On Thursday, Associated Banc (NYSE:ASB) discussed first-quarter financial results during its earnings call. The full transcript is provided below.
This transcript is brought to you by Benzinga APIs. For real-time access to our entire catalog, please visit https://www.benzinga.com/apis/ for a consultation.
The full earnings call is available at https://event.choruscall.com/mediaframe/webcast.html?webcastid=Kbrc7qOD
Summary
Associated Banc reported a strong start to 2026 with earnings of $0.70 per share, driven by a 2% increase in total loans and significant growth in core customer deposits.
The company completed the acquisition of American National Bank, boosting its presence in key markets like Omaha and the Twin Cities, and expects to complete integration by late Q3 2026.
Management highlighted strategic investments in expanding commercial operations, including a new CNI office in Dallas and the launch of a national franchise banking vertical, aiming to sustain growth momentum into 2027.
Net interest income slightly decreased from the prior quarter but increased 7% compared to Q1 2025, with expectations of 8% to 10% income growth in 2026.
Asset quality remained strong with total criticized loans decreasing and a low level of net charge-offs; a disciplined approach to risk management is emphasized amid macroeconomic volatility.
Full Transcript
OPERATOR
Good afternoon everyone and welcome to Associated Bancorp's first quarter 2026 earnings conference call. My name is Kevin and I'll be your operator today at this time all participants are in a listen only mode. We'll be conducting a question and answer session at the end of this conference. A copy of the slides that will be referred to during today's call are available on the company's website at investor.associatedbank.com As a reminder, this conference call is being recorded as outlined on slide 2. During the course of the discussion today, management may make statements that constitute projections, expectations, beliefs or similar forward looking statements. Associated's actual results could differ materially from the results anticipated or projected in any such forward looking statements. Additional detailed information concerning the important factors that could cause Associated's actual results to differ materially from the information discussed today is readily available on the SEC website in the Risk Factors section of Associated's most recent Form 10K and subsequent SEC filings. These factors are incorporated herein by reference. For a reconciliation of the non GAAP financial measures of the GAAP financial measures mentioned in this conference call, please Refer to pages 28 and 29 of the slide presentation and to page 9 of the press release. Financial Tables following today's presentation, instructions will be given for the question and answer session. At this time, I'd like to turn the conference over to Andy Harmoning, President and CEO, for opening remarks. Please go ahead, sir.
Andy Harmoning (President and CEO)
Well, good afternoon and thank you for joining our first quarter earnings call. I'm Andy Harmoning and I am once again joined by our Chief Financial Officer Derek Meyer and our Chief Credit Officer Pat Ahern. I'll start off with some highlights from the quarter and then from there. Derek will cover the income statement and capital trends and Pat will provide an update on asset quality. We entered 2026 with strong momentum as a company following a pivotal 2025 that advanced our growth strategy in several important ways. With relationship loan and deposit growth, record customer growth and solid credit performance combining to drive the strongest annual net income in our company's history in the first quarter of 2026. We remain squarely focused on maintaining momentum with our growth Strategy and our first quarter results reflect that trend. We posted annualized first quarter checking household growth of 2.2%, an encouraging result in what is typically a slower season for checking acquisition. We delivered over $500 million of period C&I loan growth, a 4.6% increase point to point versus December 31st. We've also made meaningful progress on our commitment to accelerate our growth momentum in the major metropolitan markets over the remainder of 2026 and into 2027 year to date, we've made several key hires across our revenue lines of business and increased marketing acquisition spend, launched our new CNI office in Dallas and launched a new national franchise banking vertical to further complement and accelerate our growth momentum. We announced the closing of our acquisition of American National bank on April 1. Upon conversion, the combined company will feature a proven relationship focused strategy, a dynamic product suite, a modern digital experience, an effective marketing acquisition engine and expanded commercial capabilities, all positioning us to grow and deepen relationships in growth markets such as Omaha and the Twin Cities. Colleagues from both organizations continue to work closely together to facilitate a smooth and successful integration and we expect to complete the conversion process late in the third quarter of this year. We're excited about our growth prospects at Associate over the remainder of the year and beyond, but as always, our intention is to grow in a disciplined way. Recent events have introduced volatility at the macro level, but we feel well positioned to navigate this uncertainty thanks to our disciplined approach to risk management, our enhanced profitability profile, a solid capital position, and the resilience and stability of our Midwestern markets. We look forward to providing additional updates on Associated Banks growth journey along the way. With that, I'd like to walk through our financial highlights for the quarter. On Slide 4, we reported earnings of $0.70 per share in Q1 total loans grew by over $600 million or 2% versus the prior quarter. The gross was driven primarily by commercial with CNI balances growing $540 million versus the prior quarter. On the funding side, total deposits grew by $179 million while core customer deposits grew by over $800 million versus Q4. As is typical this time of year, the quarterly increase was impacted by strong seasonal