For being here. We have another fireside chat, a good one. I'm excited for it. We have Andy Harmening in here from Associated Banc-Corp, and Derek Meyer as well. Andy's gonna start out with some prepared comments, and then we'll get into Q&A. Like all the other sessions, if you have questions, just put up your hand and we can get them answered. We'll let you start out, Andy, and give some of your comments, and then we'll go to Q&A.
Sounds good, Jon. Well, we know it's the RBC conference because not much is happening. No tornadoes or weather violations. You know, in one of our meetings, we said all we have is a minor global conflict, so it's
Right
Kinda calm this year. I'll start by saying a few things. One, we are headquartered in Wisconsin, and the foundation of our company has been long-term, loyal, granular deposits across Wisconsin and the upper Midwest. Now, over the last five years, we've remixed the balance sheet, we've expanded the footprint, and we've changed the profitability profile of the company. Specifically in 2025, we accelerated the commercial loan growth, we continued to accelerate the customer growth, which led to record earnings in that year. We think that because we look substantially different than we did five years ago, I try to pin it down to a couple of things, and one is, we have a value proposition on the consumer side that can compete with any fintech and can compete with any major bank, and that has led to customer growth.
On the commercial side, we've had significant investment, but we've not just invested, we've increased our RMs about 40%, but we've launched multiple verticals, and then we've been able to get top-tier talent that knows the customer, knows the community. While we've grown about $4 billion in the last four years in C&I lending, we've grown about $1.2 billion in the last 12 months. When you marry those two things together, those have been major drivers for us. If we think about the sustainability of the model, can we be a growth bank?
I would go right back to the things that have made us successful in 2025, which were a few years in the making, and I would point to the fact that we've invested $ tens of millions into our digital product offering for the user experience and the ability to have an open architecture. We've invested significantly in our product offering. That leads to acquisition, and that leads directly to deepening, and that leads to retention. Then finally, on the marketing acquisition side, if you wanna compete in major metropolitan markets, you have to have a data-led strategy and a digital strategy there, and the folks that we've brought over are people I've worked with for an extended period of time, and it's a proven model, and it's working for us, but there's still room to grow there.
On the commercial side, again, it's a little bit more of the same, where we're able to expand into some markets, and I'll talk about that a little bit more. Getting top talent with a full relationship viewpoint on both sides of the balance sheet, and then that directly translates into what we're doing in 2026. We're gonna increase our marketing acquisition spend by 25%. We're gonna continue on the RM hiring front with 11 more people, and those are in markets that are growth markets, in the Twin Cities, in Kansas City, and in Dallas. Finally, we're gonna integrate American National Bank. We're hopeful to get an approval on that very shortly and integrate early in the second quarter.
If you take granular deposits, initiatives we've had, and then you look at the foundation of credit, where we've had strong results, even relative to peers with an underlying super prime portfolio on the consumer side, we're pretty optimistic heading into 2026.
Okay, great. There's this macro concern as well, so maybe if you could take a minute or two and just give us an update on the health of your markets, the Midwestern markets, and some of the others that you're in. You know, how optimistic are your commercial clients, and do you expect any impact from some of this, you know, global instability?
Yeah. When you talk about macro concerns, you sometimes have to be more specific because there are a few that bounce up and come from time to time. I had a lunch with several CEOs in the last week. You know, what they've told me is they believe we have a president who's pro-business. They found it a little harder to plan in advance because there are changes happening. However, the economy overall is pretty decent still, so we still have a 2%-3% GDP growth, and you could hear that in their voices. There are areas that are very. They're very optimistic about, but they have to really be on their game to see what's changing day to day, week to week, month to month.
It's a little harder to plan out in advance, but they have investments that they need to make, they want to make, and they are making. For us on the consumer side, that is one of the strengths of being in a stable Midwest, Upper Midwest footprint. The highs aren't as high, the lows aren't as low, but we also are dealing with customers largely that are prime and super prime, and they have not been as impacted by any early rumblings in the economy.
Okay, good. Derek, anything to add?
No, I was at the same lunch, and the confidence in their ability to take advantage of the strength in the business is offsetting the uncertainty. Andy has these lunches regularly. We've had them in other years. There's been uncertainty around the first time tariffs came through, and what's happening now is they're continuing to move forward with their projects, and there's so much CapEx going on that's giving them an opportunity and the knock-on effects for that, it was really encouraging.
