Associated Banc (ASB) Earnings Call Transcript

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DATE

Thursday, Jan. 22, 2026 at 5 p.m. ET

CALL PARTICIPANTS

• President and Chief Executive Officer — Andrew Harmening
• Executive Vice President and Chief Financial Officer — Derek Meyer
• Executive Vice President and Chief Credit Officer — Patrick Ahern

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TAKEAWAYS

• Earnings per Share (EPS) -- $0.80 in Q4 and $2.77 for the year, establishing a new company record.
• Total Loans -- Grew 1% versus Q3 and 5% year over year, driven primarily by C&I lending.
• Commercial & Industrial (C&I) Loan Growth -- Increased 2% sequentially in Q4 and $1.2 billion for the full year, meeting the annual target.
• Core Customer Deposits -- Increased by nearly $700 million from Q3 and nearly $1 billion year over year; period-end growth rate was 3.5%, and 5% on a quarterly average basis for 2025.
• Net Interest Income (NII) -- $310 million in Q4, a company record, up $5 million sequentially and $40 million over Q4 2024; annual NII rose 15%.
• Net Interest Margin (NIM) -- 3.06% in Q4, up two basis points sequentially and 25 basis points year over year; full-year NIM exceeded 3%.
• Non-Interest Income -- $79 million in Q4, up $8 million from adjusted Q4 2024, with a 9% adjusted increase for the year; capital markets, wealth, and card fees grew.
• Total Non-Interest Expense -- $219 million in Q4, a $3 million increase over the prior quarter; expense discipline maintained per management statements.
• Efficiency Ratio -- Held at 55% for Q4 after a year of steady improvement.
• Return on Average Tangible Common Equity (ROTCE) -- Exceeded 15% in Q4, with a full-year rate of 13.6%, both historic highs for the company.
• Allowance for Credit Losses (ACL) -- Increased by $5 million to $419 million in Q4; ratio was 1.35%, up one basis point from Q3.
• Non-Accrual Loans -- Decreased to $100 million in Q4, a $6 million reduction from Q2 and $23 million year over year.
• Net Charge-Offs -- $2 million for Q4 and 12 basis points for the full year, below the medium-term target of 35 basis points.
• CET1 Ratio -- Increased to 10.49%, up 16 basis points from Q3 and 48 basis points year over year.
• Tangible Common Equity (TCE) Ratio -- Rose to 8.29%, climbing 11 basis points sequentially and 47 basis points from the prior year.
• Tangible Book Value per Share -- Exceeded $22 at year-end, up $0.65 from Q3 and $2.30 year over year.
• Loan Concentration Shift -- Residential mortgage concentration decreased by over 10 percentage points since 2020; C&I loan balances rose by more than 50% over the same period.
• 2026 Outlook – Standalone Guidance -- Management projects 9%-10% C&I loan growth, 5%-6% total loan growth, and 5%-6% core customer deposit growth, all excluding American National acquisition effects.
• 2026 NII Growth Forecast -- Guidance is for 5.5%-6.5% growth, assuming two Federal Reserve rate cuts and no acquisition impact.
• 2026 Non-Interest Income -- Expected to increase 4%-5% excluding American National.
• 2026 Non-Interest Expense -- Forecasted to rise 3%, excluding American National transaction effects.
• American National Corporation Acquisition -- Announced in December, expands footprint to Omaha (number two market deposit share) and bolsters presence in the Twin Cities; integration anticipated post-approval in mid-2026.
• Strategic Investments for 2026 -- Plan includes doubling acquisition-focused marketing spend in The Twin Cities and Omaha (over 100% combined increase), and a 25% total marketing increase across all markets.
• Relationship Manager (RM) Hires -- Approximately 11 new RMs will be added across the Twin Cities, Kansas City, and Dallas, representing a 10% increase bank-wide.
• Pipeline Strength -- Commercial lending pipeline at December 2025 was 43% higher than December 2024.

SUMMARY

The pending acquisition of American National Corporation was introduced as a key development supporting entry into Omaha and expanded scale in the Twin Cities, pending regulatory approval. New client acquisition initiatives will target household growth by significantly increasing marketing expenditure in strategic growth markets, primarily The Twin Cities and Omaha. Associated Banc-Corp (NYSE:ASB)'s ongoing business remix, away from low-yielding residential mortgages toward C&I, contributed to heightened margin and ROTCE. Credit performance metrics improved, with non-accrual loans and charge-offs both trending down and allowance coverage holding steady. Capital and liquidity strengthened, as evidenced by higher CET1, TCE ratios, and tangible book value per share, giving management flexibility for organic expansion priorities.

• Management emphasized continued execution discipline, stating core deposit growth is expected to track household growth momentum and deeper commercial relationships.
• Expansion plans include selective hiring of RMs in Dallas, Kansas City, and the Twin Cities as part of the 2026 organic growth focus.
• Interest rate risk mitigation initiatives include repricing flexibility and swap positions, limiting sensitivity to less than a 1% NII impact for a 100-basis-point rate cut.
• Adjusted efficiency improvements (over 700 basis points since 2020) were highlighted as proof of sustainable operating leverage.
• Leadership confirmed, "All the guidance for 2026, that's all based off of GAAP numbers for 2025," indicating a clean baseline for projections.
• Deposit mix is expected to improve as demand accounts expand through cross-segment collaboration and targeted deposit verticals launching in 2026.

