Executive Summary / Key Takeaways

• Associated Banc-Corp (ASB) has undergone a significant strategic transformation, successfully remixing its balance sheet by reducing lower-yielding residential mortgages and growing higher-yielding commercial and industrial (C&I) loans, leading to record net interest income and margin expansion.
• The company's "Phase 2" strategic plan, completed in Q1 2025, focused on expanding its commercial banking team and enhancing its consumer value proposition through digital investments and new product launches, driving strong organic customer and deposit growth.
• Financial performance for the nine months ended September 30, 2025, demonstrates robust growth in net interest income (up 15%) and noninterest income (up 5%), alongside disciplined expense management, resulting in an efficiency ratio below 55% in Q3 2025.
• ASB maintains a strong capital position with a CET1 ratio of 10.33% and a TCE ratio of 8.18% as of Q3 2025, supporting continued organic growth while managing asset sensitivity to interest rate changes.
• Despite macroeconomic uncertainties and competitive pressures from larger banks and fintechs, ASB's customer-centric approach, high-quality loan portfolio, and strategic initiatives position it for continued market share gains and improved return on average tangible common equity (ROATCE).

A Midwest Mainstay's Strategic Evolution

Associated Banc-Corp, a venerable bank holding company founded in Green Bay, Wisconsin, in 1861, has embarked on a profound strategic transformation to redefine its market position within the competitive Midwest banking landscape. Operating across Wisconsin, Illinois, Missouri, and Minnesota, with loan production offices extending into Indiana, Kansas, Michigan, New York, Ohio, and Texas, ASB offers a comprehensive suite of banking and nonbanking products to individuals and businesses. The regional banking sector, characterized by increasing competition from national players and agile digital-only challengers, is also experiencing a surge in consolidation, with 71 regional bank mergers and acquisitions announced by June 2025, up from 59 in the same period in 2024. This dynamic environment necessitates strategic adaptability and a clear competitive edge.

ASB's overarching strategy, particularly since 2020-2021, has centered on a deliberate balance sheet remixing and organic growth. Historically, the company held a high concentration of residential mortgage loans, reaching up to 36% of its total loan portfolio. The strategic shift involved moving away from Third-Party Origination (TPO) lending to an originate-to-sell model and executing a significant balance sheet repositioning. This foundational strategy aimed to reduce reliance on lower-yielding, non-customer residential mortgage loans, thereby diversifying into higher-return categories and enhancing overall profitability.

Strategic Transformation and Technological Edge

Associated Banc-Corp's "Phase 2" strategic plan, largely completed by the first quarter of 2025, has been instrumental in reshaping its operational and financial profile. A core component of this plan involved a significant expansion of the commercial banking team. The company completed 21 of 26 planned Relationship Manager (RM) hires, with the full hiring process expected to conclude by the end of Q1 2025. This expansion included a strategic entry into the Kansas City market through the lift-out of three talented RMs. Management anticipates that the balance sheet impact of these new hires will accelerate throughout 2025 as RMs build their pipelines and non-compete agreements expire. This initiative is designed to enable ASB to capture market share in key metropolitan areas like Milwaukee, Chicago, Minneapolis, St. Louis, and Kansas City, where it has historically been underpenetrated, while maintaining its strong presence in Green Bay.

Concurrently, ASB has invested in enhancing its consumer value proposition, which management describes as "best-in-class." This includes the launch of a "family banking" product and planned product upgrades in late Q4 2025 and into 2026. These digital investments and product enhancements are critical technological differentiators for a regional bank like ASB. They aim to provide an "engine to attract deep and retain checking households" by offering superior customer experience and operational efficiency. The company's Net Promoter Score reached a record high of 55 in Q1 2025, reflecting improved customer satisfaction and retention. Furthermore, ASB has refined its focus on commercial deposits through a balanced scorecard approach for RMs, the launch of a new specialty deposit and payment solutions vertical, and the hiring of a Director of Treasury Management. These efforts, coupled with a robust HSA business experiencing double-digit customer growth, are designed to attract low-cost core deposits, which are crucial for funding loan growth and reducing reliance on wholesale funding.

The balance sheet repositioning, announced in Q4 2024 and finalized in Q1 2025, involved the sale of approximately $700 million in low-yielding mortgage loans and $1.3 billion in Available-for-Sale (AFS) securities, along with the prepayment of FHLB advances. This strategic move reduced the residential loan concentration from 29% in Q3 2023 to 23% in Q1 2025, providing capacity for growth in more profitable lending categories. The company's investment in digital capabilities and IT staff augmentation, while not "core technology" in a manufacturing sense, are foundational to streamlining operations, personalizing customer offerings, and enabling the efficient scaling of new business verticals like HOA and title services. These investments are expected to drive sustained growth and profitability by improving efficiency and customer-centricity.

Competitive Landscape and Market Positioning

Associated Banc-Corp operates in a highly competitive environment, vying for market share against larger national banks and other regional players, as well as an increasing number of fintech companies. Direct competitors include US Bancorp (USB), Fifth Third Bancorp (FITB), Huntington Bancshares (HBAN), and Comerica (CMA).

