Derek: <unk> in the same period, a year ago, our noninterest income increased 3%.

Derek: As compared to Q1 fee based revenues capital markets and mortgage banking income ticked higher and this growth was partially offset by a decrease in bully income.

Derek: Our security is plus plus cash to total assets. Ratio of climb to 23.4% for the quarter. We expect to manage this ratio in the 22% to 24% range throughout 2025.

Derek: In 2025, we now expect noninterest income to grow by 1% to 2% after excluding the nonrecurring items that impacted our fourth quarter 2024, and first quarter 2025 results from the balance sheet repositioning we announced in December.

Derek: Are not interest income, transfer the quarter or highlighted on slide 10. We posted to total non-interest income of 67 million in Q2, a 14% increase over q1. That was largely driven by the 7 million dollar loss on mortgage sale. We recognized in the prior quarter

Derek: Moving to slide 11, second quarter expenses of $209 million decreased $1 million versus Q1.

Andrew Harmening: Financially, it'd have to be a good fit. Culturally, the things that we wanted to achieve with our STRAP plan, remember, we're only a year and a half into it and we're just starting to harvest the profitability of that. We're seeing margin expansion. We're seeing household growth. We're seeing a ROTC increase. We're seeing customer satisfaction at historical highs and strong revenue growth. So I've said this a lot of times, that is our number one priority. It's our first priority. If you do that well enough, you lead yourself to opportunities. But I would just reiterate, it would have to be a good fit in kind of all the ways that we think about otherwise.

Derek: Within our expense base quarterly decreases in occupancy technology FDIC assessment in other non interest expense were partially offset by increases in personnel business development and legal and professional costs are.

Derek: Relative to the same period a year ago. Are not interest income increased 3%. As compared to q1 fee-based revenues, Capital markets, and Mortgage Banking income, ticked higher. And this growth was partially offset by a decrease in bullying income.

Derek: Our efficiency ratio dipped below 56%, which is the lowest level we've seen since the early since early 2023.

Derek: In 2025, we now, expect non-interest income to grow by 1 to 2%. After excluding the non-recurring items that impacted our fourth quarter 2024 and first quarter 2025 results from the balance sheet repositioning we announced in December.

Derek: We continue to invest in people and strategies that support our growth plans, but as we've said previously driving positive operating leverage continues to be a primary focus for our company.

Derek: Moving a slide 11 second quarter expenses of 209 million decreased 1 million versus q1.

Derek: Based on our latest forecast, we now expect total noninterest expense growth of between four and 5% in 2025 off of our adjusted 2024 base.

Andrew Harmening: And our team's very much locked in into delivering the forecasting guidance that we've provided for 2025 right now. We've largely hit on it. It's a growth story there. So we're certainly going to have movement within the risk ratings that will affect it from quarter to quarter. But overall, it's been a growth story. You know, our spot balances, CRE investor was down this quarter. So there was there'd be a release there. And then for comparison's sake on the CRE construction, we're going to be we have a little more aggressive build on those when we fund deals.

Derek: Within our expense base. Quarterly decreases in occupancy technology, ftic assessment and other non-existence. Expense were partially offset by increases in Personnel, Business Development, and legal, and professional costs.

The increase was largely attributed to variable comp benefits expense and Oreo.

Derek: On slide 12, we once again saw capital ratios increased across the board in Q2, our TCE or TCE ratio of 8.0% to 6% in Q2 was up 10 basis points versus the prior quarter and up 88 basis points versus Q2 of 2024.

Derek: Our efficiency ratio dip below 56%, which is the lowest level we've seen since the ear since early 2023.

Derek: We continue to invest in people and strategies that support our growth plans. But as we've said, previously, driving positive operating leverage continues to be a primary focus for our company.

Derek: Our CET one ratio increased to 10, 2% as of Q2, a nine basis point increase relative to the prior quarter and a 52 basis point increase versus the same period a year ago.

Derek: Based on our latest forecasts. We now expect total non-used expense growth in between 4 and 5% in 2025 off of our adjusted 2024 Bass.

Derek: The increase is largely attributed to variable comp benefits expense and Oreo.

Derek: On our expectations for growth in 2025, and current market conditions. We continue to expect demand in CET, one within a range of 10 to 10, 5% for the year.

Derek: I will now hand, it over to our Chief credit Officer, Patty and her and to provide an update on credit quality.

Patty: Thanks, Derrick I'll start with an allowance update on slide 13.

Derek: On slide 12. We once again saw Caper ratios increase the board in Q2 our tce our tce ratio of 8.06% in Q2 was up 10 basis points versus the prior quarter and up 88 basis points versus Q2 of 2024.

Patty: We utilized the Moody's may 2025 baseline forecast for our seasonal forward looking assumptions the Moody's baseline forecast remains consistent with a resilient economy, despite the higher interest rate environment.

Derek: Our cet1 ratio increased to 10.2% as of Q2 a 9 basis point increase relative to the prior quarter and a 52 basis point increase versus the same period a year ago.

Unknown Executive: So we're going to appropriately grab that risk up front when we close new deals. So you'll see when you have growth, you'll see that ACL rate go up. Perfect.

Patty: The baseline forecast contains no additional rate hikes slower, but positive GDP growth rates are cooling labor market continued elevated levels of inflation and continuing monitoring of ongoing market develops.

Derek: Our expectations for growth in 2025 and current market conditions. We continue to expect to manage C1 within a range of 10 to 10.5% for the year.

Speaker Change: I'll now hand it over to our chief credit officer, Patty Hearn to provide an update on credit quality.

Unknown Executive: Thanks for taking my question. Thank you, Jared.

Thanks, Derek. I'll start with an allowance update and slide 13.

Patty: Elements and tariff negotiations.

Chris O'connell: Thank you. Our next question comes... with KVW. Please... Hey, good afternoon.

Patty: Our <unk> increased by $5 million in Q2 to finish the quarter at $412 million with increases in commercial and business lending CRE construction and other consumer categories, partially offset by decreases in CRE investor in mortgage the.