inflows in a handful of accounts in Q1 that flow back out in Q2. With that said, Q1 core customer deposits were up $1.3 billion or 4.5% relative to the same period a year ago. Moving to the income statement Q1, net interest income of 307 million dipped slightly from the record quarterly NII we posted in Q4 but increased 7% relative to Q1 of 2025. Similarly, total non interest income of $76 million decreased by $4 million from a Q4 that saw strong capital markets activity but was up meaningfully versus the same period last year. Total non interest expense of $219 million decreased slightly from the prior quarter. Delivering positive operating leverage remains a primary objective as we continue to execute our plan Shifting to credit Credit Asset quality trends remained strong in Q1 total criticized loans decreased. We booked $11 million of provision and saw just 7 basis points of annualized charge offs for the quarter after posting 12 basis points of charge offs in 2025. As I mentioned previously, we've seen strong growth momentum in the early part of 2026 and slide five lays that picture out in greater detail. After several years of investments to modernize our digital experience, enhance our product set and improve our marketing acquisition capabilities, we now have a proven ability to grow our customer base sustainably over time. In the first quarter we posted annualized household growth of 2.2%. This number gives us a strong start to the year as we continue to focus on attracting and deepening customer relationships as a means to decrease our reliance on higher cost wholesale funding sources. We've also made significant investments to grow relationships and take market share on the commercial side with a steady cadence of leadership hires, RM hires and expansion capabilities. In Q1, we posted over $500 million in CNI loan growth, nearly a 5% quarterly growth rate. Pipelines have remained strong on both loans and deposits and we expect our momentum to carry throughout the year. And as mentioned, we closed our acquisition of American National bank on April 1. This partnership provides opportunities to deepen relationships with existing American national customers through our expanded product set and capabilities while also providing growth opportunities in major metro markets like Omaha and Twin Cities, which are both growing faster than the average Midwest. The investments we've made in prior years are driving results in 2026, but we also expect to sustain and accelerate our growth strategy into 27 and beyond. With that in mind, we executed on several investments here early in 2026 that are intended to drive additional momentum. First, we've leveraged our best in class value proposition and a proven marketing acquisition engine to accelerate customer growth. As a reflection of these efforts, our marketing acquisition spend was up 23% in Q1 versus the same period a year ago. As we continue to attract and deepen relationships, we're building a stronger pipeline into our private wealth business, particularly in major metropolitan markets where we're under penetrated. To capitalize on these opportunities, we hired Lisa Buteau earlier this month as Director of Private Banking for major metropolitan markets. Based in the Twin Cities, Lisa brings more than 25 years of expertise and she most recently served as Managing Director and private wealth Banking Manager at Wells Fargo where she led client facing banking and lending teams across 11 states. We've also taken several steps to drive incremental growth in commercial adding another wave of talented bankers and expanding our capabilities. After launching a new CNI office in Kansas City last year and seeing promising results, we expanded the team in Q1 with one additional RM and two additional professionals. Based in part on the successful model we've developed in Kansas City, we also officially launched a new CNI office in Dallas. The commercial market leader has been hired and we expect RMM hires to begin in May and earlier this week we announced a new nationally focused franchise banking vertical led by Shawn Cord, based in the Twin Cities. Shawn brings more than 30 years of experience with deep expertise in scaling specialty banking platforms and building high performing teams. Most recently, she led the National Franchise Banking Division for Bremer Bank. We also brought on a new RM and three other professionals to round out Shawn's team as we work to accelerate growth across the company. The successful integration of American national is a key priority to position our combined company for long term growth and Success. On slide 6, we provide a reminder of the expected benefits of the partnership and an updated timeline of the integration process and three weeks post close we are on track. In the days immediately following the close on April 1, we had over 40 legacy associated colleagues on the ground in Omaha. We've completed culture surveys, repositioned their securities portfolio, completed the colleague decisioning process and achieved several other integration milestones along the way. We've been impressed by the passion, enthusiasm and cultural fit our new colleagues have shown within the combined organization and the professionalism they've exhibited as they navigate change. Maintaining a strong local leadership presence in our newest market is a top priority and last week we announced Jason Hanson as a Business Segment Leader for Commercial Banking and our new Market President for Nebraska and Western Iowa. Jason most recently served as President of American national bank and he is uniquely qualified to position our combined company for a long term growth and success in Omaha and beyond, having joined American National bank in 2000. Looking ahead, colleagues from both organizations continue to work closely to ensure smooth integration process and we are on track for conversion of accounts, systems and branches in late Q3 of this year. We expect to finalize purchase accounting adjustments later this quarter. On slide 7, we recap our plans to drive sustainable growth in 2026 and beyond and it starts right here in Wisconsin. We have a 165 year foundation of longstanding loyal relationships in the Badger State that provide