Executive Summary / Key Takeaways

• Strategic Transformation at Inflection: Associated Banc-Corp's multi-year pivot from mortgage concentration to diversified commercial banking is delivering measurable results, with net interest margin expanding 26 basis points year-over-year to 3.04% and return on tangible common equity exceeding 14% in Q3 2025, up 250 basis points from the prior year.

• Commercial Banking Engine Accelerating: The company is on track to meet or exceed its $1.2 billion C&I loan growth target for 2025, having already added nearly $1 billion year-to-date through strategic hiring of relationship managers in underpenetrated metro markets, with pipelines remaining robust as non-compete agreements expire.

• Deposit Franchise Strength: Core customer deposits grew 4% year-over-year ($1.2 billion), driven by the strongest organic checking household growth in a decade, providing low-cost funding that supports net interest income expansion of 14-15% despite an expected two Fed rate cuts.

• Acquisition Catalyst: The pending $604 million all-stock acquisition of American National Corporation ($5 billion in assets) will establish a foothold in the attractive Omaha market while deepening Twin Cities presence, creating the #2 bank in Omaha and #10 in Minneapolis/St. Paul by deposit share upon expected Q2 2026 closing.

• Valuation Discount with Yield: Trading at 0.90x book value with a 3.7% dividend yield, ASB trades at a meaningful discount to regional peers (1.07x to 1.40x book) despite demonstrating clear progress on its strategic transformation and maintaining strong capital ratios (CET1 at 10.33%).

Setting the Scene: From Mortgage Concentration to Relationship Banking Powerhouse

Associated Banc-Corp, founded in 1861 and headquartered in Green Bay, Wisconsin, spent much of its modern history carrying a structural vulnerability: residential mortgage loans comprised 36% of its total loan portfolio prior to 2021. This concentration created earnings volatility and trapped capital in low-yielding assets, limiting returns in an era when relationship banking and commercial lending commanded premium valuations. The company's strategic transformation, launched in late 2023 as Phase 2 of its multi-year plan, represents a deliberate break from this legacy.

The transformation's architecture is straightforward yet ambitious: diversify the asset base, enhance profitability, and rebuild the franchise around high-quality commercial relationships and granular consumer deposits. By the end of 2024, management had executed a dramatic balance sheet repositioning—selling approximately $700 million in low-yielding mortgage loans and $1.3 billion in available-for-sale securities—to free capital for reinvestment in higher-yielding C&I loans and specialty finance. This wasn't merely a portfolio shuffle; it was a statement of strategic intent, reducing residential loan concentration from 36% to 24% of total loans in a single year.

The momentum continued into 2025. All major Phase 2 investments were completed in the first quarter, including the expansion of the commercial banking team with three relationship managers lifted out in the Kansas City market and the addition of family banking to the consumer product suite. The residential mortgage sale finalized in January 2025, further reducing concentration to 23% of total loans. These actions position ASB as a fundamentally different institution than it was two years ago—less exposed to interest rate cycles, more focused on relationship-driven revenue, and better equipped to compete for market share in the Midwest's most attractive metro markets.

Technology, Products, and Strategic Differentiation: The Relationship Manager Moat

Associated Banc-Corp's competitive strategy hinges on a simple but powerful premise: in an era of digital commoditization, talented bankers still matter. The company's focus on hiring "A players"—relationship managers who "could get a job anywhere in the country at any bank"—represents a deliberate attempt to build a moat that fintechs and national banks cannot easily replicate. This approach is particularly evident in the Corporate and Commercial Specialty segment, where ASB has targeted underpenetrated metro markets including Milwaukee, Chicago, Minneapolis, St. Louis, and Kansas City.

Why does this matter? Because these markets offer higher growth potential and more sophisticated commercial clients than ASB's traditional Green Bay home market, yet remain small enough that national players like U.S. Bancorp (USB) and Huntington Bancshares (HBAN) cannot provide the same level of local attention. ASB's relationship managers bring established books of business and deep community ties, allowing the bank to win market share without competing solely on price. Management explicitly notes the company has "not experienced pricing pressure on the deals that we've been putting on the books," a clear signal that differentiation through service quality and relationship depth is working.

The consumer franchise reinforces this moat. The Community, Consumer, and Business segment is on pace for its strongest year of organic checking household growth in a decade, with each 1% increase in households translating to approximately $150 million in additional balances. This granular deposit growth provides two critical advantages: lower funding costs than wholesale alternatives, and a stable base that reduces liquidity risk. The consumer value proposition is being enhanced with product upgrades planned for late Q4 2025 and into 2026, while the Q1 2025 addition of family banking broadens the addressable market.

On the commercial side, ASB has refined its deposit focus through a balanced scorecard approach, hiring relationship-focused RMs, launching a new deposit vertical, and appointing a new Director of Treasury Management. Commercial deposit production is up 23% year-to-date, with the pipeline increasing 46%. This isn't accidental—it's the result of deliberate investments in capabilities that tie commercial clients more tightly to the bank through cash management and treasury services, creating switching costs that pure lenders cannot match.