Chris O'connell: This is Chris O'Connell filling in for Chris. I just wanted to point out, yeah, exactly. I just wanted to start off thinking about the positive operating leverage that you guys have been able to put up over the first half of this year, and as you get further along to 2026, if you view that as continuing and still sustainable. The short answer is yes. That is the goal going into every single year. The little bit expanded answer of that is kind of in the details of where we are on the STRAT plan. And what I'd say is when you think about the number of RMs that we've hired and the increase that we have, relationship managers and commercial, when I look at the pipeline that we're increasing, and what we have to believe is that resi is going to slowly decrease.

Speaker Change: We utilize the Moody's May 2025 Baseline forecast for our Cecil forward-looking assumptions. The Moody's Baseline forecast remains consistent with a resilient economy despite the higher interest rate environment

Patty: The increase in commercial largely stem from a combination of loan growth plus normal movement within risk rating categories.

The Baseline forecast contains no additional rate hikes slower but positive GDP, growth rates a cooling, labor market, continued elevated levels of inflation and continuing monitoring of ongoing Market, develops and developments in tariff negotiations.

Patty: Our ACL ratio increased by one basis point from the prior quarter to 135%.

Patty: On Slide 14, we continue to review our portfolio as closely given ongoing uncertainty in the macro picture.

Patty: But we maintain a high degree of confidence loan portfolios and continue to see solid performance in Q2.

Speaker Change: Our ACL increased by 5 million dollars in Q2 to finish the quarter at 412 million, with increases in commercial and business, lending CRA construction and other consumer categories. Partially offset by decreases in CRA, investor and mortgage.

Patty: Total delinquencies increased slightly to $52 million in Q2 with an uptick in the 90 plus bucket, partially offset by a decrease in the 30 to 89 day bucket.

Speaker Change: The increase in commercial largely stem from a combination of loan. Growth plus normal movement within risk, rating categories.

Speaker Change: our ACL ratio increased by 1 basis point from the prior quarter to 1.35%,

Patty: The increase in the 90 plus category was a timing issue of one credit that was in the process of payoff via a sale is carried over to the first week of July with full repayment.

Andrew Harmening: It is. We have to believe that commercial loan growth is going to increase. It is, and it's increasing at an increasing rate. We have to believe that we're going to add customers because that means that you start to bring in lower cost granular deposits. We are. And you have to have discipline around the pricing of what you're doing on the back book as well. And so we feel like when we do that, and we've gone into every budget season basically with the requirement request from our leadership team that they bring ideas on expense saves before we talk about where we're going to spend money so that we kind of mitigate the risk there.

Speaker Change: On slide 14, we continue to review our portfolios closely given ongoing uncertainty in the macro picture.

Patty: Total criticized loans increased slightly versus Q1 with increases in the special mention and substandard categories, partially offset by a decrease in non accrual loans. Much of this increase was driven by migration within CRE and C&I categories. As we continue our philosophy of a proactive and conservative approach.

But we maintain a high degree of confidence in loan portfolios and continue to see solid performance in Q2.

Speaker Change: Total delay with increased slightly to 52 million in Q2 within uptick in the 90 plus bucket partially offset by a decrease in the 30-, 89 day bucket.

Patty: Allative to credit risk ratings adhering within the current industry guidance.

Patty: We do not feel that recent trends in this category are an indication of a noteworthy shifts in the credit profile of the portfolio nor do they represent an increased risk of loss.

Speaker Change: The increase in the 90. Plus category was a timing issue of 1 Credit that was in the process of payoff via a sale. This carried over to the first week of July with full repayment.

Andrew Harmening: So with all the pieces that we're talking about right now, it sure looks like we're going to be able to continue on with the positive operating leverage throughout this year and into 2026.

Patty: We continue focus portfolio deep dives in an ongoing basis and don't see a systemic shift in our commercial portfolios. In fact, we continue to see resolutions with some of our more stress credits and liquidity remains present in the market in terms of both payoffs and loan re margin.

Mention and substandard categories, partially offset by a decrease in non-accrual loans.

Andrew Harmening: Great. And then, you know, on, you know, the hiring, you know, efforts here, you know, how's the pipeline look for hiring throughout, you know, the rest of the year? And then I think you guys had, you know, talked about, you know, sitting down, you know, post the end of the phase two investments, kind of mapping out some of the next steps, any preview into, you know, the forward investments that are being contemplated going forward? Two, two really good questions. You know, we're, we're in a really, I was reflecting on this just earlier today with our commercial banking, you know, three or four years ago, we were working really hard on the recruiting.

Much of this increase was driven by migration within CRA and cni categories. As we continue, our philosophy of a proactive and conservative approach relative to credit risk, ratings adhering within the current industry guidance.

Patty: Balances and not in the non accrual category were down $22 million versus Q1, and $41 million versus the same period a year ago.

Speaker Change: We do not feel that recent Trends in this category are an indication of a noteworthy shift in the credit profile of the portfolio, nor do they represent an increase risk of loss.

Patty: Finally, we booked $13 million and net charge offs during the quarter and $18 million and provision.

Patty: Our net charge off ratio increased by five basis points to one 7%.

Patty: All three of these numbers remain squarely in line with the figures we've seen over the past several quarters.

Speaker Change: We continue focused portfolio deep Dives in an ongoing basis and don't see a systemic shift in our commercial portfolios. In fact, we continue to see resolutions with some of our more stressed credits and liquidity remains present in the market in terms of both payoffs and Loan REM margin.

Patty: In summary, our credit metrics continue to give us confidence that will be seen to date is a handful of credits migrating within our rating system and not necessarily a sign of broader issues coming down the road in future quarters overall outside of these specific situations, we remain comfortable in the normalized level of activity we've seen across the bank.

Speaker Change: Balances in. Non, in the non-accrual category were down 22 million versus q1 and 41 million versus the same period a year ago.