us with strong funding base for growth. Looking forward, we see plenty of opportunities to grow and deepen relationships across the state, but we also see clear opportunities to accelerate our growth momentum with an expanded presence in major metro markets we're already seeing the strategy pay off in legacy upper Midwest metros like Milwaukee, Chicago and the Twin Cities, where we're growing households and driving relationship loan and deposit growth. We're seeing similar success stories emerge in newer markets like Kansas City, where we've already expanded a commercial team that launched just a year ago. And already in 2026, we're further expanding our presence in the strategic growth markets through the American National Deal, which provides entry into Omaha and deepens our presence in the Twin Cities and through the new CNI office we launched in Dallas. Based on the strong results we've seen through the first quarter and the additional investments we've made in early 2026, we're on track to achieving our targets for household growth and CNI loan growth in 2026, and we expect our ongoing efforts to drive growth momentum sustainably over time. Shifting to our core financial results, we highlight our quarterly loan Trends on Slide 8. We saw strong loan growth in Q1, particularly in the back half of the quarter, with total period end loans up 2% or $635 million relative to Q4. As has been the case the past several quarters, CNI loans led the way with nearly 540 million of period end loan growth during the quarter. We also saw total CRE balances increase by $143 million as loan production outpaced lower than expected payoffs during the quarter. We continue to expect payoffs to materialize throughout the year after including the impact of American National Acquisition. We now expect 2026 period end loan growth of 17% to 19% as compared to associated standalone results for the year ended December 31, 2025. Shifting to slide 9 period end deposits grew by 179 million during Q1, while core customer deposits grew by 3% or $820 million. As mentioned, the strength in core customer deposit core customer balance flow was impacted by seasonal inflows we typically see towards the end of the quarter in a handful of accounts. With that said, Q1 core customer deposits were up 4.5% relative to the same period a year ago. Over the course of the quarter, we also saw balances shift away from brokered CDs and network transaction deposits and into customer deposits and wholesale sources such as FHLB and other wholesale. We also accelerated our funding in Q1 to keep pace with strong loan growth we saw during the quarter over the remainder of 2026. We're bullish on our ability to drive incremental core customer deposit growth thanks to a best in class consumer value proposition household growth momentum supported by increased marketing acquisition spend in growth markets and and significant momentum in our commercial deposit gathering capabilities. After including the impact of American National Acquisition, we now expect 2026 period end total deposit growth of 17% to 19% and period end customer deposit growth of 19% to 21% as compared to associated standalone results for the year ended December 31, 2025. With that, I'll pass it over to Derek to discuss our income statement and capital trends.
Derek Meyer (Chief Financial Officer)
Thanks Andy. I'll start with the Yield trends on slide 10 in Q1. The yields on our largely floating rate CRE and commercial books both decreased by 29 basis points during the quarter. We also saw an 11 basis point decrease in auto yields, a slight increases in the investment portfolio. On RESI Mortgage, total interest bearing Deposit costs decreased by 17 basis points in Q1 and we're down 47 basis points since Q1 of last year. In Q1, total earning asset yields decreased 14 basis points to 5.2% while interest bearing liabilities decreased 15 basis points to 2.67%. The benefit of net free funds compressed by 5 basis points. Moving to Slide 11, first quarter net interest income of 307 million decreased 3 million versus the prior quarter and increased 21 million versus Q1 of 2025. As Andy mentioned, the timing of our strong loan growth during the quarter outpaced the natural run rate of our deposit gathering. As such, we accelerated our funding to match, which put some short term downward pressure on both NII and margin. With this in mind, our Net interest margin decreased 3 basis points to 3.03 for the quarter as compared to the same period a year ago. Our NIM increased 6 basis points. Looking ahead, we continue to assess the balance sheet and income statement impacts from the acquisition of American national bank that closed at the beginning of the month. As it stands today, balances are generally in line with our due diligence assumptions. We expect to share an income growth of 8% to 10% in 2026 as compared to associated standalone results for the year ended December 31, 2025. Moving to Slide 15, total non interest expense came in at $219 million in Q1, slightly lower versus the prior quarter. During the quarter we saw slight increases in FDIC assessment technology, legal and professional fees offset by quarterly decreases in business development, equipment and other expenses. In Q1, our adjusted efficiency ratio increased slightly from 55.2% to 55.8% throughout the year. We continue to invest in the growth of our franchise, but we're anchored on delivering positive operating leverage. We expect to share an updated non interest expense outlook for the next quarter following the finalization of purchase account adjustments tied to the acquisition of the American national On slide 16 our CET1 ratio finished at 10.47% in Q1. This figure was up 36 basis points for Q1 of 2025 but decreased slightly quarter over quarter due in part to the strong loan growth we saw in the quarter. Our TCE ratio also decreased slightly from the prior quarter to 8.27%, down 2 basis points versus Q4 but up 31 basis points versus Q1 of 2025. We've continued to see our tangible book value per share expand on a quarterly basis with Q1 finishing at 22.23, up nearly $2 versus Q1 versus last year. I'll now hand it over to our Chief Credit Officer Pat Ahern to provide an update on asset quality.