Okay, good. Andy, you touched on this, so we might as well tackle this in some of the strategic discussions we're having here. You've grown into new markets. You've hired a lot of relationship managers. You've hired more. You've done an acquisition into Omaha, which also strengthens you in Minneapolis. You're talking about Dallas and Kansas City. Talk a little bit about where you're going geographically, where you're the most excited about, you know, and just what is Associated gonna look like in a few years in terms of where you are geographically?
Yeah, well, look, you ended with geographically. I would say what do we look like in a few years, we just continue to build on our return profile. That's one thing. We've caught up with the peer group and, you know, we've gotten to average, and now we're looking for what those next steps are. Geographically, we wanna be relevant in markets that have opportunity. We wanna hold serve in Wisconsin. That is a great foundation for us, a very loyal customer base, very granular. However, Milwaukee is a big market there, and we still have opportunity to deepen. We wanted to prove in Milwaukee and Chicago that we could deepen in those two markets because those are two legacy markets. As we've done that, we see huge opportunity in the Twin Cities.
We've hired a very strong commercial team. We'll piggyback that on the private wealth side, and we'll piggyback that on acquisition marketing. You'll see an ability to run there for quite some time. The Twin Cities has been one of the fastest-growing major markets in our footprint, the fastest-growing prior to Omaha. Now we move into Omaha, and now you start to say, "Hey, we're succeeding in Milwaukee, Chicago, Twin Cities." We go into Omaha, and we're gonna have a product offering that will marry the loyalty they have. They have 21 branches in that market. Those are called rails. We're able to drive acquisition marketing into that and continue to accelerate that household growth.
As we go above 2% in household growth on our way to 2.5 and three, we think we'll be in the top decile of any bank in our peer group, which will give us a tailwind going into that. Kansas City was opportunistic. As a team, as a group, our head of commercial banking, Phillip Trier, is one of his top teams, and we did a lift out. When we had success there, the market heard about it. Another important bank in town, they had a shift in people maybe coming and going, and we were able to gravitate three more top people into to that market. Dallas is a place we've been for 10 years in the commercial real estate business, approaching $1 billion in outstandings.
It's also a market that Phillip Trier covered in his past life and has a lot of familiarity with the market. Now when we get people, our expectation is we touch into markets that we already know. We hire people that we have a knowledge of, either from our direct employees or from a contact in the industry, so we don't get adverse selection. We go into these markets, we start to grow, we get full relationships. You know, I think I had said I was interested in Omaha three months-six months before that came to fruition, and that came to fruition pretty quickly, but it's just such a nice market for us.
I'd said beyond that, Kansas City and Denver are very interesting to us, but our top priority is still organic growth, and we think this acquisition allows us to accelerate that growth.
Yeah, I think that makes sense. We can talk about that then. Let's talk about the drivers of the $1.1 billion of expected commercial loan growth. Maybe talk a little bit about how you expect that to happen, and then beyond that, what kind of outlook do you think you could generate in terms of commercial loan growth?
We think we have a really clear path for 2026 and 2027 to outperform the market in commercial lending. I mean, that's a full stop. We get another year into the hiring of folks, where at the end of this quarter, all non-solicitations from the last round of hires have expired. It takes 12 months-24 months to get up to full strength, so the production level's going up. We are going to add 11 key people. That'll have a small impact this year, but those are in Kansas City, Dallas, and the Twin Cities. They will start to have an impact on 2027 already. Now we're actually ahead of the game a little bit.
You talk about the merger, the ANB merger, and you think about this team, they're very good on the commercial side. We really like the way they approach business. We have capabilities on the FX side, on the syndication side, capital markets side, and sheer ability to hold a little higher hold level, being a little bit larger bank, that we think will lend right into the strategy as we go into the second half of this year into 2027. We have that path, and then, you know, you're likely to hear about another vertical that we launch next month that we haven't formalized yet.
Yeah. Okay, good. Derek, I get to ask you the question on competitiveness. How competitive do you feel the lending environment is today, and how do you guys approach that?
I thought you were gonna ask Derek if he were competitive.
Yeah. Well, we can ask that too.
Okay.
That's for later. Most of the competition we've seen really has to do with our CRE business. That's an experienced team. The team's done very well and been very successful in how they approach the business. When things like structure where we've seen that loosen up a little bit or margins compress on fully funded term debt, the team doesn't really rely on that to hit their strategy. That's where we've seen most of it. The rest of it has really been driven by our hiring. We're really not reaching for, you know, getting marginal business in markets where we've already got dominant share.
It's really driven by the new relationships we're bringing on board, and that's still driving incremental profitability because it's offsetting the resi that we're running off.