INDUSTRY GLOSSARY

• RM (Relationship Manager): A banker focused on building client connections and driving new loan and deposit growth, emphasizing full-service relationships over transactional business.
• CECL (Current Expected Credit Losses): A forward-looking accounting standard for estimating probable loan losses, reflecting macroeconomic forecasts in reserve calculations.
• C&I (Commercial & Industrial): Loans extended to businesses for purposes including working capital, equipment financing, and other general corporate uses, excluding real estate-secured lending.
• CRE (Commercial Real Estate): Loans secured by income-producing real estate, including office, retail, industrial, and multi-family properties.
• ROTCE (Return on Average Tangible Common Equity): A profitability metric measuring net income returned as a percentage of average equity, excluding intangible assets and goodwill.
• NIM (Net Interest Margin): The ratio of net interest income to average earning assets, reflecting lending and funding spread efficiency for banks.
• ACL (Allowance for Credit Losses): The balance sheet reserve set aside to absorb potential future credit losses on loans and leases.

Full Conference Call Transcript

Andrew Harmening: Yes. Thank you for the introduction and good afternoon. Welcome to our fourth quarter earnings call. This is Andy Harmening. I am joined once again by our Chief Financial Officer, Derek Meyer, and our Chief Credit Officer, Pat Ahern. I'll start off with some highlights from the fourth quarter and 2025 as a whole. From there, Derek will cover the income statement and capital trends, and Pat will provide an update on credit. 2025 was a pivotal year for Associated Banc-Corp. In March, we marked the completion of all major investments from Phase two of our strategic plan. Those investments gave us strong momentum throughout 2025, and they positioned us for additional momentum in 2026 and beyond.

We are growing and deepening our customer base organically and taking share in major metropolitan markets. We delivered our strongest year for organic household growth since we began tracking a decade ago, with net growth in all four quarters of 2025. We're growing and remixing our balance sheet simultaneously. In 2025, we added over $1.2 billion in relationship C&I loan growth while steadily reducing our low-yielding, low-relationship value residential mortgage loan balances. On the liability side, we added nearly $1 billion in core customer deposits during the year. And we're driving stronger profitability. Over each of the last three quarters, we set a company record for net interest income.

We also saw strength in several fee income categories in the back half of the year. This enhanced revenue profile, combined with expense discipline and solid credit performance, helped us deliver the strongest net income in our company's history in 2025. To further enhance and accelerate our organic growth momentum, we announced an agreement to acquire American National Corporation in December. The transaction is financially attractive, but importantly, it also enables us to expand our organic growth prospects by providing entry into the vibrant Omaha market with the number two market deposit share and strengthening our position in the Twin Cities market where we already have momentum.

We believe that Associated and American National are a natural cultural fit, and we look forward to welcoming American National employees and customers to Associated later this year. Further underscoring our commitment to organic growth, we're planning several additional investments in 2026 to accelerate momentum in multiple strategic growth markets, including the Twin Cities, Omaha, Kansas City, and Dallas. Our expectation is to maintain a growth and profitability focus while simultaneously managing our low-risk profile. Credit discipline remains foundational to our strategy, and our growth centers on high-quality commercial relationships and prime, super-prime consumer borrowers. We continue to manage our existing portfolios proactively to stay on top of any emerging risks.

As we look into 2026, Associated Banc-Corp's momentum continues to build. We're excited about the future of this company and look forward to providing additional updates along the way. With that, I'd like to walk through our financial highlights on Slide four. We reported earnings of $0.80 per share in Q4 and $2.77 per share for the full year. Total loans grew by another 1% versus the prior quarter and 5% versus 2024. C&I has continued to be a primary growth driver for us throughout the year. We grew C&I loans another 2% in Q4 and added $1.2 billion in C&I balances for the year.

On the funding side, core deposits grew by nearly $700 million versus Q3 and nearly $1 billion versus Q4 of last year. Point to point, this represented a 3.5% growth rate, but on a quarterly average basis, core customer deposits were 5% higher in 2025 versus 2024. Shifting to the income statement, Q4 net interest income of $310 million set another record for the strongest quarterly NII in company history, and our NII was up 15% for the year. After posting strong quarterly non-interest income of $81 million in Q3, we posted another strong quarter of $79 million in Q4.

Capital markets, wealth fees, and card fees all grew in the fourth quarter, and on an adjusted basis, total non-interest income grew by 9% versus 2024. Total non-interest expense of $219 million increased $3 million from the prior quarter. Delivering positive operating leverage remains a primary objective as we execute our plan. On the credit front, we remain pleased with asset quality trends. In Q4, our criticized loans decreased, and our non-accruals dipped to 32 basis points of total loans. Net charge-offs decreased to just three basis points for the quarter and 12 basis points for the full year. Finally, our return on average tangible common equity increased steadily throughout the year, finishing over 15% in Q4.

On Slide five, we want to take a moment to highlight how our strategic investments since 2021 have transformed our return profile. First, after investing in talented RMs in major metropolitan markets across our footprint, we've grown C&I loans by over 50% since 2020. With pipelines remaining strong and a few more non-competes set to roll off between now and the end of Q1, we expect our momentum to carry through 2026 in both commercial lending and deposit acquisition. As we continue to add relationship C&I loans to the books, they're replacing lower-yielding non-relationship residential mortgage balances as they roll off. Since 2020, we've worked down our concentration of mortgage loans by over 10 percentage points.