Pat Ahern (Chief Credit Officer)
Thanks Derek. I'll start with an allowance update on Slide 17. Our CECL forward looking assumptions utilize the Moody's February 2026 baseline forecast. The forecast remains consistent with a resilient economy containing a more optimistic GDP outlook despite the higher interest rate environment, higher levels of inflation and tariff negotiations. The Moody's forecast now contains less total rate cuts in the latter half of 2026 compared to prior quarter forecast. In Q1 our ACLL increased by $6 million to $425 million. The increase was primarily driven by commercial and business lending and CRE construction which largely stemmed from a combination of loan growth plus normal movement within risk rating categories. Our ACL ratio as a percentage of total loans has remained stable for the past several quarters. Here in Q1 the ratio decreased 1 basis point to 1.34%. On slide 18 we continue to review our portfolios closely amidst ongoing macro uncertainty, but we continue to see solid performance. In Q1, total delinquencies increased versus the prior quarter to $88 million, with 43 million of the increase being driven by two managed credits in which an extension process carried into Q2. We remain comfortable with benign delinquency trends we've seen over the past several quarters. Total criticized loans decreased by $29 million versus the prior quarter, with decreases in the special mention and substandard accruing categories being partially offset by an increase in non accrual loans. Non accrual balances increased to $111 million in Q1, up 10 million versus Q4, but down $24 million from the same period a year ago. 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. Finally, after booking just $2 million of net charge offs in Q4, we booked $5 million in net charge offs. Here in Q1, our net charge off ratio for the quarter was just 7 basis points. We also added a modest provision of $11 million during the quarter. Here in 2026, our teams remain diligent 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 macroeconomy to ensure current underwriting reflects the impact of ongoing inflation pressures, shifting labor markets, tariffs and other economic concerns. In addition, we 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 further provision adjustments will reflect changes to risk grades, economic conditions, loan volumes and other indications of credit quality. With that, I will now pass it back to Andy for closing remarks.
Andy Harmoning (President and CEO)
Thanks, pat. On slide 19, we provide an initial update to our outlook following the close of American National Acquisition. As we sit here three weeks post close, we haven't seen any major surprises and our current expectations are largely in line with the assumptions provided when we announced the deal. This outlook does not assume any material incremental growth expectations for the American national business in 2026. We expect to update this 2026 outlook with estimates for the net interest income and noninterest expense categories following the finalization of purchase accounting adjustments which are expected to be completed later this quarter. With that, I'll open it up to questions.
OPERATOR
Thank you. And I'll be conducting a question and answer session. If you'd like to be placed into question queue, please press star1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. One moment please. While we poll for questions, our first question today is coming from Jared Shaw from Barclays Line is now live.
Jared Shaw (Analyst)
Hey, good afternoon. Hey, Jared. Hey. So maybe you could just help us with how we should think about 2Q. I know you're still finalizing some of those marks, but I think you said in the commentary that you sold all the securities and reinvested, so I'm guessing that there's no real accretion coming from the securities book, but maybe just walk through a couple of the puts and takes on margin as we're going into second quarter if you can.
Derek Meyer (Chief Financial Officer)
Yeah, the puts and Takes on margin relative to the A and B acquisition will not be any different than what we have disclosed before because as you know, we took over April 1, we haven't closed a month and we need to get through the marks. However, we haven't seen anything that really surprises us to this point. And we had initially forecasted a potential increase of 5 to 10 basis points. That's where we would sit today, Jared, as the potential impact once we get through the marks in the second quarter.
Jared Shaw (Analyst)
Okay. All right. And then this sort of separately looking at some of the new growth markets that you're talking about and the ability to hire RMs there, how, how competitive is it to find good people out in some of these markets? We're hearing from other people that they're targeting some of the same areas. Are you starting to see pricing run up there and how much growth do you expect to get from those markets over this year?
Andy Harmoning (President and CEO)
Yeah, I'd equate this to starting a 40 yard dash. And we already had a running head start. We've been in the acquisition of new colleagues for a little bit. And what happens is when you hire at the top and you get a really strong person, which we did in Phil Trier, and then you get market leaders along the way over the course of the last four years that are very strong, and then you start to get RMs underneath there. I say this long explanation because what's happening is we are able to get quality folks in each market. And so Kansas City, a great example of that, where we've not only grown, but we've doubled down on that bet because of the leader we got in that market. We just hired this week Brandon White from the legacy middle market team with Comerica, who has a fantastic reputation personally, but also the banking for their middle market was significant. So the way I see this, Jared, outside of just the $500 million in growth, is we started 2025 and we basically had four major metropolitan markets. We were operating in Milwaukee, Chicago, twin cities and St. Louis. We added Kansas City in 25, we added Omaha in 26, we added Dallas in 26. And that just gives a tailwind to what we're doing. And then we expanded in Twin Cities. So the talent that we're able to bring in, there's a lot of word of mouth at this point and that's good for us. And when somebody wants to find out what it's really like working here, what is the culture really like, what is the support to get a deal done, what is credit really like? Look they'll interview with Pat Ahern if they need to. Our chief credit officer, they'll interview with me. But mostly they're taking care of that with the local hiring manager. So it's a very different game we're playing right now than one year ago, two years ago, or three years ago on the hiring front. We're in. We're in really good position. I just spent time with our commercial team, our top 60 leaders in the company, and the energy in that room and the connectivity to our culture was. Was palatable.