Andrew Harmening: Two years ago, we ramped that up again. In the last six to 12 months, we're getting inbound calls from people. And that's, that's really makes it a lot better. And word of mouth has spread, we've completed our hiring, you've never fully complete if there's somebody that's exceptional in the market. But our ability to get talent has increased, improved over the last four years, three years, two years, and even in the last year. What's interesting on that is the predominance of our production is still coming from people that we hire pre-2023. That's going to shift as we head into the end of this year and the beginning of next year as non-solicitations expire.

Speaker Change: Finally, we booked 13 million and net charge offs during the quarter and 18 million dollars in provision.

Patty: <unk>.

Speaker Change: Our net charge off ratio increased by 5 basis points to 0.17%

Patty: In response.

Patty: Specifically to tariffs and the ongoing trade policy negotiations.

All 3 of these numbers remain squarely in line with the figures. We've seen over the past several quarters.

Patty: After our initial targeted portfolio reviews in April we remain in close contact with clients as the trade policy discussions continue.

Patty: I would note that clients have been planning for tariff changes for some time and we feel comfortable with the positioning of strategies and the ability to execute with more clarity exist.

Summary our credit metrics, continue to give us confidence that we'll be seen to date is a handful of credits, migrating within our rating system and not necessarily a sign of broader issues coming down the road in future quarters.

Patty: Going forward, we remain diligent in monitoring other credit stressors in the macro economy to ensure current underwriting reflects the impact of ongoing inflation pressures and shifting labor markets to name just a few economic concerns.

Andrew Harmening: So we have a lot of legs still in what the hiring piece has been. But, but I think it's 64% is from the legacy. But even the people hired in 24 have, have, have the next biggest piece of about 23%. So we only have about 10 to 15% of our production from those we've hired in, in 20, in 2025. So pretty optimistic there. There is room to add in some key markets, should that come available. But we're going to be very selective in what potential expansion is. There is never a shortage of ideas. What we'll do is we'll take that and we'll talk about what can we execute most swiftly, what fits our risk profile, what has the fastest payback.

Speaker Change: Overall outside of these specific situations. We remain comfortable in the normalized level of activity. We've seen across the bank.

Patty: In addition, we continued to maintain specific attention to the effects of elevated interest rates in the portfolio, including ongoing interest rate sensitivity analysis bank wide.

Speaker Change: In response, specifically to tariffs in the ongoing trade policy. And negotiations, after our initial targeted portfolio reviews in April, we remain in close contact with clients as the trade policy discussions. Continue

Patty: We expect any future provision adjustments will continue to reflect changes to risk grades economic conditions loan volumes and other indications of credit quality.

Speaker Change: I would note that clients have been planning for tariff changes for some time and we feel comfortable with the positioning of strategies and the ability to execute when more clarity exists.

Andy Harmening: With that I will now pass it back to Andy for closing remarks.

Andy Harmening: Thanks, Pat in summary, we're pleased with our progress over the first half of the year, we continue to feel well positioned to build on our momentum in the back half of the year and Thats, primarily due to our strength and profitability profile, our solid capital position and our disciplined approach to bespoke business and growth.

Speaker Change: Going forward. We remain diligent on monitoring other credit stressors, in the macroeconomy to ensure current underwriting, reflects the impact of ongoing inflation pressures and shifting, labor markets to name just a few economic concerns.

Andrew Harmening: That's the process that we'll go through in the second half of this year. I don't feel a lot of pressure to add new, new initiatives immediately because throughout 26, we'll harvest the ones we have, but right now we'll talk about that. We're likely at a couple and then see how we layer that in as we head into the end of 26 going into 27. We're in a good position where we can look 12 to 24 months out and see what revenue forecast might be and then add to that in a very specific way.

Speaker Change: In addition we continue to maintain specific attention to the effects of elevated. Interest rates on the portfolio including ongoing, interest rate, sensitivity analysis, bank-wide

Andy Harmening: That I would like to open it up for questions.

Andy Harmening: Thank you.

Speaker Change: We expect any future provision adjustments will continue to reflect changes to risk rates economic conditions, loan volumes and other indications of credit quality.

Andy Harmening: We'll now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.

Andy Harmony: With that, I will now pass it back to Andy for closing remarks.

Andy Harmening: Confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.

Andy Harmening: One moment, please while we poll for questions.

Andy Harmony: Thanks Pat in summary, we're pleased with our progress over the first half of the year. We continue to feel well positioned to build on our momentum in the back half of the year. And that's primarily due to our strength and profitability profile. Our solid Capital position and our discipline approach to business, both business and growth. Uh, so with that, I'd like you to open up for questions.

Andy Harmening: Thank you.

Speaker Change: Next question comes from the line of Danielle <unk> with <unk>.

Speaker Change: Raymond James Please proceed.

Speaker Change: Thank you good afternoon guys.

Speaker Change: And Daniel maybe.

Speaker Change: Maybe just starting on the deposits.

Speaker Change: I guess the seasonal decline.

Speaker Change: Thank you. You will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2. If you would like to remove your questions from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star Keys 1 moment, please while we pull for questions.

Andrew Harmening: Chris, if I were asking that question, I would have first said, great job on hitting the NEM target of three plus percent. I would have said, way to go on the net charge-offs being on track at less than 35 basis points. And you guys said you'd be in an efficiency ratio of 55 to 60. I see you hit it early. But I'm going to get to that fourth one, and that's ROTC. And, you know, we saw a pretty nice expansion in the last 90 days. We think, as you continue to read, we believe in our strategy.

Speaker Change: Best buy.

Speaker Change: Surprised this quarter, even though maybe it shouldnt have but.

Speaker Change: Just kind of back half of the envelope here the back of the envelope.

Speaker Change: It looks like to get to the guidance for the core customer deposit growth for 25 million about $1 6 billion in the back half. So correct me, if I'm wrong on that but.

