Executive Summary / Key Takeaways

• Associated Banc-Corp has successfully completed Phase 2 of its strategic plan, focusing on accelerating organic growth and enhancing profitability through targeted investments in commercial banking, consumer offerings, and digital capabilities.
• The company has achieved significant operational milestones, including reversing a decade-long trend of negative household growth, reaching record-high customer satisfaction scores, and substantially expanding its commercial relationship manager team.
• A strategic balance sheet repositioning, including the sale of low-yielding mortgage loans and securities, is expected to drive significant net interest margin expansion and enhance the profitability profile in 2025.
• Management provides concrete 2025 guidance, projecting strong growth in C&I loans (+$1.2B), total loans (5-6%), core customer deposits (4-5%), and net interest income (12-13%), while maintaining expense growth discipline (3-4%) and targeting a CET1 ratio of 10-10.5%.
• Despite macroeconomic uncertainties and competitive pressures, the company's strengthened capital and liquidity positions, coupled with a disciplined, proactive approach to credit risk management, position it to execute its growth strategy effectively.

Setting the Stage: A Midwestern Bank's Strategic Pivot

Associated Banc-Corp, a regional banking institution with a history stretching back over 160 years in the Midwest, is currently undergoing a significant strategic transformation. Rooted in Green Bay, Wisconsin, the company has long served its communities with a focus on traditional banking services. However, recognizing the evolving financial landscape and the need to enhance its return profile, Associated embarked on a multi-year strategic plan, beginning with Phase 1 in September 2021.

Phase 1 laid the groundwork by diversifying the asset base through the addition of new loan verticals like asset-based lending, equipment finance, and prime/super prime auto loans. It also initiated an expansion of the commercial team, upgraded product offerings, and invested in digital capabilities. A notable success from this phase was the launch of the Mass Affluent program in December 2022, which has since attracted over $1 billion in net new deposits.

Building on this foundation, Phase 2, launched in November, aimed to accelerate organic growth and monetize these investments. A central pillar of Phase 2 has been an aggressive expansion of the commercial relationship manager team, targeting 26 net new hires by early 2025, representing a significant increase designed to capture market share in key metropolitan areas like Milwaukee, Chicago, Minneapolis, St. Louis, and the newly entered Kansas City market. This expansion is complemented by continued enhancements to the consumer value proposition, including adding family banking and digital tools like credit monitoring, and the launch of a specialty deposit and payment solutions vertical.

The banking industry is intensely competitive, with Associated Banc-Corp facing off against larger regional and national players like U.S. Bancorp (USB) ($670B+ assets), PNC Financial Services Group (PNC) ($560B+ assets), Regions Financial Corporation (RF) ($150B+ assets), and Fifth Third Bancorp (FITB) ($210B+ assets), as well as disruptive fintech firms. While larger rivals benefit from scale, often translating to lower operating costs and faster digital processing speeds, Associated Banc-Corp leverages its deep community ties and regional brand strength, particularly in its core Midwest markets. Its strategic focus on building full banking relationships, rather than just transactional accounts, is a key differentiator aimed at fostering stronger customer loyalty and attracting higher-quality deposits. However, the company acknowledges a need to continue investing in technology to match the efficiency and innovation speed of larger competitors and mitigate the threat from fintechs offering streamlined services.

Associated's technological differentiation lies primarily in its modernized digital banking platform and targeted product enhancements. While not possessing proprietary core processing technology like some larger institutions, its investments in digital transformation have yielded tangible benefits. The platform supports customer-favorite features like Grace Zone, early pay, and credit monitoring, contributing to record-high customer satisfaction scores and a 4.5-year high in digital satisfaction. The Mass Affluent program's success, attracting over $1 billion in deposits, is partly attributable to enhanced digital tools and specialized banker training. The newly launched specialty deposit vertical also relies on technology to serve niche industries efficiently. These digital capabilities and targeted product suites contribute to attracting higher-quality accounts, with new checking customers bringing in 26% higher deposit balances year-to-date compared to 2023. The "so what" for investors is that these technological and product investments are directly contributing to reversing negative household trends, driving sustainable deposit growth, and enhancing the company's ability to compete effectively for relationship-based business, ultimately supporting future revenue and profitability goals.

Strategic Execution Translates to Tangible Performance

The completion of Phase 2 investments marks a pivotal point, shifting the focus towards monetizing the momentum generated. This strategic execution is already evident in recent financial and operational performance.