Jared Shaw (Analyst)
Great, thanks. If I could just put one more in there. On the deposit funding side, some pretty good trends there. Good beta so far without any more rate cuts. How much more do you think you can squeeze from funding costs? Deposit funding costs.
Derek Meyer (Chief Financial Officer)
Derek, you want to take that? Yeah. So I think there's still opportunity for remixing because we have most of our growth for the rest of the year coming from products like interest, checking and savings, which are, you know, relationship based and not as expensive as CDs. Although we also have CD growth in there. But what we've seen based on our overall NII outlook at the Legacy ASB part, given where our loan growth came in, is probably some upside opportunity from net interest income versus our original guidance. And so we don't think funding is going to stop that.
OPERATOR
Thank you. Thanks, Jared. Thank you. Next question is coming from Casey Hare from Autonomous Research. Your line is now live.
Casey Hare (Analyst)
Yeah, great, thanks. Maybe taking the flip side of the deposits, the loan yields, where do we expect those to trend going forward? And then in your expansion markets, how do the new money yields in your expansion markets compare to your core footprint? Yeah, we don't give out the market by market yield. I think we look for where the best opportunities are, where we're going to get most of the household growth. I think if we punch through the loans, you're still going to see most of our growth, as we've outlined in our guidance, coming from CNI and cre, which are still higher yields than the rest of the loan categories. So that's favorable and obviously it's more favorable for us given the no cuts outlook and the fact that those are more closely tied to the short end of the yield curve. We don't expect yields to go up in auto. Those are trickling around. The areas we've seen, they took a step down, but we've seen that happen before and that should moderate. So if we do get rate cuts, that will still help us as a hedge and we still expect RESI to continue to trickle Upward a few basis points a quarter. So net net, given the outlook on rate cuts, it's very favorable compared to what we thought about at the beginning of the year. Okay, great. And then on the capital front, apologies if I missed this. The Basel III impact from the proposal and then any updated thoughts about share buyback appetite with A and B now closed?
Derek Meyer (Chief Financial Officer)
Yeah, A and B is closed, but we're working through the marks, which is the important part of understanding the balance sheet. So that hasn't really changed as a result of the close, but it will be very informed over course of this quarter. I'm very bullish on where we are. If we just looked at our forecast for the year relative to the legacy standalone asb, and what that means is we would be forecasting net interest income likely above the range that we have today. Well, when you start to do that and you start to get a return, that puts you in a positive position to, you know, free capital and grow at the same time, which is why we got the original $100 million authorization. I fully expect that we'll use that this year. With regards to the regulatory changes. You want to touch on that? I mean, it's in the comment period. It's in the comment period. There's obviously there's two ways you can go on that, depending whether we opt in or opt out on the methodology. So we'll see which one makes sense. Given the cost, we expect that to go to be favorable for us in either scenario. But we don't think that's going to change the near term outlook on the repurchase.
Andy Harmoning (President and CEO)
Then the reality is we're very comfortable with the guidance we gave with CET1 and the 10 to 10.75 range. When we get through the comment period, we only see that we'd likely have an upside. For us to comment on the specific number on that would be premature because we don't have final guidance. But if you think about the fact we're bullish on our NII and our return profile and if there is a regulatory change that could only be good for us, I think that puts us in a great position to have flexibility with capital.
OPERATOR
Okay, thanks. Thank you. Thank you. Next question is coming from Brandon Rudd from Stevens. Your line is now live.
Andy Harmoning (President and CEO)
Hi. If I could touch quickly on the CNI growth, I'm just curious how much of that was seasonality? And I asked, I think on page 22, it looks like a little over 100 million came from the mortgage warehouse business. So I'm just curious how much that is. Based on seasonality and how much should stay on the balance sheet a bit longer. Yeah, I mean, the mortgage warehouse business has become a fairly small part of the balance sheet, but seasonality on that piece is. There is a benefit there. I would say the rest of it, you don't typically see getting out of the gate this fast in commercial. So I'm very bullish on CNI growth for the year. I think we forecasted 9 to 10%. And I would tell you, I would put us at the high end of that range today, because when you get done with a quarter where you grow, 540ish million, I think is the number you get through that quarter and then you look at your pipeline and we have a pipeline after getting through that, where the same period prior year, we're up 20%. So from a pipeline standpoint, so I feel very, very good about that. We've hired a team on the franchise business that I expect will start to add to that during the year. And that's a pipeline we don't even have yet. And we expect that because of their knowledge of the marketplace, we'll have some good benefit there. And getting open in the Dallas market will take time in 90 days, but I would expect in 90 days we'll start to have a pipeline there that's not even part of the increase. So we have tailwind there and we're seeing pull through a pipeline. And I'm very bullish on our ability to meet the high end of the guidance on CNI loan growth for the year. Got it.