What are you seeing on CRE payoffs? Has that changed at all?
Well, it's pretty lumpy. Right now, we've contemplated for the, in our guidance, probably low single digit CRE growth for the year. That includes a fair amount of payoffs. Last year, what we experienced was low payoffs the first half of the year, and then we got about what we expected at the back half of the year. It was a reasonably good year for us versus our expectations. That's how this year looks like it's shaping up. We're not seeing a lot of payoffs early on, but we're not gonna assume a lot of growth beyond what we've already communicated.
Okay. Good. I wanna touch on consumer lending, but Andy, just one of the questions I wanted to ask is there a prototype for an RM hire? Is there a typical profile of what you're looking for?
Yeah. There is. I mean, we're looking. We're not looking for somebody that just started doing this for the first time. We appreciate maybe we can grow those internally, but the folks that we're hiring have typically quite a bit of experience, extensive knowledge of the community, ties to local customers and a following. The people that we bring on, they do not take a switch lightly. The recruiting process, frankly, is a little bit more intense than I would have thought at the beginning. It's gotten easier as we've had a better story to tell. The folks that come to us, they wanna make a move, but they don't wanna make another one. They're the ones that can go anywhere in the market, and we're expecting or hoping that they choose us.
You know, what we've told them when we get a group in is, "Look, do your job, get out in the market, do things the right way, and you're not gonna make or break our company in the first 6 months, so don't do anything we don't want done. Don't do things that you would regret later." They've appreciated that. That takes the pressure off. They can do things the right way, and then the ramp-up has been pretty, at this point, pretty predictable for us. We know where somebody should be in 6 months, 9 months, 12 months. We know where they should be six months, nine months, 12 months, 24 months. We know where they should be both on the lending side and importantly on the deposit acquisition side.
We've had good luck and boy, the whole theory of birds of a feather, it's really interesting that people from different cities, there is a common connection it seems, and a network. What was much more difficult three years ago, four years ago, I'm not gonna say it's easy because it is not. However, it's a kind of a glide path that we're on right now.
Okay. Great. Just on consumer, we don't have to spend a lot of time there, but just what's your overall thought around consumer lending, and maybe touch on auto in terms of what you're seeing there and the strategy going forward?
Consumer lending is a bit of a complicated story for us, or maybe it's straightforward. When I arrived, we had a very large percentage of our book was low yielding, residential real estate. We discontinued correspondent lending, but that was about 40% of our production. We stopped that about four years ago. Our residential real estate is a runoff portfolio. It's slowly going down, but very slowly because amortization's pretty low. On the credit card business, the more customers you get, the more you sell into credit cards, but it's not a huge part of our business. It's just a nice ancillary bump that we get. On the auto business, we have stated that we would grow to the point of getting in the 10%-12% of our book.
We're in that range, and the growth is, it's growing at a decreased level. It'll be a slow growth portfolio. We like it. It's been a nice return. We like the convexity. That means you can kind of a little bit different than mortgage, where it's on there for an extended period of time. You have a little bit more control over, that book over time. Auto sales have slowed down. We are still in the super prime, squarely in the 780 FICO plus scores on auto, which puts us in a pretty good position, because in that business, you allegedly have collateral, but you're relying on the people that pay you back.
Mm-hmm.
Those are the customers that we deal with.
Okay. Good. Couple things on the numbers, maybe Derek for you. What are the key drivers of the 5.5%-6.5% net interest income growth guide? What could be headwinds and tailwinds to that momentum?
Yeah. Most of it's pretty straightforward. It's the loan growth and the deposit growth that supports that. The NII growth is very similar to the earning asset growth with a little bit of expansion in there, because as we continue to remix the portfolio, you're still gonna get a basis point or two of margin improvement even with a couple rate cuts. Really what I would see as a headwind would be anything catastrophic that would dent the business leader's confidence, like the people we just met with last week, and they seem to be very resilient. It's not something that we're worried about. The pipeline is built. We came into this year with a 40%+ increase in the commercial loan pipeline, 30%+ increase in deposit pipeline.
Those seem to be tracking in terms of pull-through. Something would have to change dramatically, even with everything going on in the world for all those business leaders to decide, "Okay, I'm gonna put everything on hold." They've been through pandemic, they've been through multiple tariffs, now we've got, you know, instability in the Middle East. Again, they can see what's coming through in demand, particularly on, I guess, as I said earlier, on the CapEx side, that's driving a lot of demand for them and opportunity, and they're not gonna pass up on that.