This ongoing mix shift is contributing to enhanced profitability. In 2025, we posted three consecutive quarters of record NII and a NIM north of 3% for the year, 50 basis points higher than 2020. While we've invested significantly to transform the growth profile of the bank, we've remained disciplined on the credit front, and our net charge-off rate has remained below our medium-term target of 35 basis points. We've also managed our expense base in a disciplined way to support revenue expansion, positive operating leverage, and enhanced profitability. As a result, our adjusted efficiency ratio decreased by over 700 basis points from 2020 to 2025, and our ROTCE increased to 13.6% in 2025. In 2025, our ROTCE climbed above 15%.

So as you can see, our strategic from Phase one and two are having a meaningful impact on the strength and return profile of our company. We believe the momentum from these investments will carry well into 2026. With that said, we also see additional opportunities to incrementally build on our momentum in 2026. On Slide six, we've already proven through our strategic plan that we can grow in major metro markets like Milwaukee and Chicago. The investments we've made to bolster market leadership, add talented RMs, enhance our value proposition for consumers and small businesses, and amplify our brand presence are having a clear impact.

Over the course of the past two years combined, we've driven double-digit deposit growth, double-digit C&I loan growth, and household growth that's outpaced population growth in both markets. Milwaukee and Chicago are great markets for us, and we see plenty of additional growth opportunities in those markets going forward. But we also see opportunities to double down and duplicate our success in several other attractive metropolitan areas with strong growth characteristics. In the Twin Cities, we already have a solid retail presence, and we've built a very strong commercial team under the guidance of our Head of Corporate Banking, Phil Trier, and our new Market President, Mike Labens.

We're also planning to move into our new regional headquarters in the heart of Downtown Minneapolis in March. The acquisition of American National is expected to deepen our presence in that market, giving us a top 10 pro forma deposit market share. The American National deal also gives us entry into the attractive market. With stronger population growth and median household characteristics in both the Midwest and national averages. Our number two pro forma deposit market share gives us scale. And our product set and marketing engine provide meaningful opportunities to both deepen and grow relationships post-close. On the commercial side, we've added a small team in Kansas City in March. That's a market our management team knows well.

We brought in a talented, experienced group of bankers who had the tools to hit the ground running. In fact, the team is off to such a strong start that we see opportunities to double down and drive additional momentum there. Dallas is also a market our management team knows well. Associated has had a CRE office in the market for roughly a decade. But we now see an opportunity to replicate the success we've had in Kansas City with the addition of a C&I presence in the Lone Star State. Moving to Slide seven, we're going to accelerate organic growth in these major metropolitan markets through two categories of investment in 2026.

First, we've created a best-in-class value proposition for our customers with a combination of digital and product upgrades. We've had success growing and deepening primary checking households through acquisition-focused marketing. In 2026, we're doubling down on the success to accelerate household growth in major metropolitan markets. Specifically, we're planning to increase acquisition-focused marketing spend in The Twin Cities and Omaha by over 100% between the two markets combined. The total marketing acquisition spend across all markets will increase by 25%. Through these actions, we're confident we can deliver stronger household growth in our major metro markets in 2026 and 2027, which we expect will translate to stronger household growth for the bank overall.

As we grow primary checking households across the bank, this drives additional deposit growth. It also brings additional fee income. On the commercial side, we've invested significantly in recent years to hire talented RMs who can gather relationship loans and deposits across our footprint as we look to remix both sides of our balance sheet. This remix is already well underway. Since 2020, C&I loans are up 50%, or over $4 billion. To build on this momentum, we're announcing another wave of selective RM hires in the Twin Cities, Kansas City, and Dallas, where we see attractive growth opportunities.

We expect to add approximately five more RMs in the Twin Cities, two in Kansas City, and four in Dallas, which equates to a 10% increase in all overall RMs bank-wide. We expect these actions to help us drive approximately $1.2 billion of relationship C&I growth across the total bank in 2026. In 2027 and beyond, we expect to continue adding talented RMs to drive sustainable, high-quality commercial growth. On Slide eight, we highlight our quarterly loan trends through Q4. Total loans grew by 1% on both an average and a period-end basis in Q4. As expected, C&I led the way with over $200 million in balances during the quarter.

Auto balances grew by another $65 million in Q4 as we have continued to selectively add high-quality balances to our book. Total period-end CRE balances dipped by $88 million versus Q3 due to elevated payoff activity. We expect elevated CRE payoff activity to linger in the coming quarters. On Slide nine, we show an annual view of loan trends. In this broader view, you can clearly see the growth and remix story that has been in progress since 2021. We've decreased our concentration of low-yielding non-customer residential mortgages and diversified into higher quality, higher return categories like C&I and auto. We've also grown total loans by nearly 30% over this time without abandoning our disciplined approach to credit.