Brandon Rudd (Analyst)
Thank you for that. And maybe just one more. The 2.2% annualized checking household growth, is that primarily still coming from the legacy markets? And as the marketing spend hits the newer markets, would that, would you anticipate that number continues to accelerate?
Andy Harmoning (President and CEO)
I feel like I wrote that question. Brandon, thank you. The answer is it has nothing from the new market. It has nothing from Omaha. Obviously we're in the Twin Cities, but it doesn't have anything from those new branches. The time that you turn on that spigot is when you get done with systems conversion, typically on the marketing side. So as we, you know, assuming late third quarter integration, you start the marketing in the fourth quarter. And so when we think about the efficacy of our company and what that means to things like fee income, debit card fee income, credit card fee income, we're actually experiencing a tailwind right now for the first time in probably 20 years. When we get done with that, we have a major growth market in Omaha that we will market heavily into. So I think this is where we say, hey, can we get above 2% this year in our legacy markets and then go into 2027, challenge the team to get to 2.5%? As we start to get to 2.5%, I think we'll be in the top quartile or decile of the peer group in that category. So when I think about our ability to continue to grow, I'm pretty optimistic based on what we've put together so far and then putting that out into the Omaha market.
OPERATOR
Thank you very much. Thank you. Thank you. Next question is coming from Daniel Tamayo from Raymond James. Your line is now live.
Daniel Tamayo (Analyst)
Thank you. Good afternoon, guys. All right, I'll take a swing at the expenses. You know, completely understand that you guys don't have a number out there yet for the all in, but a lot of good revenue opportunities and trends you're talking about here. Andy, is it fair to say the standalone expense numbers are drifting up off the original guidance as well?
Andy Harmoning (President and CEO)
No, actually it's probably one of the things I'm most proud of. I mean we went from fourth quarter to first quarter and we're almost flat as a pancake. I mean we could say we went down, but it's $300,000. So let's say flat in the first quarter. And our legacy ST standalone ASB business, because we made difficult decisions at the end of each year, we are in a position to meet the expense number while we are seeing NII forecasts creeping up and non interest income forecast at the high end of the range or above as well. So I believe the legacy business will manage to that 3% number. Great.
Daniel Tamayo (Analyst)
And then I guess as we think about, you know, the expansion markets here, talk a lot about the loan growth, still no branches I think in Dallas or Kansas City. How should we think about the infrastructure build that's planned over, you know, the next couple of years there? And you know, if you're, I'm assuming, going to attempt to capture perhaps some retail deposits as well.
Andy Harmoning (President and CEO)
Thanks. Yeah, maybe we will, maybe we won't. I mean, really, what's on my mind, and stop me if you've heard this, I want organic growth first and foremost. And we did these deals because we thought very strongly that in Twin Cities by getting a little bit bigger, that actually advances our marketing capabilities in that market. So it increases our exposure, our visibility, the places we can drive business into. So that's the first thing. The second thing is Omaha is an incredible market. It is the fastest growing major metropolitan market. Outside of Dallas, where we have branches, it's the fastest growth market of any major metro we have. And so our ability to grow that we think is going to be significant for us with regards to adding infrastructure. Really what I want to do is execute on this integration. We've executed on phase one and phase two of our plan and it's driving a profitability profile that helps the bank significantly in capital accretion and return. We believe once we close on the, once we finish the integration on the A and B deal, because we have such similar cultures, we actually think we'll start the growth on that one in a significant way and it'll accelerate our organic growth beyond that, really, to me, organic growth is the number one question as opposed to building out expensive infrastructure that's difficult to pay for.
Daniel Tamayo (Analyst)
Understood. Thanks for all the color. And probably last most important question here. Who are the packers going to take tonight?
Andy Harmoning (President and CEO)
I don't think we have a first round pick. I'm going to punt on that. That one makes me sad. That's almost a jab. An unintended jab at the end of the questions. That was unintended, but.
OPERATOR
Go, Pat, go. Thanks guys. Thank you.
Scott Heafers (Analyst)
Thank you. Next question is coming from Scott Heafers from Piper Sandler. Your line is now live. Good afternoon guys. Thanks for taking the question.