Speaker Change: Thank you. Our first question comes from the line of Daniel T Mayo with Raymond James, please proceed.

Speaker Change: Thank you. Uh, good afternoon, guys.

Speaker Change: Um, hey, Daniel. Maybe

Speaker Change: How much of that is just the seasonal rebound in how much of that is normal growth.

Speaker Change: Maybe just starting on the deposits. Um,

Andrew Harmening: We believe this remix is going to matter. We think the increase in granular deposits is going to matter. And we think that's going to drive NEM, which almost everyone has told us, improve your NEM. We're improving our NEM. So as that happens, we believe that puts us over the next 12, 24 months in a position to reach that target as well. Great, appreciate it. Thanks for taking my questions. Sorry for re-asking your question, Chris. Oh, good. Thanks, Andy. you.

Speaker Change: Maybe just kind of walk us through how you how you think you'll get there. Thanks.

Speaker Change: Yes, Daniel So this is a little bit like a movie you've already seen in fact, I mean im not going to say, we forecasted this to the dollar, but we're pretty close.

Speaker Change: So when we look at the second half of the year, a big piece of it is seasonal we have three or four customers that every year. They go down during this period and frankly, it's actually about $100 million better. If you look at the trend from the prior year, what's different going into the second half of this year as we have a commercial pipeline report on deposits that pipe.

Speaker Change: You know, I guess the seasonal decline caught us by a little bit of surprise this quarter, even though maybe it shouldn't have but um uh you know, just kind of back after the envelope here, the back of the envelope. The um, uh, looks like to get to the guidance for the core customer deposit growth. Um, for 25 you need about 1.6 billion um, in the back half. Um, so correct me if I'm wrong on that but uh, you know how much of that is, is just a seasonal rebound and how much of that is is normal growth and maybe just kind of walk us through, how you uh how you think you'll get there.

Unknown Executive: There are no Well, I just say thank you for your interest in the Associated Bank story, and we look forward to continuing to tell it as the year goes on.

Speaker Change: <unk> has gone up $500 million in the last 12 months intra.

Speaker Change: Interestingly, though it's gone up $200 million in the last 90 days. So we have that as a backdrop starting in August and September the vertical that we hire people for the technology fixes that we need to launch that those two things go in place over the course of 12 to 18 months that will be worth we think a few hundred million.

Speaker Change: And growth to us we actually hit household growth of 2% in the first half of the year as you probably know you don't immediately get the deposits and those those come in 30 60 90 days. After you haven't we've not had that kind of trend in the past we started at negative one to two we went to zero. We went to positive one now we're at two.

Speaker Change: From the prior year. What's different going into the second half of this year is we have a commercial pipeline report on deposits that pipeline has gone up 500 million in the last 12 months.

Speaker Change: And then you look at our we look at our customer satisfaction, which is the leading indicator as to what youre going to run off.

Speaker Change: It's as high as it's ever been in our company. So we look at the second half of the year and we say gosh. If we were just averaged the last year, we're going to hit the numbers that we forecasted.

Speaker Change: We don't feel like we're average for last year, so whether we get that additional lift in the second half of 2025, where we get additional lift in them in.

Speaker Change: In 2026.

Speaker Change: We see a path for where it is coming to us. So the forecast itself. We think is pretty discipline them pretty right online with what we what we've seen.

In the prior prior year.

Speaker Change: Terrific Thanks for that.

Speaker Change: Is it fair to say the increase on the total deposit guide relative to quarter core deposit is just.

Speaker Change: Interestingly though, it's gone up 200 million in the last 90 days. So we have that as a backdrop starting in August and September the vertical that we hired people for the technology, uh, fixes that we need to launch that. Those 2 things go in place over the course of 12 to 18 months, that'll be worth. We think a few hundred million dollars in growth to us. We actually hit household growth of 2% in the first half of the year as you probably know you don't immediately, get the deposits in those. Those come in 30 60, 90 days after you have it. We've not had that kind of Trend in the past. We we started at negative - 1 to 2. We went to 0, we went to positive 1. Now we're at 2. Um, and then you, look at our, we look at our customer satisfaction, which is the lead in indicator, as to what you're going to run off. It's it's as high as it's ever been in our company. So we look at the second half of the year and we say gosh, if we were just average to last year, we're going to hit the numbers that we forecasted. We don't feel like we're average the last year so whether we get that additional

Speaker Change: Sure.

Speaker Change: Well as a mask.

Speaker Change: What drove that increase.

Derrick: Yes, Dan this is Derrick that's just wholesale funding brokered Cds.

Derrick: So that's a GAAP number but what we're focused in on is the.

Speaker Change: Lift in the second half of 2025, where we get the additional lift in the in 2026, uh, we see a path for for where it's coming to us. So the forecast itself, we think is pretty disciplined and pretty right on line with what we've what we've seen uh in the in the prior prior year.

Derrick: Customer number that Andy is referring to and we were right on budget.

Derrick: Both first and second quarter. So for US this has not been a surprise when we're sort of right on schedule, which is why we're pretty confident.

Speaker Change: Terrific. Thanks for that. And is it fair to say that the increase on the the total deposit guide relative to quarter quart? Deposit is just, um,

Derrick: Okay.

Derrick: The overall balance sheet is just expected to be slightly larger than and that's funding kind of securities or cash then.

Speaker Change: Well, I let me ask you what, what what drove that that increase?

Speaker Change: Yep. Dan this is Derek. That's just uh wholesale funding and brokered CDs.

Derrick: Do you think about it.

Derrick: Well, that's exactly right and.

so that's a gap number, but what we're focused in on is the, um,

Derrick: As a little bit of more Cds brokered Cds versus.

Speaker Change: Uh, customer number that and he's referring to and we were right on budget.

Derrick: <unk> so you have to.

Derrick: If you kind of give a GAAP guidance then you have to include that.

Speaker Change: The whole both first and second quarter. So for us, this is not been a surprise and we're sort of right on schedule which is why we're pretty confident.