US Bancorp, a leading super-regional bank, boasts advanced digital capabilities and a broader national footprint, often demonstrating consistently strong profitability and cash flow generation. ASB-PE, with its regional focus, emphasizes personalized service and community ties, which can foster greater customer loyalty in its core markets. However, USB's scale allows for faster innovation and broader market reach, potentially giving it an edge in technological integration and operational efficiency.

Fifth Third Bancorp, another significant regional player in the Midwest, has a balanced mix of retail and commercial services and is known for its reliable profitability. FITB's trends suggest a notably faster adoption of digital tools, which could lead to lower operating costs compared to ASB-PE. ASB's strategy of focusing on regional loyalty and specialized lending solutions may help it retain customers, but FITB's broader geographic presence could offer advantages in market share capture.

Huntington Bancshares, with a substantial Midwest presence, focuses on digital banking and community lending. HBAN has demonstrated robust financial performance, with its loan portfolio growing approximately 9% since March 2023, outpacing its Mid-Cap Bank peers. ASB-PE's long-standing community ties and expertise in niche commercial segments, such as asset-based lending, provide a unique value proposition. However, HBAN's more aggressive expansion and integrated digital offerings could lead to greater efficiency and growth rates.

Comerica, a commercial bank with operations in the Midwest, emphasizes business banking and risk management. Comerica's net interest income after provision for credit losses increased from $520 million in Q3 2024 to $552 million in Q3 2025, indicating effective management of assets and liabilities. ASB-PE's localized approach in community banking could translate to stronger customer relationships, but CMA may offer more comprehensive commercial real estate financing services.

Indirect competitors, including fintech companies and online banks like Ally Financial (ALLY), pose a threat by offering digital-first solutions that are often easier to implement and potentially cheaper. The Midwest Fintech Coalition highlights a thriving tech landscape in the region, with startups collaborating with credit unions and community banks. ASB's investments in its consumer value proposition and digital strategy are direct responses to these competitive forces, aiming to attract tech-savvy customers and enhance efficiency. While precise market share figures for all niche competitors are not publicly detailed, ASB's strategic focus on organic growth and customer deepening suggests a proactive stance against these challenges.

Robust Financial Performance and Operational Discipline

Associated Banc-Corp's strategic initiatives have translated into strong financial performance, particularly in the nine months ended September 30, 2025. Net interest income (NII) surged to $891.16 million, an increase of $114.20 million or 15% from the same period in 2024. This growth was primarily driven by increases in higher yielding loan balances in commercial and industrial and auto finance and the balance sheet repositioning announced in the fourth quarter of 2024. The net interest margin (NIM) expanded to 3.02% for the nine months ended September 30, 2025, up from 2.77% in the prior year. In Q3 2025, NII reached a new company record of $305 million, with NIM holding firm at 3.04%. This expansion was supported by the Federal Reserve's rate cuts in late 2024, which allowed for the repricing of deposits downward, offsetting a contraction in earning asset yields.

Noninterest income for the first nine months of 2025 increased by $9.70 million, or 5%, to $207.02 million. This was primarily driven by an increase in capital markets revenue from an elevated level of activity in its syndications and swaps businesses, wealth fees, and an increase in asset gains for a deferred compensation valuation adjustment. Q3 2025 noninterest income of $81 million was up 21% from the prior quarter, bolstered by capital markets revenue, wealth fees, and a one-time $4 million asset gain from deferred compensation plans. This growth was partially offset by a $7 million loss recognized in Q1 2025 related to the settlement of the mortgage loan sale.

Operating expenses reflect a disciplined approach to managing growth. Total noninterest expense for the first nine months of 2025 increased by $42.10 million, or 7%, to $636.17 million. This was primarily driven by increases in personnel expense reflective of higher variable compensation... and increased healthcare costs, legal and professional expenses due to increased consultant and IT staff augmentation expenditures and other noninterest expense primarily due to OREO write downs in 2025. Despite these investments, the efficiency ratio decreased for the third consecutive quarter, falling below 55% in Q3 2025. The effective tax rate for the nine months ended September 30, 2025, was 18.64%, significantly higher than 8.79% in the prior year, primarily due to a strategic reallocation of the investment portfolio and the adoption of a legal entity rationalization plan that resulted in the recognition of deferred benefits in 2024 and increased net income in 2025.

Liquidity and capital remain robust. At September 30, 2025, total assets stood at $44.46 billion, up 3% from December 31, 2024. The Corporation had $5.90 billion available from FHLB lines of credit and $5.70 billion available from the Federal Reserve Bank discount window for future funding. The CET1 capital ratio was 10.33% at September 30, 2025, a 61 basis point increase from Q3 2024, and the TCE ratio was 8.18%, up 68 basis points over the same period. The securities plus cash to total assets ratio was 23.4% in Q3 2025, within the target range of 22% to 24%.