Andy Harmoning (President and CEO)
Andy, you actually already answered my question
Scott Heafers (Analyst)
on sort of disaggregating the underlying loan growth versus what's coming from the American national transaction. So obviously really good there. Was hoping you might please just sort of share your thoughts on the same thing on the, on the deposit side, you know, sort of legacy associated, how those expectations might have changed if we weren't layering in A and B. And then maybe as you think about the mix of deposits going forward for the remainder of the year, how do you see sort of non interest bearing levels sort of trending as a percentage of the total?
Andy Harmoning (President and CEO)
Yeah, I mean a couple good questions in there. So the way that I think about ASB overall, if I just think about the standalone, which we don't, we debated whether we have the standalone because we're not standalone anymore and we don't want to act like we are. However, we want to be transparent. So on loans we're at the high end of our guidance. On deposits, we are the same as when we started the year. We're tracking exactly to where we expected to be. Net interest income, we're above the range that we had. Non interest income, we're at the high end of the range or above that range. And Expenses, we are at that, we're at our 3% number. So what you probably can take out of that is the change in the view on rate cuts. That helps our company, our loan growth momentum, that helps our company the accelerated deposit growth in the second half of the year, that helps our company the short term nature of our contractual liability obligations puts us in a really good position to navigate the rate environment. So that foundationally is where the Legacy Associated bank is right now. You ask a second question? Sorry, I forgot that one. Oh, no problem.
Scott Heafers (Analyst)
By the way, that was very good color on the first one. And it was just sort of mix of deposits as you look through the remainder of the year. Especially, you know, if you can talk to non interest bearing.
Andy Harmoning (President and CEO)
Yeah, so I mean, everyone would love to have non interest bearing grow like a weed. It's just not the way it works in banking. And so what I would say is a couple things, and Derek and I discuss this all the time. I'm really, really pleased with the direction of our household growth. I mean, I really think we're moving towards ultimately a best in class. And that helps your demand deposit growth over time. If somebody's growing at 2.5% and the market's growing at zero, or you're growing at 2% and the market's growing on zero over time, you're going to inch up in that category. So the goal is that you are not moving backwards in demand deposits as we saw the market do for a long time. We've stabilized and now we have a faster growing customer base. But I would expect the interest bearing would dominate that category. And right now the thing that's probably most interesting to me is we have HSA business that is one of the fastest organic growth HSA businesses in the country. And it's being fueled largely by our retail and commercial teams. We have an HOA title business that is launched right now and has a pipeline that we can actually execute because we did the technology already. We have a platform on consumer that is adding growing at a 2.2% annualized pace and maintaining the quality of the customer. And so we're not adding customers just to add them. And frankly, our attrition is one of the lowest in the business because we have products out there that keep them and deepen them. So as we head into the second quarter and the second half of the year, I expect to have a good deposit acquisition. Good deposit growth and acquisition in the second half of the year with modest increase from demand deposits, as you would expect.
OPERATOR
Perfect. All right. That's Perfect.
Chris McGrady (Analyst)
Thank you. Thank you. Let's go. Thank you. Next question is coming from Chris McGrady from KBW. Your line is now live.
Derek Meyer (Chief Financial Officer)
Hey, good afternoon. This is Chris o' Connell filling in for Chris. Thanks for keeping the same name, Chris. Yeah, no problem. So I just wanted to touch on, you know, the balance sheet and interest rate positioning, you know, following the close of the American national deal. Just any updates there as to how it impacted the balance sheet? And then was the securities repositioning, I guess, a part of bringing you back towards the standalone positioning? Derek, I'll have you take that. Yeah, so you're going to get a little bit and then we'll probably give you the rest when we close the books for second quarter. So the easiest thing to say without the marks is that the loans and deposit balances came in unmarked, came in right where we expected during due diligence. That gives us comfort in the first step, telling us that we're materially on track from a balance sheet standpoint with what we expected during due diligence. Now, the impact of the rate changes since then and how those affect the marks on capital and then the accretion of the earnings after that, we're going to wait until we actually do work through the mark process and then report it and then we'll give you how that accretion that we expect to impact NII and NIE going forward when you look at CDI also. So that's probably the best I can tell you because we have done the securities repositioning, but that's only one part of it and you really can't get a grip on the whole impact. But we still think we're materially on track. Okay, got it. And then just as a follow up, in the same vein as you guys have closed the acquisition and taking a look at the overall loan portfolio, is there any areas that are contemplated in terms of further balance sheet runoff or pockets of the portfolio that you guys might shy away from? No, the portfolios that they're in and the business that they do largely looks like what we do. Pat Ahern has commented on the strong kind of credit write up and process that they had. The fact is that their chief credit officer, we're keeping him, he's staying on board because he's good and their approach to credit is good. And so there have been no surprises on that front. We got through a lot of those credits during due diligence and felt like we knew the portfolio very well. And frankly, since close, there has been no change to that. Okay, great.
OPERATOR
That's all I have. Thanks for taking my questions. Thanks, Chris. Thank you.