Derrick: Understood understood Okay.

Speaker Change: And then maybe one for Pat.

Derrick: This is just kind of.

Derrick: A question I think that should be asked every every few quarters. If you could just give us kind of an update on the on the office CRE portfolio.

Derrick: To give a lot of good.

Derrick: Color in the slide deck, but.

Derrick: Just curious kind of if you could give some some color around how you see that portfolio, what what trends look like there is a.

Okay, um, but the, the overall balance sheet is just expected to be slightly larger than and and that that's funding kind of Securities or cash. Then that's the way to think about it. That's what that well, that's exactly right. And um, uh, is a little bit of more CDs, B. Brokered CDs versus uh, fhlb. So you have to if you're going to give a gaap guidance, then you have to include that.

That's all.

Derrick: A differentiation between the a and the B that you talk about the classes. There and then if you have a number for participations. If you do any of that with the office portfolio that would be helpful as well.

Speaker Change: I understood. Okay.

Derrick: Yes, I would say overall office continues to evolve.

Derrick: Probably in a better spot than it was a couple of years ago and I think the clients that we're working with who have addressed their assets and have been proactive in improving and providing amenities that the market's looking for have benefited and that's what we're seeing in our portfolio.

Derrick: Certainly not completely out of the woods in terms of CRE as an office as an asset class and I think the industry would agree with that but.

Speaker Change: Um, and then maybe 1 for Pat. I this is just kind of question. I think that should be asked every every few quarters. If you could just give us kind of an update on the on the, uh, the office Crescent portfolio. Um, you give a lot of good, um, color in the, in the slide deck but um, you know, just just curious kind of, if you, if you could give some some color around, how you see that portfolio? What what, what trends look like, you know, if there's a a differentiation between the A and the B that you talked about the, the classes there. And then if you have a a number for participation, um, if you do any of that with the office portfolio, that'd be helpful as well.

Derrick: The way, we're down considerably in what we would deem kind of the more stressed office credits in the portfolio. We've had a fair amount of exits.

Derrick: The in fact, the one pay off from the delinquency I noted was a CRE office deal that sold so I think we feel confident where we're at right now and we just continue to watch it because that's still an evolving story as you know with with return to office and where the assets are performing but.

Speaker Change: Yeah, I would say overall you know, office continues to to evolve uh probably in a better spot than it was a couple years ago. And I think the clients that we're working with who have addressed their assets and have been proactive in improving and providing amenities that the market is looking for have benefited and that's what we're seeing in our portfolio.

Derrick: And in terms of Snick in terms of office I don't have the number off top my head most of the stuff. We're doing there is going to be direct with sponsors. We've worked with for a long long time, we don't get involved in a lot of Big Bank Snick deals in the with the office class. That's why we don't have a lot of downtown urban exposure there.

Speaker Change: Certainly not completely out of the woods in terms of CRA as an office has an asset class and I think the the industry would agree with that. But um you know the way we're down considerably in what we would deem kind of the more stressed office credits in the portfolio. We've had a fair amount of exits. Um, the the in fact, the 1 pay off from the delinquency, I noted was a CRA office deal that sold.

Derrick: Got it okay very helpful. That's all I had thanks very much guys.

Derrick: Thank you.

Speaker Change: so I think we feel confident where we're at right now and we just continue to watch it because that's still an evolving story as, you know, with with returned to office and and where the assets are are uh performing but

Speaker Change: Thank you. Our next question comes from the line of Scott Berg.

Speaker Change: With Piper Sandler. Please proceed.

Speaker Change: Good afternoon, guys. Thank you for taking the question.

Speaker Change: Derek I was hoping you could help to kind of quantify where the margins could go and the puts and takes that get us there I remember earlier in the year, we sort of talked about a call. It a 3% margin with some upside if rates stayed elevated but now it field.

Speaker Change: And I, you know, in terms of snyk, in terms of office, I don't have a number off the top of my head, most of the stuff we're doing there is going to be direct with sponsors. We've worked with for a long, long time. We don't get involved in a lot of big Banks. Nick deals in the uh, with the office class. That's why we don't have a lot of downtown Urban exposure there.

Got it. Okay? Very helpful. That's all I had. Thanks very much guys.

Speaker Change: Thank you.

Speaker Change: And correct me, if I'm wrong, but it feels like.

Speaker Change: Remixing within loan portfolio it could be as powerful a factor as the level of rates. So just curious how youre thinking about all the.

Proceed.

Speaker Change: Kind of all the things soften around in there where ultimately we could end up going.

Speaker Change: Yeah.

Speaker Change: So what I think you anchored on the right. The right point I think the piece that we have that has the most predictable impact on our margin strength is the asset side and we have set the table.

Speaker Change: And are getting the growth in the asset classes, where we made the investment to the C&I book.

And then stopped adding.

Speaker Change: <unk> third party Razee roll off it really is grinding up the asset yields in a sustainable way, even if rates come down a few clicks.

Speaker Change: Good afternoon guys. Thank you for taking the question. Um Derek was hoping you could help to kind of codify where the margin could go and the puts and takes to get us there. I remember like earlier in the year, we sort of talked about a call it a 3%, margin with some upside if rates stayed elevated but, you know, now it feels. Um, and correct me if I'm wrong, but it feels like, uh, remixing. Um, within loan portfolio could be as powerful effect or, as the, um, level of rates. So, just just curious how you think about all the, um, kind of all the things flashing around in there and where ultimately we could end up going

Speaker Change: Yeah.

Speaker Change: So what.

Speaker Change: So that we feel really good about that we think we've demonstrated that consistently and it came through again this quarter.

Speaker Change: So and it also that also gave us confidence to raise the guidance both the growth and.

Speaker Change: And where we finished the quarter.

Speaker Change: I think probably the most uncertainty.

Speaker Change: The same opportunity of Remixing, our deposits going forward.

Speaker Change: But it will be unclear on how big that opportunity is.