In 2025, total loan growth was once again led by C&I, where we achieved our $1.2 billion growth target for the year. With pipelines remaining strong, additional lift expected as our last few non-competes roll off, we expect continued momentum in C&I into 2026. As such, we expect C&I loan growth of 9% to 10% in 2026. At the top of the house, we expect total bank loan growth of 5% to 6% for the year. Both growth figures are stand on a standalone basis excluding the impact of American National. Shifting to Slide 10, we added nearly $700 million in core customer deposits in Q4 after adding over $600 million in Q3.

In Q4, our growth was once again spread across most categories, with customer CDs being the only category that decreased. This core deposit growth enabled us to work down our wholesale funding balances by one in Q4, including a $161 million decrease in brokered CDs. On Slide 11, we show a broader annual view of deposit trends. We've consistently grown our deposit base on an annual basis, and after adding $1.2 billion in core customer deposits in 2024, we added another $1 billion in 2025. On a percentage basis, period-end core customer deposits grew 3.5% relative to 2024.

This number was influenced by seasonal flows in a couple of larger accounts that impacted balance flows at the tail end of 2025. That being said, core customer deposits still grew by 5% on a quarterly average basis from 2024 to 2025. As we look to 2026, we're bullish on our ability to drive incremental core customer deposit growth thanks to the best-in-class consumer value proposition, household growth momentum supported by increased marketing acquisition spend in growth markets, and significant momentum in our commercial deposit-gathering capabilities. As such, we expect core customer deposits to grow by 5% to 6% for the year, excluding the impact of the American National acquisition.

With that, I'll pass it to Derek to discuss our income statement and capital trends.

Derek Meyer: Thanks, Andy. I'll start with yield trends on Slide 12. Within the major asset categories, the yields of our largely floating rate CRE and commercial books decreased by 24 basis points and 27 basis points, respectively. Auto and investment yields also saw slight decreases. These decreases were modestly offset by a slight uptick in the yield for a largely fixed-rate residential mortgage book. Total interest-bearing deposit costs decreased by 17 basis points in Q4 and are down 49 basis points since Q4 of last year. In Q4, total earning asset yields decreased 16 basis points to 5.34%, and total interest-bearing liabilities decreased one basis point to 2.82%.

Moving to Slide 13, third-quarter net interest income of $310 million increased $5 million versus the prior quarter and $40 million versus the fourth quarter of 2024. Our net interest margin increased two basis points to 3.06 for the quarter. As compared to the same period a year ago, our NIM increased 25 basis points. In 2026, we expect to drive net interest income growth between 5.5% and 6.5%. This forecast assumes two Fed rate cuts in 2026 and excludes any impact from the American National acquisition. On Slide 14, we provided a reminder of the steps we've taken to put ourselves in a more neutral interest rate position and protect against rate changes and other external factors.

We're maintaining repricing flexibility by keeping our funding obligations short. We'll protect our variable rate loan portfolio by maintaining received fixed swap balances of approximately $2.45 billion, and we've built a $3.1 billion fixed-rate auto book with low prepayment risk. While we're still modestly asset-sensitive, a down 100 ramp scenario represents less than a 1% impact to our NII as of Q4. We expect to maintain this relatively neutral position going forward. Moving to Slide 15, total investment security balances grew to $9.3 billion in Q4. Our securities plus cash to total assets ratio climbed to 24.3% at the end of the year, but we continue to target a range of 22% to 24% for this ratio.

Slide 16 highlights our non-interest income trends for the quarter. After posting $81 million in non-interest income in Q3, we followed that up with another strong quarter in Q4. Total non-interest income of $79 million was down $2 million from the prior quarter but was up $8 million from our adjusted Q4 2024 number. Our strong Q4 was supported by additional growth in wealth management fees, card-based fees, and capital markets. As we continue to grow our customer base and deepen relationships across the bank, those trends are beginning to flow through in our core fee businesses.

While quarterly results in an area like capital markets can be lumpy, we're confident in our ability to drive non-interest income higher over time. As such, we expect non-interest income to grow by 4% to 5% in 2026, excluding any potential impacts from the American National acquisition. Moving to Slide 17, Q4 expenses came in at $219 million, two percent higher than the prior quarter. The quarterly increase was primarily driven by a $3 million increase in equipment expense, along with a $1 million increase in variable comp expense and $1 million of severance as we continue to execute against our strategic plan and set ourselves up for a productive 2026.

These increases were partially offset by a $3 million decrease in FDIC assessment expense, following another adjustment to the special assessment, and a $1 million decrease in overall personnel expense. Throughout the year, we continue to invest in the growth of our franchise. Delivering positive operating leverage has remained the top priority along the way. After steadily decreasing over the course of the year, the efficiency ratio held at 55% in Q4. In 2026, our expense philosophy remains the same as it has each year since Andy arrived. We're going to invest in the future growth of the company while finding ways to offset these investments with cost reductions in other areas.

With this in mind, we expect total non-interest expense growth of 3% in 2026, excluding the impact of the American National acquisition. On Slide 18, capital ratios increased across the board once again in Q4. Our TCE ratio increased to 8.29%, up 11 basis points versus Q3 and 47 basis points versus 2024. Our CET1 ratio increased to 10.49%, a 16 basis point increase relative to the prior quarter and a 48 basis point increase versus the same period a year ago. We've also seen consistent expansion of our tangible book value per share, with Q4 coming in above $22 per share. This represents a $0.65 increase versus Q3 and a $2.3 increase versus the same period a year ago.