Operationally, the company has successfully reversed a decade-long trend of declining household numbers, achieving net positive growth in consumer checking households in both Q1 and Q2 of 2024, with Q2 seeing the highest growth rate in over a decade. This household growth, coupled with a significant increase in deposit balances per new checking customer, underscores the effectiveness of the enhanced consumer value proposition and relationship deepening initiatives. Customer satisfaction metrics, including Net Promoter Score and mobile banking satisfaction, have reached record highs, indicating improved customer experience and retention potential. On the commercial side, the aggressive hiring plan is nearing completion, with 21 of 26 target RMs added by Q4 2024 and the full team expected by early Q1 2025. Management reports that pipelines are building, and the impact of these new hires is expected to accelerate throughout 2025.

Financially, the first quarter of 2025 results reflect the early benefits of strategic actions. Net income available to common equity was $98.8 million, or $0.59 per diluted share, a significant improvement from the net loss of $164.5 million, or $1.03 per diluted share, in Q4 2024, which was heavily impacted by non-recurring items related to the balance sheet repositioning. Compared to Q1 2024, net income available to common equity increased by 26% from $78.3 million, or $0.52 per diluted share.

Net interest income in Q1 2025 was $285.9 million, up 11% from $257.9 million in Q1 2024 and up 6% from $270.3 million in Q4 2024. The net interest margin expanded to 2.97% in Q1 2025, a 16 basis point increase from 2.81% in Q4 2024 and an 18 basis point increase from 2.79% in Q1 2024. This expansion was primarily driven by the balance sheet repositioning, which involved selling approximately $700 million in low-yielding mortgage loans and $1.3 billion in AFS securities in late 2024, with the mortgage sale settling in January 2025. Management estimates that the full quarterly benefit of this repositioning would have added approximately 3 more basis points to the Q1 2025 NIM had the mortgage sale settled earlier.

Noninterest income in Q1 2025 was $58.8 million, down 10% from $65.0 million in Q1 2024, primarily due to a $7.0 million loss recognized on the settlement of the mortgage loan sale. Excluding this non-recurring item, core noninterest income trends were largely consistent year-over-year. Noninterest expense in Q1 2025 totaled $210.6 million, an increase of 7% from $197.7 million in Q1 2024. This increase was mainly driven by higher personnel expense ($123.9 million vs $119.4 million), reflecting annual merit increases, and a $4.0 million OREO write-down included in other noninterest expense. This was partially offset by a decrease in FDIC assessment expense ($10.4 million vs $13.9 million), as Q1 2024 included a nonrecurring special assessment.

The balance sheet reflects these strategic shifts. Total assets stood at $43.3 billion at March 31, 2025, up 1% from year-end 2024 and 5% from March 31, 2024. Loans totaled $30.3 billion, up 2% from year-end 2024 and 3% from March 31, 2024. This growth was led by commercial loans, particularly C&I, while the residential mortgage portfolio saw reductions due to the strategic sale, decreasing its concentration from 29% in Q3 2023 to 23% in Q1 2025. Total deposits increased to $35.2 billion, up 2% from year-end 2024 and 4% from March 31, 2024, with core customer deposits contributing significantly to this growth. Wholesale funding sources like short-term funding decreased significantly, while FHLB advances saw an increase.

Capital ratios have strengthened. The CET1 ratio reached 10.11% at March 31, 2025, up 10 basis points sequentially and 68 basis points year-over-year. The TCE ratio also improved to 7.96%. Management attributes this accretion to enhanced profitability and strategic capital actions, including a $331 million common stock offering in Q4 2024. The company's liquidity position remains robust, with substantial available capacity from the Federal Reserve Bank ($3.3 billion) and FHLB ($6.4 billion), providing ample resources even under stressed scenarios.

Credit Quality and Risk Management: A Foundation of Discipline

Associated Banc-Corp maintains a disciplined and proactive approach to credit risk management, which serves as a critical foundation for its growth strategy. The company's loan portfolio is diversified across commercial and consumer segments, with a significant portion of commercial loans being floating or adjustable rate (68% of total loans, 90% of commercial loans outstanding at March 31, 2025, are floating/adjustable, re-pricing within one year, or maturing within one year). Underwriting standards are rigorous, including specific LTV limits for CRE and construction loans (max 80%, raw land 50%), and FICO/LTV guidelines for residential mortgages and home equity. The indirect auto portfolio is focused on prime and super prime borrowers (average FICO over 790 for recent originations).