Speaker Change: So what I think you anchored on the right, the right point. I think the piece that we have that has the most, uh, predictable impact on our on our margin, strengths is the asset side and we've set the table and are getting the growth in the asset classes where we made the Investments that the cni book and and then stopped adding uh or let the old third party uh resi roll off. That really is grinding up the asset yields in a sustainable way even if rates come down a few clicks

Speaker Change: And it will be dependent on where the market takes deposit rates. So most of our guidance is again.

Maintaining the margin that we've established and then growing our NII through.

Speaker Change: Growing the balance sheet, rather than making a bet on interest rates.

Speaker Change: Got it okay. Thank you and then maybe if you can actually expand on something to which you alluded.

Speaker Change: Towards the end of that response.

Speaker Change: The deposit pricing side, maybe any update on kind of strategies there.

Speaker Change: The background of the question is I know like the seasonal nuances and balances and then I think there are some some kind of higher costs roll off but just the sequential downdraft in downdraft.

Speaker Change: So, what, and so that we feel really good about that. We think we've demonstrated that consistently and it came through again, this quarter. Um, so and it also that also gave us confidence to raise the guidance, both the growth and, uh, and where we finish the quarter. Uh, the I think probably the most uncertainty, uh, there's the same opportunity of remixing, our, our deposits going forward. Uh, but it'll be unclear on how big that opportunity is, uh, it'll be dependent on where the market takes deposits. So, most of our guidance is again, uh, ah, ah, ah, maintaining the margin that we've established, and then growing our knee through, uh, uh, growing the balance sheet, rather than making a bet on that interest rates.

Speaker Change: Interest bearing deposit costs.

Speaker Change: Much larger than most of them were seeing this quarter, meaning maybe a good thing so.

Speaker Change: Just curious.

Our overall how is the overall strategy looking what would be the outlook going forward sort of best guess.

Andy Harmening: I'm going to take this is Andy I'm going to take that one first I'd say the discipline, we have around pricing is significant.

Andy Harmening: Whether that is with the entire back book of the portfolio or it's the coming due nature of the CD book, the retention of our Cds and the strategy around that we were hovering around 84% 85%.

Andy Harmening: Our retention in getting pricing that's been.

Got it. Okay, thank you. And then maybe if you can actually expand on something to which you alluded, um, toward the end of that response, but the sort of the deposit, uh, pricing side. Maybe, uh, any update on kind of strategies there. Um, I guess the background of the question is, I know, like there are the seasonal, nuances and balances and then I think there are some, some kind of higher cost rolloffs, but just the, the sequential downdrafts in downdraft in, uh, interest bearing deposit costs. It was you know much larger than most that we're seeing this quarter, meaning meaning, good things. So um, just curious, um, you know, how is how are those all

Andy Harmening: Been good and helped to become creative accretive.

Speaker Change: How's the overall strategy looking what would be the Outlook going forward? That sort of best guess.

Andy Harmening: I'm pretty pleased within the second quarter, even though we had the seasonal decrease that.

Andy Harmening: That we expected the ability to manage the interest bearing aspect of that during that time and still expand margin.

Andy Harmening: Really.

Andy Harmening: Which was really strong on our part so when we look at the rest of the year.

Andy Harmening: We have we have the same discipline and approach in forecasting out of each one of those buckets and categories.

Andy Harmening: What we expect then is.

Andy Harmening: With both the seasonal flow and the increase in kind of be a U.

Speaker Change: I'm going to take this is Andy, I'm going to take that 1 first, I'd say the discipline we have around pricing is a significant. Um, whether that is with the entire bakbuk of the portfolio or it's the coming due nature of the CD book, The retention of our CDs and the strategy around that. We're hovering around 84 85%, uh, retention and getting pricing. That's been uh, been good. Um, and helped to become creative, uh, creative the thing. I'm pretty pleased with in the second quarter even though we had the seasonal, um, decrease that.

Andy Harmening: We forecast that we forecasted our NII.

Andy Harmening: Based on being relatively flat and NIM, so if dip.

Speaker Change: That we expected uh the ability to manage the interest bearing aspect of that during that time and still expand margin. Uh was really um,

Andy Harmening: Deposit pricing doesn't become irrational.

Andy Harmening: We think there could be some positive upside, but we don't want to bet on that just yet.

Andy Harmening: Got it.

Andy Harmening: Alright, perfect. Thank you both very much.

Andy Harmening: Thank you you're welcome.

Andy Harmening: Thank you our.

Was was really strong on our part. So when we look at the rest of the year, we have uh we have the same discipline and approach and forecasting out of each 1 of those buckets and categories. Uh, what we expect then is uh with the both the seasonal flow, and the increase in kind of bow

Your next question comes from the line of Terry Mcevoy with Stephens. Please proceed.

Speaker Change: um, um, we forecasted, we forecasted our knee um, based on being relatively flat and nym

Speaker Change: Hi, good afternoon guys.

Speaker Change: Hey, Terry.

Speaker Change: I guess I'll just start with a question based on this afternoons news kind of your updated thoughts on acquisitions your capitals growing your stocks outperformed.

Speaker Change: So if the deposit pricing doesn't become irrational, uh, we think there, there could be some positive upside but we don't want to bet on that just yet.

All right. Perfect. Thank you both very much.

Speaker Change: Your your business models generating performance above expectations, So we'd love to get your updated thoughts on M&A.

Speaker Change: Thank you. You're welcome.

Speaker Change: I would like to all of those things you said Terry.

Speaker Change: Thank you. Our next question comes from the line of Terry McCloy with Stevens. Please proceed.

Speaker Change: No in fact, if you repeated that question I could hear it over and over I would say a couple of things one.

Speaker Change: Hi. Good afternoon, guys.

Speaker Change: Hey Terry.

Speaker Change: Thanks.

