Morning. Thanks for showing up early this morning, and we're excited to start off our second day of the conference. This morning, we're starting with Associated Banc-Corp and Andy Harmening, President and CEO, coming in from Wisconsin to join us. Thanks.
Yeah. Thank you, Jared. This was the first conference we ever did five years ago when I started, and it was during COVID, and it was remote, and we launched our first strat plan. The world's changed since then. Our bank has changed since then. We're wrapping up 2026. From a consumer standpoint, what's happened for us as a different bank is we've gone from shrinking customer base to growing kind of -2% to +2%, expanded product set, spent a lot of time and energy on digital segmentation, some specialty businesses on the consumer side. On the commercial side, we've grown roughly $6 billion on a $7 billion+ portfolio in those five years, including $1.2 billion in C&I growth in the first half of this year and $1.2 billion last year.
We've made a lot of progress, but right now, how I'm thinking about the company is really three ways. One, we have to continue with organic growth, and we did in the first half of the year, whether that be customer growth, deposit growth, C&I growth. We're in a pretty good position there. We have the American National Bank integration that's right in front of us. Pleased with where we are to date. Finding the marks are coming right in where we expected. The cost saves are a little bit ahead of schedule, and we've gone through mock two conversion, so the final conversion should occur here in the next three weeks.
Excited about getting that, and then we'll roll out a new strat plan at the beginning of the year, which we're a couple passes into, and we think that we'll be able to continue to expand margin, expand ROTCE, and we think we'll be able to grow additionally on the household growth that we've had so far. That's our story. We're sticking with it.
Great. Thanks for that overview. As you mentioned, it's now been several months since the American National acquisition closed. As you've moved from diligence into actual operating the business, what's gone better than expected and what's been more challenging? I guess what would you have learned about the organization that you really didn't know before?
Well, you think you know what it is, and every time there's a deal, people say the cultures align. What's really nice is when they do. What we've found is we've done surveys of our colleagues and their colleagues side by side, and using the three words to describe the companies, both sides use the same three words in the survey. Then you get in and you meet with folks, and the attention to detail with customer satisfaction, the attention to detail on credit, they're what we had hoped for when we were looking at it. We had held open some positions in some key areas and kind of done the best athlete wins. We have been able to fill a lot of positions with American National colleagues, particularly in the risk group.
Of course, we have people in the field finance, so we've actually gotten better from a colleague standpoint. That's been really encouraging to me. I think what you learn going through integration is it's a lot of work. I'm really pleased with the Associated colleagues on our side being able to continue to grow the bank, grow our funding base, grow the loan side of it while we get through the integration. That's what we've seen so far, and frankly, we're chomping at the bit to get this integrated and move forward.
Along those lines, when you announced the transaction, the goal wasn't just to get larger. It was really to create a stronger platform for growth. As you sit here today, what areas of the business excite you the most now that you've had time to operate as a combined company?
Yeah. If you think about the fact that we've gone from - 2% household growth to + 2%, that is starting to create a tailwind really for the first time for our company. Then we think about Omaha, where they have 20 branches. We are going to be able to layer in our marketing acquisition tools, our consumer product set, which is quite strong on the deposit side.
Now we are talking about as a company, how do we go from 2% growth to 3% growth? Well, that is a hard jump. We think Omaha is the fastest-growing major metropolitan market in our footprint. Then you pair on top of that the Twin Cities. That is the second fastest-growing, and we are getting branch networks in both of those. In Omaha, on the commercial side, the commercial team is strong. With American National, the leadership is very good.
We have capital markets, syndications capabilities that they just did not have. We have a little bit bigger balance sheet. When we look at consumer and commercial, there is opportunity on both sides. Then we run a pretty decent-sized private wealth business. They do not have that offering today. So, we will launch a private wealth offering in Omaha right after systems conversion.
Great. Maybe looking at on the commercial side, at the beginning of the year, you targeted 9%-10% organic C&I growth and really effectively reached that goal by mid-year. What is driving the momentum you are seeing today, and why do you think it can continue?