Asset quality metrics reflect this discipline and the stability of the company's Midwestern markets. While criticized and classified loans saw slight increases in recent quarters, management views this primarily as a result of conforming to industry guidance and a proactive approach to risk rating, rather than a significant shift in credit stress or increased risk of loss. Ongoing portfolio deep dives do not indicate a systemic shift. Nonaccrual loans increased slightly to $134.8 million in Q1 2025 after three consecutive quarterly decreases, but this level is considered reflective of the normal course of business and was down 24% from Q1 2024. Net charge-offs have trended downwards, with Q1 2025 seeing $8.7 million in net charge-offs, down from $22.1 million in Q1 2024. The annualized net charge-off rate was 0.12% in Q1 2025.

The Allowance for Credit Losses on Loans (ACLL) stood at $406.6 million at March 31, 2025, representing 1.34% of total loans. This level is based on management's estimate of expected lifetime credit losses, incorporating economic forecasts (Moody's baseline scenario) and qualitative factors. The ACLL to nonaccrual loans ratio was 301.6% at March 31, 2025. Management believes the current level of ACLL is appropriate.

Beyond credit risk, the company actively manages market and interest rate risk, aiming for a modestly asset-sensitive position. Strategies include utilizing interest rate swaps and managing funding durations. As of March 31, 2025, a gradual 100 basis point increase in interest rates is estimated to impact NII by 1.4% over 12 months, while a decrease would impact it by 0.6%. While the Market Value of Equity (MVE) sensitivity shows a decrease in value with instantaneous upward rate changes, management notes this does not directly correlate to shorter-term earnings impacts and does not include all potential management actions. The MVE measure in the 200 bp increase scenario was outside the policy limit, which has been reported to the Board. Other risks include legal proceedings, regulatory scrutiny (particularly on consumer products), and mortgage repurchase risk, which are actively monitored and reserved for where probable and estimable.

Outlook and Investment Thesis

Associated Banc-Corp's investment thesis is centered on its ability to leverage the momentum from its completed strategic plan (Phase 2) to drive sustainable organic growth, enhance profitability, and deliver increased shareholder value. Management's outlook for 2025 provides concrete targets that underpin this thesis:

• Loan Growth: Expect total bank loan growth of 5% to 6%, driven by a targeted $1.2 billion increase in C&I loans as the expanded commercial team accelerates production and captures market share.
• Deposit Growth: Expect core customer deposits to grow by 4% to 5%, fueled by continued household growth, enhanced customer satisfaction, and strategic deposit-gathering initiatives.
• Net Interest Income: Expect NII growth of between 12% and 13%, primarily benefiting from the full impact of the balance sheet repositioning and organic balance sheet growth. This forecast assumes four Fed rate cuts in 2025.
• Noninterest Income: Expect non-interest income growth of 0% to 1% (excluding non-recurring items), reflecting the durability of fee-based businesses like wealth management.
• Noninterest Expense: Expect total non-interest expense growth of 3% to 4% (off an adjusted 2024 base), balancing strategic investments with expense discipline.
• Capital: Expect to manage the CET1 ratio within a range of 10% to 10.5%, supporting growth while maintaining a strong capital position.

The strategic balance sheet remix, particularly the reduction in residential mortgage concentration and the focus on higher-returning commercial and auto loans, is expected to improve the overall asset yield and profitability mix. The ability to fund loan growth with lower-cost core customer deposits, rather than relying heavily on wholesale funding, is crucial for margin expansion and stability in a changing rate environment.

The company's competitive strategy focuses on leveraging its regional strengths and relationship-based model while selectively investing in digital capabilities and talent to compete effectively in key markets. The completion of Phase 2 investments positions Associated to capitalize on these efforts.

Conclusion

Associated Banc-Corp stands at a pivotal point, having completed the investment phase of its strategic plan and now poised to monetize the resulting momentum. The company's ability to reverse negative household trends, achieve record customer satisfaction, and build a robust commercial lending engine demonstrates tangible progress against its strategic objectives. The balance sheet repositioning provides a clear catalyst for near-term profitability enhancement, while the disciplined approach to credit and strengthened capital position offer resilience against potential macroeconomic headwinds.

The investment thesis hinges on the successful execution of the 2025 guidance, particularly the targeted growth in C&I loans and core customer deposits, and the realization of expected NII expansion. While competitive pressures and economic uncertainty remain factors to monitor, Associated Banc-Corp's strategic foundation, operational momentum, and clear forward-looking targets present a compelling narrative for investors seeking exposure to a regional bank focused on relationship-driven growth and enhanced profitability.