I'll now turn it over to our Chief Credit Officer, Pat Ahern, to provide an update on credit quality.

Patrick Ahern: Thanks, Derek. I'll start with an allowance update on Slide 19. Our CECL forward-looking assumptions utilize the Moody's November 2025 baseline forecast. This forecast remains consistent with a resilient economy despite the higher interest rate environment. It contains continuing rate cuts in early 2026, slower but positive GDP growth rates, a cooling labor market, continued elevated levels of inflation, and continued monitoring of ongoing market developments and tariff negotiations. In Q4, our ACLL increased by $5 million to $419 million. This increase was primarily driven by commercial and business lending, which largely stemmed from a combination of loan growth plus normal movement within risk rating categories. Our ACL ratio remained largely flat throughout the year in 2025.

In Q4, the ratio increased one basis point from the prior quarter to 1.35%. On Slide 20, we continue to review our portfolios closely amidst ongoing macro uncertainty. But we continue to see solid performance in Q4. Total delinquencies ticked up slightly versus the prior quarter to $61 million but were down $19 million versus 2024. We remain comfortable with the benign delinquency trends we've seen over the past several quarters. Total criticized loans decreased by $165 million versus the prior quarter, with decreases in all three major components of the metric. The decrease in Q4 reflects continued resolutions with some of these stress credits with liquidity present in the market in terms of both payoffs and loan re-margin.

We remain confident there hasn't been a material shift in the credit profile of the portfolio that would result in a corresponding risk of loss. Non-accrual balances decreased to $100 million in Q4, down $6 million versus Q2, and down $23 million from the same period a year ago. Finally, we booked just $2 million in net charge-offs during the quarter. In total, net charge-offs for the year represented just 12 basis points of average loans. We also added a modest provision of $7 million during the quarter. As we shift our focus to 2026, our team remains vigilant in reviewing our portfolios and staying in regular contact with customers to stay ahead of any emerging risks.

We also remain diligent in monitoring credit stressors in the macro economy to ensure current underwriting reflects the impact of ongoing inflation pressures, shifting labor markets, tariffs, and other economic concerns. 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. We expect any future provision adjustments will reflect changes to risk rates, economic conditions, loan volumes, and other indications of credit quality. With that, I will now pass it back to Andy for closing remarks.

Andrew Harmening: Thank you, Pat. In summary, we're very pleased with the strong organic growth momentum and the record-setting financial results we delivered as a company in 2025. We're entering 2026 with stronger profitability, better capital generation, and discipline on credit and expenses. With that said, we feel like our growth story is just beginning to emerge at Associated Banc-Corp. In 2026, we expect continued organic growth tailwinds from our prior investments in RMs, products, and marketing, but we also intend to accelerate our momentum through the American National acquisition and another wave of investments to double down in major metropolitan growth markets across the footprint. We look forward to providing additional updates along the way.

And with that, we'll open it up for questions.

Operator: Thank you. We will now be conducting a question and answer session. Our first question comes from Daniel Tamayo with Raymond James. Please proceed.

Daniel Tamayo: Good afternoon, everybody. First thing, I guess on the net interest income guidance given it's excluding American National, I'm just going to try and see what you can say about that on an all-in basis. So just curious if there's anything you can give us in terms of thoughts around how that net interest income line might look including American National, whether it's from a purchase accounting perspective or balance sheet. I know we talked about potential balance sheet actions post-close. Just trying to get to kind of an all-in number there.

Andrew Harmening: Yes. Daniel, we don't have a lot of updates on that. On the financial end of that. Obviously, we're going through the approval process, and we're hopeful to close in the second quarter and integrate in the third quarter. What I will tell you is what we've realized very clearly is the franchises are very well aligned. From a strategic standpoint, from a product and go-to-market standpoint. That matters just in trying to validate what our initial payback period was, which was 2.25 years. So we're feeling more bullish, we're on track. With our plan on the integration plan.

And what we're seeing is continued opportunity in both of their major metropolitan markets, both in Omaha where we know we can bring some capabilities but they already have a very good presence and very good growth pattern. And in Minneapolis, where there'll be additional additions to customer-based conversations that make us believe that we can grow on top of that. What we haven't done is really projected any of that upside growth we have. So we don't have a transaction that is pretty logical to us internally, but we don't have an update. From a financial side. We'll have to wait. Till we get approval and get to maybe legal day one and the next quarter to give up.

A little clear view there.

Daniel Tamayo: Okay. Thanks, Andy. Maybe something that might be a little bit easier to talk about then on the investments that you really clearly laid out there in terms of the four cities where you're going to be investing in 2026, including a couple of new cities. Can you provide any kind of color around the from a quantitative perspective, what that may look like including kind of pace and just trying to think through how this could affect the pace of expense growth as the year moves on? Thanks.

Andrew Harmening: Yes. I mean, we've given the expense target, expense growth target at 3% and just as in every other year, we've made some hard decisions on where to cut costs to invest. The expectation is that these investments we get asked sometimes the question is how do you believe that you have sustainability in your earnings? And the way that you get sustainability is you do something on the consumer side and commercial side, but you also you show that you've been able to do that in legacy major metropolitan markets. We have that in Chicago and we have that in Milwaukee and we're able to show that.