Yeah. The simple answer to that is we have had a lot of hires on the commercial side. We have had a lot of hires on the relationship manager side. We have also moved into some major metropolitan markets. The question for us is, we are headquartered in Green Bay, we are growing nicely in Milwaukee. Can we grow in Chicago, Twin Cities, Kansas City, now Dallas?
The answer is yes. If you get the right people, you get experienced bankers that have been in the market for a long time, you have a process that makes sense, you can grow. Then we have launched a franchise vertical. We have expanded into Dallas and already are booking deals. We continue to benefit from, excuse me, asset-based lending, equipment finance. So we have launched multiple verticals at the same time, and we have gotten the right people in the right chairs.
We think it's a formula that works. What's kind of interesting, if you think about the go forward, is Kansas City, for example. When we rolled out the new team there, the question mark, can you hire a team of experienced bankers and grow in a responsible way? When we did that, another team immediately came available, and we doubled the size of that team and kept going. That model worked. We've carried that model to Dallas and hired our first relationship managers and leader there. They're already putting deals on the books.
When you look at those new initiatives, whether it's the geographic expansion you talked about, treasury management is another, where do you think you've seen the strongest returns, and where would you be willing to invest more capital at this point?
Yeah. A little bit of a rinse and repeat, but excuse me. We'll be able to continue to add on the relationship manager front. That has worked for us. When I look at treasury management, that's a really exciting one because we're up significant double digits in treasury management sales. What goes with treasury management sales is primacy. When you get primacy, you get deposits. When you get deposits and you get treasury management, you typically get the low-cost deposits.
That's happening for us at a pretty good rate right now. If I look out over the next three years at our opportunity to layer on top of the 50 RMs that we've added, treasury management capabilities that can compete with any regional bank or even super-regional. If you layer on those capabilities, you see a runway on the funding side.
I see a runway on the funding side for us that will be significant over 12, 24, 36 months.
On the competition side, competition remains intense across both loans and deposits. How would you characterize the current competitive environment, and where do you think Associated has become more differentiated than it was a few years ago?
Well, when you're shrinking your customer base for an extended period of time, not good.
Yeah.
When you want to grow it, you go out and you build products by listening to the customer, and you basically create attributes that they care about. So, whether they're getting a paycheck early or they're able to see the credit monitoring easily in the customer experience. I would say for banks our size, we're pretty developed on the product capability. We're developed on the digital capability, but we just hired a new head of digital that a very short period in. I was with her last week, and her ideas on what we can do to improve the digital ecosystem married with the product is really impressive. So, when you look at competition, the question is: what are you offering? How are you offering? What's the ease of use? What are the characteristics of the product set that makes somebody buy?
Do you have new ideas? Our point in our team is always to be challenging what your status quo is and making sure you have new attributes. Because what worked last year will work a little bit less the next year and the next year. Literally just reviewed seven new capabilities that we think will launch over the course of 2027 that will continue to keep us ahead of the game. When we get done with that, we'll come up with seven more. When you're thinking about the household game and the industry's at a net zero, and you start to get to two and you want to get to three, that is the door to your funding capabilities. When you create segment management, you're able to deepen. So for us, yes, the competition is real.
It's not a set it and forget it's constant. That's on the consumer side. The commercial side, we're opening our HOA title business. We didn't put a deal on the books in the first year because we had to build out our digital capabilities. Well, now we have. Lo and behold, right when we launched the digital capabilities, we got our first large couple of customers. The upside there is significant for us because they know the industry. We look at treasury management capabilities spread across. All of these pieces for us on the competition side, a lot on the funding has been built over an extended period of time. The commercial side of it is really making sure that you have a good process and making sure that you have folks that are local that know the markets.
Along those lines, as you speak with commercial customers today, what are you hearing regarding business confidence, investment plans, and hiring intentions? Is the uncertainty around rates, tariffs, and policy causing businesses to become more cautious, or are they looking to invest?