Speaker Change: Look if something came to us it would have to be a really good fit strategically it would have to be a good fit financially it would have to be a good fit culturally the things that we wanted to achieve with our strap plan remember, we're only a year and a half into it and we're just starting to harvest the profitability of that we're seeing margin expansion.

Speaker Change: Um, I guess I'll just start with a question based, um, on this afternoon's news kind of you're updated thoughts on Acquisitions your capitals growing, your your stocks outperformed

Speaker Change: Your your business models, uh, generating uh, performance above expectations. Um, so I'd love to get your updated thoughts on m&a.

Speaker Change: We're seeing household growth, we're seeing our ROTC increase we're seeing customer satisfaction.

Speaker Change: Historical highs and strong revenue growth. So I've said this a lot of times that as that is our number one priority. It is our first priority.

Speaker Change: If you do that well and a few lead you lead yourself to opportunities.

Speaker Change: But I would just reiterate it would have to be a good fit and kind of all the ways that we think about otherwise in our teams.

Speaker Change: Much locked in and to delivering.

Speaker Change: The forecast and guidance that we've provided for 2025 right now.

Speaker Change: Thanks for that and then as a follow up when I look at the ACL for the C&I portfolio. It was $1 36, it has gone up to 150 and.

Speaker Change: I'm, assuming it's just not a riskier portfolio of loans today versus a year ago in terms of the growth that we've had so we're just hopefully you could provide some color into why that specific ACL is has gone up where others have been flat to maybe down in some cases.

Speaker Change: I'd say a couple things 1. All right, thanks. Um, look, if something came to us, it would have to be a really good fit, uh, strategically. It'd have to be a good fit financially, it would have to be a good fit culturally, the things that we wanted to achieve with our strap plan. We're remember we're only a year and a half into it and we're just starting to harvest the profitability of that we're seeing margin expansion. We're seeing household growth, we're seeing a ratty increase. We're seeing customer satisfaction had a historical highs, and strong Revenue growth. So I've said this a lot of times, um, that is, that is our number 1 priority. It's our first priority. Um, if you do that well enough You Lead, You Lead yourself to opportunities but but I would just reiterate it would have to be a good fit in. Kind of all the ways that we think about. Um otherwise and our teams uh very much locked in into delivering uh the forecast and guidance that we've provided uh for 2025 right now.

Speaker Change: We largely hit on it it's a growth story there. So we're certainly going to have moved.

Speaker Change: <unk> within the risk ratings that will effective from quarter to quarter, but overall, it's been a growth story.

Speaker Change: Our spot balances CRE investor was down this quarter. So there was there would be a release there and then.

Speaker Change: For comparison sake on the CRE construction, we're going to be a little more aggressive build on those when we fund deals so we're going to.

Speaker Change: Thanks for that and then it is a follow-up. Um when I look at the ACL for the cni portfolio it was 1 136 that's gone up to 150 and I'm assuming it's just not a riskier portfolio of loans today versus uh, a year ago in terms of the growth that we've had. So we just hope that you could provide some color into why that specific ACL is has has gone up where others, um, have been flat to maybe down in some cases.

Speaker Change: Appropriately grab that risk upfront when we closed new deals. So youll see when you have growth youll see that ACL rate go up.

Speaker Change: Perfect. Thanks for taking my questions.

Jerry: Hi, Jerry.

Speaker Change: Yeah.

Speaker Change: Okay.

Speaker Change: Our next question comes from the line of Christopher Mcgratty with Keybanc.

Uh We've largely hit on it. It's it's it's a growth story there. So we're certainly going to have uh movement within the the risk ratings that will affect it from quarter to quarter but overall it's it's been a growth story. Um you know our spot balance is CRA investor was down this quarter so there was there'd be a release there and then I um,

Speaker Change: Please proceed.

Chris O'connell: Hey, Good afternoon. This is Chris O'connell filling in for Chris.

Speaker Change: Just wondering.

Chris O'connell: Morning.

Chris O'connell: Yeah exactly.

Speaker Change: For comparison sake on the CRA construction, we're going to be, we have a little more aggressive uh build on those when we fund deals. So we're going to uh, uh, you know, appropriately, grab that risk upfront when we close new deals. So you'll see when you have growth, you'll see that ACL rate. Go up.

Chris O'connell: I just wanted to start off.

Chris O'connell: Thinking about.

Perfect. Thanks for taking my questions.

Chris O'connell: The positive operating leverage that you guys have been able to put up over the first half of this year and you know as you get further along into 2026.

Speaker Change: Hi there.

Speaker Change: Our next question comes from.

Friday with kvew, please proceed.

Chris O'connell: If you view that as a continuing and is still sustainable.

Chris oconell: Hey, good afternoon. This is uh, Chris oconell filling in for Chris.

Chris O'connell: The short answer is yes that is the gogo into every single year, the little bit expanded answer of that is kind of in the details of where we are on the strap plan, but I would say is when you think about the number of RMS that we've hired and the increase that we have relationship managers and commercial when I look.

I just, uh, make it easy. Yeah, exactly. Um,

Chris O'connell: Look at the pipeline that we're increasing and what we have to believe is that <unk> is going to slowly decrease. It is we have to believe that commercial loan growth is going to increase it is and it's increasing at an increasing.

Chris oconell: I just wanted to start off uh, you know, thinking about um, you know, the positive operating leverage that you guys have been able to you know, put up over, you know, the first half of this year and you know, as you get further along to 2026 um you know if you if you view that as uh, continuing and and still sustainable.

Chris O'connell: We have to believe that we're going to add customers because that means that you start to bring in lower cost granular deposits. We are and you have to have discipline around the pricing of what youre doing on the back book as well and so we feel like when we do that and we've gone into every budget season, basically with the requirement of requests from our leadership team.

Chris O'connell: That they bring ideas on expense saves.

Chris O'connell: Before we talk about where we're going to spend money. So that we can mitigate the risk there so with all of the pieces that we're talking about.

Chris O'connell: Right now it sure looks like we're going to be able to continue on with the with the positive operating leverage throughout this year and into 2026.