You get into markets that grow a little faster, it's the same it's the same game plan. And so from an expense standpoint, the significant increase in marketing expense for Omaha is not going to come until we get systems conversion because for logical reasons. In Minneapolis, we have momentum there right now. So we'll start in that market throughout probably end of first quarter, second quarter, third quarter with regards to RMs, we want them on the ground right now. So we have we have outlined where we're going to make our hires there. I expect half of those hires to happen in the first quarter. In fact, two of them started this week.

So we're not waiting for that to occur. Really what this does for us, it gives a clear, it gives us a clear path on how we're going to be able to maintain our gross structure, our balance sheet remix, which as you know drives our profitability profile.

Daniel Tamayo: Okay, great. And just I guess lastly following up on that, would you say there's at least some benefit in the loan on the loan side and deposit side. In guidance from these hires that are happening in 2026 or is that mostly a '27 and beyond story?

Andrew Harmening: Well, what we saw in Kansas City when we did a team lift out is significant loan growth in the first twelve months. So it is in our numbers, it is in our forecast. And we believe that it will lead to additional growth of what we would have had previously. And we've again given the guidance that we believe that we'll grow another $1.2 billion roughly in C&I growth, loan growth in 2026 and the path that we see is really clear. And it's fun to talk about what you might get from the new people, but remember that we have expiring non-solicitations every quarter.

And in case you're wondering if we've lost momentum, would tell you our pipeline December 2025 is 43% higher than it was in December 2024. So we think this is a replicable model. And the exciting thing for us is we've proven we can compete in major metropolitan markets. Milwaukee and Chicago. Now we've proven it in Kansas City. And so the idea of getting into Omaha, the idea of expanding again in Kansas City and the idea of moving into Dallas where we had have already begun interviews with some very, very talented commercial lenders. It gives us a bit of confidence heading into the year.

Daniel Tamayo: Great. Well, thank you for all that color, Andy.

Andrew Harmening: Yes. Thank you.

Operator: Our next question comes from Scott Siefers with Piper Sandler. You may proceed with your question.

Scott Siefers: Good afternoon, guys. Let's see. So Andy, really great to see that strong C&I growth expected next year. And I think you sort of hit on all the reasons there. Also kind of feels like some of the targeted reductions are beginning to fade a little more as a headwind. I guess just in your view maybe where are we with regard to some of those pieces of the portfolio that have been kind of drag dynamics for the last few quarters?

Andrew Harmening: Scott, I'm not totally following you.

Scott Siefers: Well, you said some of the whether it's residential real estate, these areas that have been sort of headwind, have been net drags, where are we if like, whether you wanna go No. Thank you. Yeah. Yeah.

Andrew Harmening: I think the resi will continue to run off at a pretty similar pace. I think it was down just over Derek, I think just over $250 million decrease in 2025. We see that as a good thing. In fact, that pace, if it expanded, wouldn't bother me a bit. And so it's allowing us to do is really get our sea legs under us on the C&I side by having one of the slower amortization markets in recorded history.

So it is shrinking by nature and those are low margin and what we think is happening, what we don't think is happening, we know what's happening is, it just allows us to slowly expand our margin each quarter as that's running off. And we're getting the commercial loans, but we're also getting the deposits. So our deposit production is up and heading into 2026 frankly I think the deposit should be a very good story for us.

Whether that be because of household growth, the launching of a new vertical in the second quarter, the fact that our new RMs are getting deposits at a faster pace, that we've had double-digit HSA growth and we're expanding into higher growth major metropolitan markets. When you take all that together, I see that Scott as the full piece, but the resi will continue to be a drag for years to come on that. Frankly, we see a path to replace that and still have strong loan growth. And I think probably the story that's really going to merge nicely for us is the deposit growth. In 2026.

Scott Siefers: Perfect. Okay. Thank you for that. And then, Derek, I know you had suggested in your prepared remarks, the capital markets line, those revenues can be lumpy. I guess I sort of remember last quarter thinking that it was that line specifically was elevated and might have to come back down. But just looking, it's been over $9 million a quarter for three of the last five quarters. Are you thinking, is this just a new level? I'm mean, I'm guessing from what I can sort of intuit into the guidance, you're thinking maybe comes back down.

But is there any specific reason to believe that could come back down or is that just a level of conservatism baked in your guidance? How are you thinking of those things?

Andrew Harmening: Scott, I'm going to let Derek ask that because you asked him, but the first answer is yes, it is repeatable.

Derek Meyer: Yes, I think the point Scott, you were right last quarter, we were thrilled at how strong capital markets was in our fees overall. When you look at wealth and you look across the board. And I think we built our go-forward plan, our growth plan for relationship banking and this should be one of the line items that we benefit from. I think probably before we get very aggressive in guidance on it, we want a more durable pattern that we model into our forecasting. We do see it developing very strongly with the production dynamics we see in the pipeline growth.

And we'll be happy to share that and get more and more confident with the level of granularity in those forecasts going forward. But you could hear us last time, we were excited about it and didn't want to get over our skis on it and we're thrilled that it is becoming more repeatable.

Scott Siefers: Perfect. Okay. And actually just one super quick sticky tack one just to be ultra clear. All the guidance for 2026, that's all based off of GAAP numbers for 2025, right? In other words, reported numbers with no adjustments, right?

Derek Meyer: Yes. We're trying to we had a clean year and we're giving clean guidance.