Both. It's interesting. I do a CEO roundtable probably every single month in a different city. Was in Chicago roughly three weeks ago, and it's incredible what you learn from the CEOs about what's happening with trade, what the impact on cost is. For all of the reasons you listed, there is a feeling of caution in the marketplace. There's a feeling of confidence within their own business. So, it's a bit of a bifurcated situation. We've seen that over the last couple of years. As people hear about global tensions, they see what's happening in the economy, they'll pause for a moment, and they'll look around and say, "Wait a second, everything seems okay." I think the economy, generally speaking, is pretty solid. Then they get back in the game. So, you'll see a lull in growth, then an increase.
What's interesting that I see right now is the confidence in their own company and our commercial pipelines are up from August to August over 30%. However, the pull-through has slowed for a period of time while people are looking at what's happening kind of in the greater world and the country.
Maybe shifting to the deposit side. A few years ago, investors primarily viewed Associated through the lens of funding constraints. Today, the conversation seems much different. How would you describe the evolution of the deposit franchise and why you believe the growth you are seeing now is sustainable?
Yeah. Several reasons that I would mention. On the core customer funding, we kind of did an end-of-June to end-of-June comparison for the last three years, and it was 2% growth, then 4% growth, then 6% growth. It is not because the markets got easier and got hotter, it is because we got better. That is both on the consumer side and that is on the commercial side. If you start to grow your customer base, the next logical question is, are they bringing deposits to you? Are you growing low balance accounts or are you deepening those? If you can do both those things, you can end up in a pretty good place. That is segment management. You bring them in through acquisition marketing product set, and then you deepen them through what your capabilities are.
The more you have, the more we get. The quality of our accounts has gone up. At the same time, we have grown the customer base faster. That makes it pretty durable, and that is kind of going from mass market to mass affluent. The next step in that evolution will be private wealth for us. That is why I like the trend we are on, but there is still opportunity. You will hear about that more from us in 2027 and 2028 as we build our plan. It is just a funnel that goes up on that side. On the commercial side, again, we have the HOA title vertical, which will be helpful to us. But the productivity from the relationship managers and our level of penetration is going up. Our level of being the prime bank on deals has gone up.
TM sales has gone up. Our product is going to get better. When you see that trend, that is pretty encouraging. It ends up being three things. You get the consumer going, bringing customers deepen. You get the commercial going with treasury management and primacy, and then they meet at private wealth. We wanted to get one and two right. Now we will start investing in the experience more heavily on the private wealth side.
As the bank grows, how would you like investors to think about the future deposit mix? Is the larger opportunity just gathering more deposits overall, improving the mix, increasing the operating accounts like you talked about? Or all of the above?
That's an all of the above. When I first got to the bank, they said, "Well, what do you want? Do you want to grow accounts or do you want to grow deposits?" The answer is yes. That's how I feel about all those things. If you want to be a survivor bank, you cannot be a one-trick pony. The secret is there are a lot of pieces that go into success right now, and you have to have it across all of your lines of business. There has to be participation on the product, the digital, the customer experience, the workflow, the outbound marketing, the communication, and the coordination and collaboration between the teams.
When I think about all of those pieces, the question that I've had coming into this role is, can you be great individually within these groups and then actually have a team that cares about working with each other? As you get some wins, people seem to be more willing to collaborate. Yes, I would say all of the above.
I guess one of the biggest surprises in second quarter was the strength of the margin outlook. Despite the runoff of some purchase accounting benefits, you still expect margin expansion in both the third and fourth quarters. What gives you confidence in that trajectory?
Yeah. I think back to kind of the low point as I was coming in when we had a like a 239 margin, and now we're heading towards the 320s. The first answer is yes, I do expect margin expansion, even in the face of the accretion impact that we will see. Again, it is a number of fronts. On a very basic level, we continue to run off low-yielding resi, and that has been a strategy. Our correspondent banking, we eliminated that, but it had a little tail on it. We've gone from 30, at our peak, 36% of our balance sheet was residential real estate. Today, it's 18%. So the balance sheet mix is real. We'll do residential loans, but the portfolio will be a runoff portfolio for a period of time, and we'll put on higher margin commercial business that's supported by deposits.