Chris O'connell: Great and then on.

Chris O'connell: On the hiring.

Chris O'connell: Efforts here.

Chris O'connell:

Chris oconell: Um the the short answer is yes. Um, that is the goal going to every single year the the little bit expanded answer of that is kind of in the details of where we are on the strap plan. And what I'd say is, when when you think about the number of RMS that we've hired and the increase that we have relationship managers and Commercial, when I look at the pipeline that we're increasing and when I when I what we have to believe is that resi is going to slowly decrease. It is we have to believe that commercial loan growth is going to increase it is and it's increasing at an increasing rate. We have to believe that we're going to add customers because that means that you start to bring in uh lower cost, granular deposits. We are and you have to have discipline around the pricing of what you're doing on the bakbuk as well. And so we feel like when we do that and we've gone into every budget season basically um, with the requirement requests from our leadership team that they bring ideas on expense saves. Um, before we talk about where we're going to spend money so that

Chris O'connell: How does the pipeline look for hiring throughout the rest of the year and then I think you guys had.

Chris O'connell: Talked about sitting down.

Chris O'connell: Post the end of the phase two investments kind of mapping out some of the next steps and any preview into.

Chris O'connell: On the phone.

We kind of mitigate the risk there. So, with all the pieces that, um, we're talking about, um, right now, it sure looks like we're going to be able to continue on with the, um, with the Positive operating uh, leverage, uh, throughout this year and in the 2026.

Chris O'connell: Forward investments that are being contemplated going forward.

Chris O'connell: Two two really good questions.

Chris O'connell: We're in a really I was reflecting on this just earlier today with our head of commercial banking.

Chris O'connell: Three or four years ago, we're working really hard on the recruiting.

Chris O'connell: Two years ago, we ramp that up again.

Chris O'connell: In the last six to 12 months, we're getting inbound calls from people and Thats really makes it a lot better and word of mouth spread we've completed our hiring you've never fully complete if there is somebody that's exceptional in the market, but our ability to get talent.

Great. And then, you know, on, you know, the hiring, you know, efforts here. Um, you know, how is the pipeline look for hiring throughout, you know, the rest of the year? And then I, I think you guys had, you know, talked about, you know, sitting down, um, you know, post the end of The Phase 2 Investments kind of mapping out some of the next steps. Any, any preview into, um, you know, the forward Investments that are being contemplated going forward.

Chris O'connell: Increased improved over the last four years three years, two years and even in the last year.

Chris O'connell: What's interesting on that is the predominance of our production is still coming from people that we hire pre 2023, that's going to shift as we head into the end of this year and the beginning of next year as non solicitation has expired. So we have a lot of legs still and what the hiring piece has been.

Chris O'connell: But so I think it's 64 percentage from the legacy, but even the people hired in 'twenty four have have.

You know, 3 or 4 years ago, we were working really hard on the recruiting. Um, 2 years ago, we ramped that up again in the last 6 to 12 months, we're getting inbound calls from people. And that's, that's really makes it a lot better and word of mouth and spread. We've completed our hiring, you've never fully complete if there's somebody that's exceptional in the market, but our ability to get Talent, um, has increased improved over the last 4 years. 3 years, 2 years, and even in the last year,

Chris O'connell: The next biggest piece of about 23%. So we only have about 10% to 15% of our production from those retired and in.

um, what's interesting on that is the predominance of our production is still

Chris O'connell: In 2000, and 2025% so pretty optimistic there there is room to add in some key markets should that.

Chris oconell: 3, that's going to shift as we

Chris O'connell: Come available, but we're going to be very.

Chris O'connell: Selective and what potential expansion is there is never a shortage of ideas. What we'll do is we'll take that and we will talk about what can we execute most swiftly fits our risk profile.

Chris O'connell: Has the fastest payback that's the process that will go through in the second half of this year I don't feel a lot of pressure to add new new initiatives immediately because.

Chris O'connell: Throughout 2006 will harvest the ones, we have but right now we will talk about that we're likely at a comfortable and then.

Chris O'connell: And then see how we layer that in as we head into the end of 'twenty six going into 'twenty, seven where we're in a good position, where we can look 12 months to 24 months out and see what revenue forecast might be and then add to that in a very.

Chris O'connell: A very specific way.

Chris O'connell: Great. Thank you.

Chris O'connell: And last one for me just.

Speaker Change: Given those comments and kind of the harvesting in the pipeline that you guys have over the next year and a half year.

Speaker Change: Any update I guess on timing or the glide path.

Speaker Change: Towards the mid teen.

Speaker Change: Medium term <unk> target is that something that given.

Speaker Change: This momentum you think.

Speaker Change: You will be soon and.

Speaker Change: 2026.

Speaker Change: Chris If I were asking that question I would have first said great job on hitting the NIM target of 3% I would say.

Speaker Change: So on the net charge offs being on track at less than 35 basis points and you guys said you'd be in an efficiency ratio of $55 to six CIC you hit it early but I'm going to get to that fourth one and Thats ROTC and we saw a pretty nice expansion in the last 90 days.

Speaker Change: We think as you continue to read we believe in our strategy. We believe this remix is going to matter. We think the increase in granular deposits is going to matter and we think thats going to drive NIM, which almost everyone has told us improve your NIM, we're improving our NIM. So as that happens we believe that puts us over the next the next 12 to 24 months.

Speaker Change: In a position to to to reach that target as well.

Speaker Change: Great I appreciate it thanks for taking my questions sorry for re asking your question Chris.

Chris O'connell: All good thanks, Andy.

Speaker Change: Thank you there are no further questions at this time I'd like to pass it back over to Andy for any calls.

Chris O'connell: In your remarks.

Andy Harmening: Well I'd just say thank you for your interest in associated Bank story, and we look forward to continuing to tell it as the year goes on.

Speaker Change: This concludes today's teleconference.

Speaker Change: Disconnect your lines at this time, thank you for your participation.