Financial Performance: Evidence of Strategy Working

The financial results for Q3 2025 provide concrete evidence that Associated Banc-Corp's transformation is more than a narrative. Net interest income hit a record $305 million, up 16% year-over-year, driven by the balance sheet remixing and organic growth in higher-yielding C&I loans. Net interest margin held steady at 3.04% quarter-over-quarter while expanding 26 basis points from Q3 2024—a clear indication that the repositioning is structurally improving profitability. Management estimates the Q4 2024 actions added approximately 17 basis points to NIM on a pro-forma basis, with the full benefit now flowing through earnings.

The efficiency ratio improved for the third consecutive quarter, falling below 55% in Q3 2025. This is particularly noteworthy because it occurred while noninterest expense increased 7% year-to-date, driven by performance-based incentive programs and higher healthcare costs. The bank is growing expenses to support its transformation while simultaneously achieving positive operating leverage—a hallmark of a well-executed strategy. Year-to-date noninterest expense of $636.2 million reflects investments in consultant and IT staff augmentation, yet the efficiency gains demonstrate these are productive expenditures rather than runaway overhead.

Credit quality remains a foundational strength. The consumer portfolio is exceptionally strong, with 94% of the $10.8 billion book comprising prime or better borrowers. Mortgage balances carry a weighted average FICO of 787, while auto loan originations had an average FICO of 796 in March 2025. This conservative underwriting explains why the provision for credit losses fell to $16 million in Q3 2025 from $21 million in the prior year, despite loan growth. Management's commentary emphasizes that "credit discipline remains foundational to our strategy," with growth focused on high-quality commercial relationships and prime consumer borrowers consistent with a "conservative credit culture built over the last 1.5 decades."

Segment dynamics reveal the transformation's progress. The Corporate and Commercial Specialty segment grew average loans 8.1% year-to-date to $17.39 billion, with C&I loans contributing nearly $300 million in Q3 alone. The Community, Consumer, and Business segment increased average deposits 5.3% to $21.32 billion while maintaining asset quality. The Risk Management and Shared Services segment, which absorbed the $14 million loss on FHLB advance prepayment and other repositioning costs in Q4 2024, shows improving trends with the net loss narrowing 36.6% year-to-date.

Outlook and Guidance: Momentum Building into 2026

Management's guidance for the remainder of 2025 and into 2026 reflects confidence that the strategic investments are gaining traction. The company expects to meet or exceed its $1.2 billion C&I loan growth target, driven by strong pipelines and new relationship managers whose non-compete agreements are expiring. Total bank loan growth of 5% to 6% for the year appears achievable despite anticipated elevated CRE payoff activity as rates fall, with new construction lending expected to offset headwinds in 2026.

Core customer deposit growth, initially guided at 4% to 5%, is now expected toward the lower end of that range. While this modest revision might concern some investors, management's rationale is sound: they remain confident in their ability to grow granular, low-cost deposits over time based on the consumer value proposition and commercial deposit initiatives. The 2% household growth forecast for 2025, combined with each 1% increase generating $150 million in balances, provides a clear path to sustained deposit growth even in a competitive environment.

Net interest income growth guidance of 14% to 15% for 2025 is particularly compelling because it assumes two additional Fed rate cuts. This demonstrates that ASB has achieved a "modestly asset sensitive" or "relatively neutral" position where balance sheet remixing and deposit repricing matter more than rate movements. CFO Derek Meyer notes that a down 100 basis point ramp scenario now represents just a 0.5% impact to NII, with the company expecting to maintain this relatively neutral position going forward. This is a significant achievement that reduces earnings volatility and puts control back in management's hands.

Noninterest income growth of 5% to 6% (revised upward from 0% to 1%) reflects strong capital markets activity and wealth management fees, though Q3 included a one-time $4 million asset gain. Noninterest expense growth of 5% to 6% reflects strategic investments, but management has already signaled that 2026 expense increases will be "less than 25%" of the 2025 increase—a clear commitment to expense discipline as the transformation matures.

The American National Corporation acquisition, announced December 1, 2025, represents the next phase of growth. The $604 million all-stock transaction adds $5.3 billion in assets, $3.8 billion in loans, and $4.7 billion in deposits, establishing a foothold in the attractive Omaha market while deepening Twin Cities presence. Pro forma, the combined company will have approximately $50 billion in assets, $40 billion in deposits, and $35 billion in loans. The transaction is expected to deliver 2% EPS accretion by 2027 with modest tangible book value dilution of 1.2% and a crossover earn-back period of 2.25 years. The compelling 24% IRR suggests this is a financially attractive deal that accelerates ASB's growth strategy.

Risks and Asymmetries: What Could Break the Thesis

The primary risk to Associated Banc-Corp's investment thesis is execution. The strategic transformation requires continued success in hiring and integrating relationship managers, growing C&I loans while maintaining credit quality, and successfully integrating American National's operations and culture. If the acquisition fails to deliver projected synergies or disrupts management's focus on the core transformation, the market could reassess the premium being placed on the growth story.