Really you're talking about remixing the loan side of the balance sheet. Now when I look at June to June, you can see our non-interest-bearing deposits rising. That has not been the case for quite some time. It's in line with your household growth. That creates a funding opportunity for you. Deposits can get more competitive, but if you're also getting the non-interest and nominally interest-bearing deposits, which we are, it can offset that from a competitive standpoint. That's why, relatively speaking, we're in a pretty good position, and it's why we think we'll be able to continue to slowly, each quarter, move the margin up a little bit.
On the deposit pricing, how are you thinking about that in the mix in this rate environment? This time last year, we were talking about the potential for rate cuts. Now we're talking about the potential for rate hikes. How is that changing your thinking around deposit structure and pricing?
Yeah. The interesting thing about our situation right now is if loans slow a little bit, because we build a machine on the deposit acquisition and growth side, that helps. We still are in a pretty good position overall. With the potential rate increase, likely rate increase, we're slightly asset sensitive. So, on a very basic level, we make more money. So, I think that'll help our margin a little bit. I don't think it'll change a forecast that we have. We felt pretty comfortable before that rate increase. I don't think it does anything to dampen growth by going up a quarter percent. I think overall, I really think it just probably slightly expands our profitability, but it doesn't damage the outlook in any way based on both sides of the balance sheet strategies that we have today.
Great. Maybe shifting over to the fee income side. You have talked about wealth, treasury management, capital markets, and deeper commercial relationships as important pieces of the long-term growth story. Which fee businesses have the greatest potential to become larger contributors over the next few years?
Well, if I look at the immediacy, we are seeing fee income growth just because we are growing our customer base. Whether that be service charge income, credit card, debit card income, that is in the immediate. In the three-year period of time, treasury management will play a significant role for us. I love that we are seeing the sales, and as we add tools to that with a larger workforce across our entire network. To me, that is probably the low-hanging fruit for our company. We hired a new head of treasury management that we brought in from a major bank. They are very strong, and they put together a roadmap that we are in the middle of strategic planning. We are likely to fund most of that roadmap.
You had mentioned earlier, brought up the systems conversion next month. That really is the next major milestone. As you approach that conversion, what are the biggest opportunities you see once the two banks are fully operating on the same platform? The two legacy banks on the same platform.
Yeah. I feel like we are waiting for Omaha. A really good growth market that we already have the digital platform. We already have the marketing capabilities on the consumer side. We already have the product set. We are ready to get on with it. To me, that is an immediate, once you get through the conversion, you make sure everyone is set, and we head into the end of the year with just another market that is opened up for us.
In the Twin Cities, you deepen your penetration. There is something to doing the density of the marketing and the density of your footprint, and we increase just enough to make us more significant in that market. We are now number 10 in the Twin Cities in deposit market share. We are number two in Omaha. Well-known name in Omaha, but opportunity on the consumer side immediately.
In the Twin Cities, moving in the top 10, we think the opportunity there between consumer and commercial, then we've had significant hires in private wealth. All of those pieces post-conversion will allow us to start to run.
A significant amount of technology work has gone into the deposit-gathering capabilities. You've talked about the treasury management specialty businesses. Beyond the merger integration, where are technology and AI creating the most tangible opportunities for growth or efficiency?
Yeah. We have 30 use cases in process with AI already, and we're seeing it on the development side pretty significantly. We had an option to renew and buy something for $800,000 90 days ago. We thought, "Well, gosh, let's see if we can build it." We built it in a very short period of time for $45,000. It cost us 65. Just because I was so excited, we gave a bonus to the two people that did it. So, we took the time to create a structure on that in our risk and fraud framework. We have the same situation going on. We think that on the expense side, just the development cost is starting to already go down. We're able to build a little bit of the We'll lean into it with some of the simpler applications that we have.
The buy versus build is more real, and we'll assess that. We brought in a new head of procurement so that we basically can marry what is our vendor strategy to what our development is. On the sales side, I think it's going to be significant too, and that's whether we build it ourselves or we employ somebody to help us on that side. We just brought in a new head of AI for the commercial bank, and he's fantastic. He's working on what is the idea of research and delivery and how do we go more quickly, everything from researching a customer, presenting to a customer, to the back end of a customer. I wouldn't put a number to it today, but we'll drive efficiency in 2027, and we'll drive more efficiency in 2028.