Scott Siefers: Perfect. Okay, good. Thank you very much.

Operator: Our next question comes from Terry McEvoy with Stephens. You may proceed with your question.

Terry McEvoy: Thanks. Good afternoon, everybody. Maybe a question for Derek. When I look at the loan to deposit growth 5% to 6% and then NII up, 5.5% to 6.5% on a kind of core basis that suggests limited core margin expansion and I'm wondering what your thoughts are on the NIM ex the acquisition? And embedded in that, what are you thinking for interest-bearing deposit betas within the NII guide?

Derek Meyer: Yeah. So we don't give our as you know, NIM guidance. You are correct. It implies some expansion. We've been in all of our forecast scenarios, I've been saying this for a few quarters, we typically see our NIM trickling up as a natural remix into the portfolio and that's been pretty durable. Our guidance contemplates two cuts, April and July. So then what really comes down to if you think about upside is what and I've said this before, it's still true. Is how our competitors going to behave on the deposit side. And our incremental deposit cost is going to be rational well behaved or are they going to be hot?

So far, we've seen in the last two quarters things have been very rational to then a little bit hot and then somewhat rational again. So I think that range is prudent. There is and I think it's balanced. Is some upside potential. If things get really competitive on the deposit side that would put pressure on that.

Terry McEvoy: Thanks, Derek. And then as a follow-up, Andy, in your prepared remarks you talked about deepening your customer base, which my impression would be your customers using more products. Could you just share some data points or where you're seeing this among your customers?

Andrew Harmening: Yeah. We're seeing it in a few different ways. And I mean, there's nothing fancy to this, which is exciting. The value of a new customer is significantly above and what it was in the past. So we're acquiring more, we're growing more and the quality of the customer is good on the consumer side. On the commercial side, as we see this we see the acceleration in loan production, we're seeing the exact same thing on the deposit side where our deposit production is improving as well. That is a form of deepening. When we see the fee income and the capital markets numbers, this is exciting for us.

Now we've seen it a couple quarters in a row and we're getting more confidence that our fee income is tracking to the relationship approach. So between fee income, the deposit side on the acquisition on commercial, the quality of the consumer account that is coming in from a deposit standpoint, and then the deepening on the mass affluent. And then we believe that the upstreaming that we've just launched a new product set for private wealth that has the early signs and I say early because we launched it in December. But the early signs are that our customers are appreciating kind of the more you bring, more you get and they're bringing more.

So we believe that will continue and when you bring more deposits, then we've seen an uptick in the dollars of investment dollars that we're adding. Year over year. So deepening in darn near every way I would I could go on and on, I won't bore you, but then when you get in a commercial customer, we have one of the top HSA groups in the country, top 15, we have a very high percentage of the time they're doing business with us on HSA which then adds a lot of consumers and guess what when those HSA consumers get to us, start to bank with us.

So the cross referral and collaboration is what we've built ourselves for and that's working. So it's not always just deepening commercial within commercial. Sometimes it is commercial into private wealth, sometimes it's commercial to HSA, sometimes it is from the consumer back over to commercial. So that's what I would say, Terry. I know it's a long answer, but it's an exciting sustainable piece for us right now.

Terry McEvoy: Thanks. That's great color and thanks for taking my questions.

Andrew Harmening: Thank you.

Operator: Our next question comes from Chris McGratty with KBW. You may proceed with your question.

Andrew Leishner: Hey, how's it going? This is Andrew Leishner on for Chris McGratty. Alrighty. Just on capital, you're towards the higher end of your CET1 range at 10.5 and you're starting to create capital back at a faster clip as your return profile continues to improve. Can you provide your thoughts on the potential consideration of buybacks or should we should we continue to expect capital be reserved for growth? Thanks.

Andrew Harmening: Yes, that's a great question. The number one goal for us is to invest in our business and find a way to drive our profitability profile. We've been able to continue to do that. As we continue to grow that capital base, what it does is it gives us options. And so today, what I would say is, and I hope you hear it very, very clearly from us, our number one priority is organic growth. We're in the middle of a deal and our main priority of that is execution and with that then organic growth. So if we execute on those two things, it should open the door on profitability.

It should open the door on ROTCE expansion, margin expansion, capital accretion. And really what a great position that puts us in to make decisions at that point. On what to do with the money, the dollars and the capital. But today, I want to be very clear. Our goal is organic growth.

Andrew Leishner: Okay, great. Thank you. And then just on credit, metrics were all really strong this quarter, low charge-offs, NPLs and criticized both lower. But can you provide any potential color on any portfolio verticals or geographies that are more stressed or causing more concern right now? Thanks.

Patrick Ahern: Yes. Thankfully right now we don't have anything that kind of sticks out. We're continuing to watch what's going on in the economy. We're kind of working through the real estate stuff that started in the pandemic and there really hasn't been any new issues there. So it's just kind of watching everything across the board as it sits right now.

Andrew Harmening: In fact, the paydowns in CRE we saw as a good sign. It took projects that have been completed and went to the permanent market. So to us, that actually was more of a sign of a health than a concern. Had those lingered on and not been refinanced, that would have been a growing concern. But the fact that we saw frankly a few $100 million in paydowns in the quarter in CRE, we saw as a big positive.