Mm-hmm. Okay, good. How do you guys feel about the deposit mix today? What, you know, what are you working on? Where have you been successful? What still needs to be done?
Derek knows I like that question, so he's letting me have that. Look, the ability to track customers is not a small deal. When you go through a 10-year period and you decline 1%-2% a year, you can do the math that you're down 10%-20% in your deposit accounts. Those are DDAs. Those are valuable commodities. If we can get that number above 2%, we'll start to get in that top decile area from a performance standpoint. That's one thing. I'm excited about the vertical that we just finished the first round of technology upgrade on for HOA title. That'll be worth tens of millions or hundreds of millions of dollars to us, over a fairly short period of time this year, next year, the following year. That's pretty positive.
I'm excited about the increase in production per RM. The deposits are a little harder to gather than the loans, and now we're seeing that increase in what we do. Pretty excited about our segmentation on mass affluent, which is deepening relationships as we're bringing people in. Quite excited about how those mass affluent customers go into private wealth and how our joint calling in commercial and private wealth is occurring. That is very different than what I saw a few years ago. Now we're attracting clients and executives at a much faster rate. I could go on with a lot of other little things that you need to do to grow deposits because there's not one thing. Our HSA business is the 12th largest in the country, and it's been a double-digit growth engine for us as well.
When you start to marry all of these things together, it matters, and there's still room to run. On the customer growth side, I know there's room to run because we're winning on turnover, attrition. We have very strong attrition numbers, but we still have the opportunity on the acquisition side of things. That fuels kind of everything you want over time on the deposit front.
Okay. There's been kind of a back and forth on deposit pricing competition. Some are seeing it, some aren't seeing it. You obviously have very strong growth aspirations. How do you feel about deposit pricing, and is there a chance that it gets a little bit tougher as the year progresses?
Well, I think what you've heard represents the market pretty well. We've seen it go back and forth. I think fourth quarter, it was kinda choppy. That was true going into the first quarter, and then it abated and is, I would call it, more in the normal range of things, although none of it's been crazy. I think if all we were worried about was the pricing, it would be a bigger issue. Our guidance contemplates sort of normal market prices. That's what we're seeing. The reason we have above market aspirations for growth and our guidance is above market is largely because of everything that Andy talked about that we've been putting in place as fundamental building blocks for deposit gathering for the last five years.
Everything from the technology on the consumer side to the product segmentation. Now we've got the acquisition models tuned up so that we can put more money into acquisition marketing. That's a more efficient channel than it was five years ago. That's helping us, and now you start to stack on all the RMs and the treasury management capabilities. Pricing's important. It's holding. It's been choppy on and off, but the fundamentals behind driving that deposit acquisition are very strong for us.
Mm-hmm. Okay. Without pinning you to a number, what do you think the longer term margin outlook can be for the company? It feels like based on the mix, the margin should rise over time. It's always been a question about Associated due to some of the things that you're working on improving, but what do you think on the longer term margin picture?
Well, look, we got an immediate bump through a couple inorganic actions, and our margin was up 25 basis points last year. We'll get additional bump from the ANB merger, five basis points-10 basis points. We think it's a slow grind upward because we have a portfolio on the Resi side that is kind of slowly amortizing. If that increases, then it's likely that margin could expand faster. We see as this remix happens, it's not a one-time thing. It's every 90-180 days, you see a slow movement of your margin upward. We know that we have to focus on funding. The better we do on the funding side, the more we drive that margin accretion. The more we do on the lending side to remix the balance sheet, the more we drive it.
We have the right strategies. It's how we execute and what the market allows. I would see a consistent slow upward trend on that for many quarters.
Good. Okay. On expenses, obviously, we've talked a lot about expansion, but you're talking about 3% expense growth, which I think is somewhat remarkable for the growth aspirations that you have. How are you doing that, and kinda what are the key drivers, the puts and takes on expenses?
Do you wanna take that, or you want me? Go ahead.
We start out the year, once we know the year's going as we'd like it to go, start thinking about the next year. When you do that, you gotta start thinking about how you're gonna fund the next year. One of the things that Andy's been able to do, pulling the leadership together, the leadership team, into the kinda culture is everyone sorta knows we need to grow, and to grow, we need to find a way to make investments. The whole team gets behind analyzing where we have opportunities, where there are things that aren't as productive as they could be, not because they're interested in giving up and making hard decisions, but because they're interested in playing offense.