I think when you look at some of the private wealth capabilities and the ability to do planning and marry that up with your core platform. By the way, had we not invested in our core digital platform, which we can plug private wealth into, which we can plug the planning into with a human at the middle of it? All of those things will help on the delivery to the customer side in not that long a term.
On credit quality has remained resilient despite elevated rates, and you've indicated the ANC portfolio is coming largely as expected. What trends are you monitoring most closely today, and where are you potentially becoming more comfortable?
I do not know if the comfortable part. Did you throw that one in at the end?
Yeah.
There is some comfort in managing a consumer portfolio that's super prime. When you start looking at the FICO scores of the resi, the resi has a low yield, but the good news is it has FICO scores right around 800, just below. The auto book is the same thing. You're in the 790 range there. So, you look at delinquencies as a precursor to issues that we are going to have, and delinquencies are flat as a pancake. I think probably for most banks right now, and certainly the ones that deal with prime, super prime customers. You cannot get lazy with portfolio review. So, on the C&I side, on the CRE side, we just do not see the emerging issues happening. The message from our credit team to our field team is, "We're coming. We're coming this week. We're coming next week.
We're going to come the following month, and we're going to continually pour through these portfolios until we see a trend. If we see a trend, then we're going to dig into whatever that looks like. Thus far, as you know, it's been a pretty benign credit market for a long time, and I don't want to get a false sense of security based on that, but the credit side's very clean today.
As you said, you've taken a disciplined approach to reviewing the ANC portfolio and aligning credits with Associated's credit philosophy. Were there any lessons from that process that reinforced or changed how you think about risk going forward?
No. There are a couple portfolios that didn't fit with us, which were smaller portfolios. But the overall commercial, we were able to get through a vast majority of everything that they have already. We made appropriate adjustments to fit our model, and we did it and still are seeing the right return metrics. I don't feel like there's somebody waiting around a corner for us. As you know, the two things that can get you are credit and systems. The credit is, it looks very much like what we've had on our books.
As integration progresses and profitability improves, how are you thinking about capital priorities over the medium term? I guess at what point does capital return become a more meaningful part of the story again?
Yeah. Buybacks?
However you want to describe it.
Yeah, no. We got authorized just over $200 million for buybacks. The good news for us is that we have a good enough margin and a good enough ROTCE, so a good enough return today that we can both fund our growth and consider deploying capital in additional ways. We fully expect in the third quarter and the fourth quarter to exercise all those approved dollars, and we expect to be able to fund growth that we have at the same time. So, we're in the best position we've been in in quite some time with the ability to accrete capital. Then we'll work through the conversion, and the one-time expenses will be largely completed, a lot of it this quarter and almost entirely in the fourth quarter. That puts us in a really good position heading into 2027.
Great. We have a few minutes. Are there any questions from the audience before we wrap up? No. I guess, Andy, while you're not, I guess, ready to probably share specific guidance for 2027 today, how should we think about what's next for Associated once you get through the conversion?
Yeah. So, when we look at 2027, this will be the third time that we've put a strategic plan out there. The first question that usually comes up is, how are you going to control expenses? The answer usually is the same way we did the first two times. We will cut to spend. We'll find cost-save opportunities in places that we feel probably don't have as good a return. Then we'll invest in areas that we think have a better return. It's worked the last two times where we've been able to expand our margin, expanded our return. What's particularly interesting now for us is we've expanded margin and return, but we've also shown that we can compete in Milwaukee and Chicago and the Twin Cities. We'll move into Omaha, Kansas City.
Now we've shown some clarity that we can compete in major metropolitan markets. That opens the door for a lot more business. I'm pretty optimistic heading into the strat planning session. We're two rounds into that session already. There are specific actions that we think will lead to more household growth and expanded margin and return.
Great. Well, thanks very much. Thanks for joining us. Hope you have a great rest of the day.
Thank you.
Thanks.
Thanks, Jared.