Andrew Leishner: Okay. Thank you.

Operator: Thank you. The next question comes from Jon Arfstrom with RBC Capital. You may proceed with your question.

Jon Arfstrom: Hey, thanks. Good afternoon. A couple of questions here on deposits. Don't know if it's Slide 11 or Slide 32, but how do you expect the deposit mix to change over time as the RMs gain some traction and I'm assuming treasury is part of this. Just kind of curious more what you think Slide 32 could look like in a year? And then Derek, you referenced some seasonal flows just how material is that so we can kind of understand what flowed out?

Derek Meyer: So typically the second half of the year you see much more seasonality flowing into all of our non-maturity deposit buckets. And so you saw a lot of growth in those. It's similar to last year, some of it's acquisition, but a lot of that is also just seasonal flows. It helps our margin. And with RMs those happen with C&I focus and relationship focus. Those are the same buckets you on the commercial side where you see growth in the long run? So obviously that's not the CD bucket which we have a which has grown over the last few years is mostly comes from the consumer side.

So that's how I think about things going forward is more in the non-maturity bucket. And that's also where we see some of the seasonality. I'm not sure if that answers it, that should give you a sense of it. John, I would say generally speaking I don't have a specific forecasted number because we haven't forecasted this publicly. But part of the strategy was that we were leaking house and customers by 1% to 2% a year for an extremely long period of time. We did that again the first year I got here then we moved towards zero. Then we moved towards 1% growth, then we moved to 1.4% growth.

What you're doing is acquiring non-interest bearing and interest-bearing demand accounts. And so we celebrate being at 1.5% roughly 1.4% last year. But if you net that out over the four or five years, it's pretty close to 0% growth. So now we're evolving that trend. We've switched that trend around. And so we're getting we're focusing on getting to 2% and that will have that will all over time have meaningful growth in what our deposit mix is in a positive way. We're doing the same thing on commercial by focusing on RMs and focusing on full relationships. So I'd expect demand deposit accounts on the commercial side to improve as well.

And the deposit vertical that we're launching next quarter on title is going to be one that has a pretty positive margin view on it as well. And think that will get started in 100 to $200 million in growth this year and then continue on from there. So our expectation is that by going to market the way we are by growing households both on the consumer small business and commercial side, we'll start to see a shift towards demand deposit accounts, which over time will be a good thing. For the company.

Jon Arfstrom: Okay. Good. That's very helpful. That's what I was getting. The other one I wanted to ask about, which is kind of random, but on Slide six, you show your Chicago growth in deposits and C&I. And you don't talk about that very much. I'm just curious. It's a real success story, but I'm curious on your outlook and opportunity in Chicago and maybe if you're willing to size Chicago for us, I think that would be helpful as well. Thank you.

Andrew Harmening: Size it in terms of what the size of the portfolio is in Chicago?

Jon Arfstrom: Yep. Yep.

Andrew Harmening: Yeah. We haven't gotten into disclosing at that level. We'll think about what is the most helpful way to disclose that in the past in the future. But John, really for us, what we wanted to show here very clearly, because we've heard the question is why is this sustainable? And can you grow in major metropolitan markets. And so, the message is clearly that we can and we are and these are legacy markets and we're doubling down and getting into that are even faster growth and we have talent either in those markets already or adding that. Today, I don't have a breakout for the size of that. We'll talk about getting into more detail.

But I think for the purposes of this page, the message was that this is a sustainable model. In fact, we're entering the year in a substantially different situation than we were in 2025. So if you look at what's really happening is we have sustained growth in Chicago and Milwaukee. However, we didn't going into 2025, we didn't exist in Kansas City. Now we've already shown that we can have significant growth there. You can see that in the $1.2 billion in growth that we've had in C&I. We would not have that if we hadn't added on in that market.

And so the messages of one of sustainability to sustain growth in those spaces, but we haven't really broken out specific dollar amounts for those markets.

Jon Arfstrom: Yeah. I'm just curious because that was it's a legacy market for you and that's a big growth number. So but I appreciate what you're saying. So thank you.

Andrew Harmening: Yes. And John, by the way, just so you're not scared of that growth market because we've all heard the comment of it's growing like a weed or if it looks like it's growing like a weed, it probably is. We just add a bunch of people. And we got really good people. And so for us, the good news on this front and Phil Trier and John Utes have really put a lot of energy into the recruiting path. And it turns out when you hire good folks and they know each other and they bring a friend.

And so we've been able to recruit in these markets quite effectively and that's really one of the reasons behind the growth is the increase in quality RMs. In Chicago, in Milwaukee, Twin Cities, Kansas City, soon to be Dallas. So what I think you could take away from that is we've picked the right people and it's leading to growth.

Jon Arfstrom: Alright. Thank you very much.

Operator: Thank you. At this time, there are no further questions. This now concludes our question and answer session. I would like to turn the floor back over to Andy Harmening for closing comments.

Andrew Harmening: Yes. First, I'd just like to thank everyone that joined today. We're really pleased on how we're exiting 2025 and we're even more excited about what's in store for us for 2026. We look forward to sharing that whether that be on the quarterly call or one-on-ones. Thank you. Have a great night.

Operator: Ladies and gentlemen, thank you for your participation. This concludes today's conference. Please disconnect your lines and have a wonderful day.

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