John Armstrong (Analyst)
Next question is coming from John Armstrong from RBC Capital Markets. July is now live. Hi. Thanks. Good afternoon, guys. Hey. Just a few follow ups. One on the commercial growth on the pipelines. Andy, I don't know if there's a way to separate this, but in your mind, what would you say the kind of the legacy associated client utilization looks like? I know you've got a lot of new hires that are driving the pipelines higher, but for the clients that have been around for a long time at Associated, what is the pipeline like for clients like that? Are you asking about the, the individual RM productivity or you? I'm not. If you could just clarify that, John. No, I'm just asking for how much of your pipeline growth is driven by the new hires and the new RMs versus the people that have, you know, been there for a while. And I'm just trying to get a gut check on like utilization from you know, the typical, you know, metal bender out of Oshkosh or something like that, if that makes sense. Does that make sense, what I'm asking?
Andy Harmoning (President and CEO)
Yeah, I mean it's a little bit hard to answer at this point because they are becoming us so quickly now. And so what I mean by that is, you know, we're up 44% in RM since I started. So you know, there are a lot of new folks in what we do and some are one year, two year, three year, four year. What I would say is that the legacy, if you want to call something over two years or three years legacy, they are driving more of the pipeline. They should, they're more of those folks. However, the gap is being bridged on the productivity per person. So we are seeing, you know, whether it goes from 50% to 75%. And now as we head into the year, we have absolutely no non solicitation agreements which we have very strictly lived up to. And so we have a team that there is upside from what we are doing today with the existing team, which is why I think we've seen another bump in what we see in the pipeline now versus 12 months ago. And it's what gives me a lot of confidence as we get through the rest of this year that we are at the high end of that. We're at the high end of that forecast. But more of it has been done by legacy colleagues. But just on a per person basis. We're bridging the gap and they're getting closer and closer to 100% productivity.
John Armstrong (Analyst)
Okay. So broad and deep, you would say the pipeline increases? Oh, absolutely. And yeah. Yes. Okay. Derek, one for you. Slide nine. That customer CD increase. I understand that you have deposits that ebb and flow in the first quarter, but kind of what's. What's the strategy behind that? And it looks like it was more of kind of a period end increase.
Derek Meyer (Chief Financial Officer)
Yeah, I mean, that's where you saw when we saw during the quarter. I think we came into this quarter with a 41% increase in that pipeline on the CNI loan side. And we started to see that pipeline come through and we were a little bit below market on CD rates. We decided to raise our rates and try and make sure that we weren't looking into funding all of that growth that started to look like it was going to hit this quarter, which is well above our annual run rate, which is pretty high guidance anyways. And so we decided to go ahead and front load that production. And the easiest way to do that in this market with these rates or to do it with the CDs. Now, those CDs are all seven months. That's the promo rate. And we still stayed very short on all our contractual fundings, which you'll see later in the deck. So we thought it was a good move. Ended up, we were right because the spot balance loan growth was very strong. And so we feel pretty good about it. But we'll have a chance to reprice all that before the year ends.
John Armstrong (Analyst)
Yeah. Okay, makes sense. And then just last one, slide 19, the guidance. I'm assuming this is the case, but any material changes to the core guidance that you gave last quarter, Is there any puts and takes there? If you take American national off of that slide,
Derek Meyer (Chief Financial Officer)
I think the biggest one is net interest income. Our guidance was 5.5 to 6.5%. If you look at the where our balances ended this quarter, and if you recognize the fact we're asset sensitive and we don't have two rate cuts, our guidance would be more like 7 to 8%.
John Armstrong (Analyst)
Yeah. Okay. Okay, that makes sense. All right, thank you very much, guys. I appreciate it.
Andy Harmoning (President and CEO)
Thank you. We have reached the end of our question and answer session. I'd like to turn the floor back over to Andy for any further closing comments.
OPERATOR
Yeah, I'll just make a couple quick comments. One, if you try to separate this into two pieces, and hopefully very soon we won't anymore it'll be one company, because it is. But the legacy guidance on ASB basically improved from last quarter. If we break that out into specific categories and I'm very bullish on the trends that I'm seeing that back that up. With regards to A and B. There are a lot of questions in a lot of different ways and I just want to give a quick summary on that. One is we have a strong reinforcement that we have cultural alignment. That is a big deal. We have detailed plans to achieve our non interest expense takeout that is right on track. There is an ability at some point here to advance growth and it's becoming more clear based on FX wealth syndications, balance sheet size, common credit background, consumer products at digital platform and marketing acquisition capabilities. That's a long list which gives me confidence that we will hit in some or many of those and that will be impactful. We're on track on systems integration and the timeline there. We will work through our purchase accounting marks in the second quarter. And most importantly after saying all that is, the AMB deal is what we had hoped it would be. So that's our story. We appreciate your interest and we look forward to continuing to provide updates throughout the year. Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this
Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.
Login to comment