Geographic concentration remains a structural vulnerability. With operations focused in Wisconsin, Illinois, Minnesota, and soon Nebraska, ASB is exposed to regional economic cycles that may not affect more diversified peers like U.S. Bancorp or Huntington Bancshares. A Midwest economic slowdown could pressure loan growth and credit quality simultaneously, testing the bank's conservative underwriting. Management acknowledges they "continue to review our portfolios closely given ongoing uncertainty in the macro picture," but a severe regional downturn would challenge even the strongest credit culture.

Interest rate risk, while mitigated, has not been eliminated. The Market Value of Equity measure in a 200 basis point increase scenario is "outside of the policy limit," which has been reported to the Board. This suggests that in a rapid rate rise environment, the bank could face meaningful pressure on its capital position. While management has engineered a more neutral rate position, the balance sheet remains asset-sensitive enough that a sharp move in rates could impact near-term profitability.

Competition from scaled players presents a persistent threat. While ASB has avoided pricing pressure to date, larger regional banks like U.S. Bancorp (with its 2,000+ branch network) and Huntington Bancshares (with its advanced digital capabilities) can outspend ASB on technology and marketing. If these competitors decide to aggressively target ASB's metro markets, the bank could face a choice between margin compression and market share loss. The consumer value proposition, while described as "best-in-class," must continuously evolve to compete with fintechs offering lower fees and easier digital access.

Credit risk, though well-managed, always lurks. The Allowance for Credit Losses on Loans is "particularly susceptible to significant change" due to management's estimates and assumptions. While the current portfolio is pristine, a deterioration in commercial real estate—particularly office exposure—could require meaningful provision increases. Management notes they "don't get involved in a lot of big bank SNC deals in the office class" and have minimal downtown urban exposure, but CRE cycles can be unforgiving.

Valuation Context: Discounted Transformation Story

At $25.84 per share, Associated Banc-Corp trades at 0.90x book value, a meaningful discount to its regional banking peers. Huntington Bancshares trades at 1.27x book, U.S. Bancorp at 1.40x, Wintrust Financial (WTFC) at 1.38x, and Old National Bancorp (ONB) at 1.07x. This valuation gap suggests the market has not fully recognized the progress of ASB's transformation or is applying a discount for its smaller scale and geographic concentration.

The price-to-operating cash flow ratio of 7.09x compares favorably to peers, suggesting the market is not fully valuing the company's cash generation capability.

With a dividend yield of 3.72% and a payout ratio of 106.98%, the dividend appears well-covered by earnings and cash flow, providing income-oriented investors with a compelling entry point.

The company's strong capital position, with CET1 at 10.33% and tangible common equity at 8.18%, provides a buffer against economic stress and supports continued dividend payments.

Return on equity of 3.79% and return on assets of 0.41% lag peers, reflecting the costs of transformation and the drag from the repositioning activities. However, management's target of mid-teens ROATCE within 12-24 months, driven by balance sheet remixing and deposit growth, suggests significant earnings power is being built but not yet recognized in the valuation. The market appears to be pricing ASB as a traditional slow-growth regional bank rather than an institution undergoing fundamental strategic improvement.

The American National acquisition, valued at approximately $604 million or roughly 1.2x book value based on September 30, 2025 figures, appears reasonably priced for a strategic expansion that adds scale and market presence. The expected 2% EPS accretion by 2027 and 24% IRR suggest the deal will be value-accretive, potentially narrowing the valuation discount as integration proceeds.

Conclusion: A Transformation Story at a Discount

Associated Banc-Corp represents a compelling investment case for patient investors willing to bet on execution of a well-defined strategic transformation. The company has successfully pivoted from a mortgage-concentrated lender to a diversified relationship bank, with evidence of success including NIM expansion, accelerating C&I loan growth, and the strongest household growth in a decade. The pending American National acquisition provides a catalyst for further scale and market share gains in attractive Midwest markets.

The central thesis hinges on two variables: whether management can continue executing the relationship manager hiring strategy to drive C&I growth while maintaining credit discipline, and whether the American National integration delivers projected synergies without distracting from the core transformation. The company's ability to grow deposits organically while competitors struggle with deposit beta pressure demonstrates the durability of its consumer franchise.

Trading at 0.90x book value with a 3.7% dividend yield, the market is pricing ASB as if the transformation has not yet begun, rather than as an institution showing clear evidence of strategic progress. For investors willing to look past the headline ROE figures and focus on the trajectory of NIM, loan mix, and deposit growth, the risk/reward appears attractive. The downside is protected by strong capital ratios and conservative underwriting, while the upside is driven by continued execution and the American National catalyst. The next 12-24 months will determine whether Associated Banc-Corp can close the valuation gap with its regional peers and deliver on its mid-teens ROATCE target.