The only way to pass go and play offense is to figure out where we have those opportunities. It's been a much more collaborative than I've experienced probably in my whole career. As a result of that, we've been very successful. Year after year, I think we.
Look at each other at the beginning of the year and go, "I don't know where we're gonna find it for next year." Every year we figure out how to get it done, largely because of the team. I think some years, Andy, you've even said I thought I would get more grief for this, but this is working out well.
Okay, good. Popular topic, I don't know if there's an answer, but is AI an opportunity or a threat? I mean, how do you think about it in terms of risks to your business? How are you potentially using it in your business, and are you seeing results?
Well, it's an opportunity and a threat, I mean, in so many different ways. It's such a broad question, such an interesting question, and it's one that we've already tackled and we've already launched 25 modules with AI. We've already developed a workforce training program. We've done a bottoms up and a top down view. We have it business line driven. We've asked business lines to make sure. We're setting up for this. Leaving the last couple of days, what I would say, just from leaders I've talked to is I actually believe we need to accelerate again.
I was on the phone last night, late, with a couple of people, and we will be getting a group together to say what's our 2.0 in this space, and there are a lot of opportunities. There are a lot of threats, and things you need to be aware of. I think from a credit risk standpoint, you need to be aware of who the winners and losers might be, in this. If you're lending, and it might not be obvious, where you might get disrupted quickly, somebody that's inside of your portfolio. I think from a risk standpoint, combating encryption risk with, you know, quantum computing and AI combined is a real thing.
We have to be aware of how fraud occurs and what deepfakes look like, because they are impressive and getting better or worse, however you wanna look at that from a video and an audio standpoint, and we've already put pieces in place. The planning document for wealth. Still people with money at some point, you know, if you accumulate a certain amount, they wanna talk to a human, but they wanna hear about it quickly. So there's a trust factor, but then you can use technology to maybe co-listen and create planning in, you know, a short period of time. Maybe instead of two days or two weeks, it's two hours, and you're creating a plan, and by the way, you log
You put that on your site, and you create a user experience that somebody says, "Okay, I talked to them." Maybe that person that's doing the planning can do 2x-3x as much as they did before. The repetitive tasks that you'll have to take out. I think the real question is how do you differentiate yourself then in the future if everyone has access to Claude or has access to ChatGPT, or whatever that may be. You know, early in my career, somebody told me, "What gets attention gets done." I think this is one of those times that, from the CEO down, you need to give quite a bit of attention to AI. I also heard Tim Spence speak to this last night, and I understand he had a session today.
You know, his message on "Don't be afraid of the future, embrace it." I thought it was a great message. I've always had a high regard for Tim. That'll be the message back to our team, even though they've done a lot. I don't think we're behind, but we'll have to continue the intensity around having a plan for how to deal with AI.
Okay. Good. Two more topics, credit and the buyback. Derek, anything on credit that concerns you or anything you're watching, NDFI, any comments you wanna make?
Yeah. No, we didn't get a lot of questions today either.
Yeah
We prepped. You know, we don't have a lot of NDFI. What we do have is REITs and mortgage warehouse. Most of these relationships we've had for 10 years, and it's not part of what's driven our growth strategy. Check. No, not an issue on that. We are, because of the frequency in the last 24 months of whether it's office, multifamily, NDFI, private credit, software, AI, all that stuff, I think Pat's his, he has a never ending, no surprises tour. We just flip the filter on what he's looking at. No new things popping on the radar, but surveillance remains high.
Okay, good. Andy, I know it's organic growth is the focus, and I think you guys have managed capital well, but you did announce a $100 million buyback authorization. What are your thoughts on that? Do you plan to start executing it? Is it just there to-
Yeah
to be there just in case? Or what's the philosophy?
Yeah, thanks, Jon. This is the first time in five years I've been excited about the question on what are you thinking about buybacks, because I've been very clear that we have to remix our balance sheet to improve our profitability, and we have to fund that loan growth, and that's the best use of our capital. We're now at a place where our profitability allows us to both have loan growth and accrue capital. We're a very safe company. Our CET1's in a place where with a small amount of growth, we're in a position to do a buyback. I'd asked Derek to get authorization from that. We got authorization for a buyback. We'll wait.
We'll make sure that we get through the closing of the merger to make sure we see what the balance sheet is and know where we are. That also will create a little capital in addition to our earnings. No, we didn't just get the approval for it was fun to do. We think we're in a position where we can continue to grow and probably look at using that allocated buyback pool.
Okay, great. Thank you for the time, guys.
Thank you.
Thanks, guys.