Asset Quality and Risk Management

Associated Banc-Corp maintains a conservative credit culture, with a proactive approach to risk management. The allowance for credit losses on loans (ACLL) totaled $414.62 million at September 30, 2025, representing 1.34% of total loans. The ACLL determination is heavily influenced by economic forecasts, with the company utilizing Moody's baseline scenario from August 2025, projecting a resilient economy with slower but positive GDP growth and a cooling labor market.

Credit quality trends remain solid. Total nonaccrual loans decreased to $106.18 million at September 30, 2025, down 14% from December 31, 2024, and 17% from Q3 2024, primarily driven by decreases in commercial real estate (CRE) investor and commercial and business lending. Net charge-offs for the nine months ended September 30, 2025, decreased by $21.60 million compared to the prior year, primarily due to a decrease in commercial and industrial lending. While total criticized loans ticked higher in Q3 2025, management does not believe this indicates "a material shift in the credit profile of the portfolio nor has there been a corresponding risk of loss."

The consumer portfolio is particularly strong, with "94% of its $10.8 billion consumer portfolio is prime or better." Mortgage balances, the largest consumer category, have a weighted average FICO of 787, and auto loans boast 99% prime or super-prime FICOs, with a March origination FICO of 796. Exposure to Non-Bank Financial Institutions (NBFIs) is minimal, "largely comprised of REITs, mortgage warehouse lines and insurance company lending," which have historically performed well. The office CRE portfolio is "in a better spot than it was a couple of years ago," with clients proactively improving assets, and the bank has limited downtown urban exposure.

Interest rate risk is actively managed. The company has positioned itself to be "modestly asset sensitive" to minimize interest rate risk, maintaining repricing flexibility with short funding obligations, protecting its variable rate loan portfolio with approximately $2.45 billion in received fixed swap balances, and building a $3 billion fixed-rate auto book with low prepayment risk. A down 100 basis point ramp scenario now represents just a 0.5% impact to NII as of Q3 2025. However, the Market Value of Equity (MVE) measure in a 200 basis point increase in interest rates scenario is "outside of the policy limit, which has been reported to the Board." Macroeconomic uncertainties, including tariffs and trade policy negotiations, are closely monitored, but customers have been planning for these changes, and no material shifts in activity or credit quality have been observed.

Outlook and Growth Trajectory

Associated Banc-Corp's management has provided concrete guidance for 2025, reflecting confidence in its strategic execution and the momentum generated from its Phase 2 investments. The company expects to drive net interest income growth of between 14% and 15% in 2025, assuming two additional Fed rate cuts. This NII growth will be supported by continued balance sheet remixing and deposit repricing opportunities, with approximately $8 billion in CDs scheduled to mature over the next 12 months.

Noninterest income is projected to grow by 5% to 6% in 2025, excluding nonrecurring items from the balance sheet repositioning. This growth is anticipated from elevated activity in capital markets, wealth fees, and new product launches. Total noninterest expense growth is guided to be between 5% and 6% in 2025 off an adjusted 2024 base, with management planning for 2026 expense increases to be less than 25%.

On the asset side, C&I loan growth is targeted at $1.2 billion for 2025, with management "well positioned to meet or exceed" this goal given strong pipelines and expiring non-compete agreements for new RMs. Overall, total bank loan growth is expected to be between 5% and 6% for the year. Core customer deposits are forecast to grow at the lower end of the 4% to 5% range for 2025, driven by organic household growth, a refined focus on commercial deposits, and new product offerings. The CET1 ratio is expected to be managed within a range of 10% to 10.5% for the year. Management believes that continued progress on balance sheet remixing, granular deposit growth, and NIM improvement will position them to reach their mid-teen ROATCE target over the next 12-24 months.

Conclusion

Associated Banc-Corp's journey from a regionally focused bank with a concentrated residential mortgage portfolio to a diversified, growth-oriented institution is a compelling investment narrative. The successful execution of its "Phase 2" strategic plan, marked by aggressive commercial banking expansion, a strategic balance sheet repositioning, and continuous investment in digital capabilities and customer-centric product enhancements, has fundamentally reshaped its profitability profile. Record net interest income and margin expansion, coupled with disciplined expense management and robust capital levels, underscore the effectiveness of this transformation.

While the broader macroeconomic environment presents uncertainties, ASB's conservative credit culture, high-quality loan portfolio, and proactive risk management strategies provide a solid foundation. The company's ability to attract and retain customers through a "best-in-class" value proposition and to gain market share in key metropolitan areas against larger and more technologically advanced competitors highlights its strategic agility. The outlook for continued loan and deposit growth, along with sustained NII expansion, positions Associated Banc-Corp for enhanced shareholder value. Investors should monitor the ongoing impact of its strategic remixing, the effectiveness of its new commercial initiatives, and its ability to further leverage technology to deepen customer relationships and drive operational efficiency, all of which are critical to realizing its long-term return targets.