Associated Banc-Corp (ASB) Q3 2026 earnings review
Associated Banc-Corp widens its lending spread, but unpaid loans rise
Associated Banc-Corp, Wisconsin's largest bank, widened its lending spread and gathered customer deposits while its new lending almost stopped. Net interest income rose 24% from a year ago with the April purchase of American National Corporation, and profit per share excluding one-offs grew 11%. Chief executive Andy Harmening completed a $100 million share buyback and raised the full-year fee outlook, as fee revenue beat what the company's own plan pointed to.
| Underlying period-end loan growth | +5.9% from a year ago, by our math (+18% including ANC) |
|---|---|
| Profit per share, excluding one-offs | $0.81 +11% from a year ago ($0.76 GAAP) |
| Net interest margin | 3.20% +0.03 percentage points from last quarter |
| Full-year fee income outlook | Raised 4 pts middle of the range: 13% growth |
⚖️ Verdict: ⚪ Neutral
The story is unchanged because funding and margin gains were offset by a lending stall and rising unpaid loans. Customer deposits grew enough to pay down $614 million of wholesale borrowing, easing last quarter's funding strain. The bad news: period-end loans barely budged in the quarter, and unpaid commercial business loans jumped 46%.
The question now is whether the commercial lending push is a durable profit engine or is already producing bad loans as growth slows. Bulls see third-quarter payoffs as temporary; sceptics point to the fivefold rise in unpaid business loans over the past year. Fourth-quarter commercial loan additions and defaults will tell.
🐂 Bull Case
Customer Deposits Cut Wholesale Borrowing
Associated Banc-Corp is Wisconsin's largest bank holding company. Last quarter its loan growth outran customer deposits, forcing the bank to lean on Federal Home Loan Bank (FHLB) advances, which are short-term wholesale loans from a government-sponsored bank. President and chief executive Andy Harmening said "we maintained our momentum with strong core customer deposit" growth in the third quarter.
- Core customer deposits (total deposits excluding brokered certificates and network accounts): up $671 million from last quarter to $34.8 billion
- FHLB advances: down $614 million, or 13.4%, from last quarter to $3.96 billion
- Brokered certificates of deposit: down $144 million from last quarter to $3.79 billion
- Loans-to-deposits ratio: 90.44%, down from 91.32% in the second quarter
The seasonal third-quarter deposit inflow arrived as planned, so Associated paid down expensive wholesale borrowing and kept its funding cost almost unchanged at 2.67%. That eases the concern that wholesale funding costs would eat into lending margins, though the bank still needs another $677 million of customer deposits in the fourth quarter to reach the middle of its full-year plan, by our math.
What to watch: fourth-quarter core customer deposit inflows and FHLB balances when full-year results arrive in January. Another drop in wholesale borrowing would confirm that everyday customer accounts can fund the bank's loan book.
Margin Expanded and Fee Outlook Rose
Associated has been shifting its balance sheet toward commercial lending to lift its net interest margin (NIM), the percentage spread between what a bank earns on loans and pays on deposits. Bears worried that fading accounting gains from the April purchase of American National Corporation (ANC), an Omaha and Twin Cities bank, would stall the margin in the second half.
Instead, NIM rose 3 basis points from last quarter to 3.20%, lifting net interest income by $7.2 million to $377.3 million. Noninterest income — fee revenue from wealth management, cards and service charges — jumped 8.4% from last quarter to $87.1 million, led by a $3.2 million gain in capital markets fees. Because fee revenue beat what the prior plan implied, the company raised its full-year fee growth outlook by 4 percentage points.
What to watch: fourth-quarter net interest margin in January. Holding at or above 3.20% as merger accounting gains shrink would show that core loan yields and deposit pricing are carrying the spread on their own.
Bank Completed $100M Buyback and ANC Conversion
Strong third-quarter profits and capital generation "gave us the confidence to execute $100 million in share repurchases during the quarter", Harmening said. The bank bought back 3.2 million shares at an average price of $30.88, using its entire previously discussed repurchase plan in a single quarter and cutting period-end share count by 1.6%. Harmening also said the bank "completed the conversion of American National Corporation, giving us another lever to drive organic growth in attractive markets like Omaha and the Twin Cities".
Finishing the systems switch on schedule in October removes the operational risk of a delayed integration, and Associated trimmed the top end of its full-year expense growth plan by 1 percentage point. Within third-quarter costs, technology spending rose 1.9 percentage points of revenue from last quarter to 9.2% on conversion work, while legal and personnel costs fell.
What to watch: fourth-quarter noninterest expense and customer deposit retention in the first full quarter after the October systems switch. Flat or falling core expenses would show the promised 30% ANC cost savings are taking hold.
🐻 Bear Case
Unpaid Business Loans Rose Again
Associated has grown its commercial and industrial (C&I) loan book — credit lines and term loans to businesses — by hiring relationship managers across Midwest cities. While management highlights credit discipline and recorded a smaller $14.0 million loan-loss provision this quarter, problem loans rose across the portfolio for a third straight quarter.
- Total nonaccrual loans (loans no longer paying interest): $183.4 million, up $33.5 million, or 22%, from last quarter
- C&I nonaccrual loans: $65.0 million, up $20.6 million, or 46%, from last quarter and up fivefold from a year ago
- Loans 30 to 89 days past due: $79.8 million, up 38% from last quarter, driven by auto loans
- Allowance coverage of nonaccrual loans: 268%, down from 330% last quarter and 390% a year ago
Net charge-offs — loans written off as uncollectible — fell from $23.2 million to $17.6 million, so the bank shrank its total loan-loss reserve slightly to 1.34% of loans. Because new problem loans arrived faster than write-offs cleared them, the cushion of reserves against unpaid loans dropped by 62 percentage points in three months.
What to watch: C&I nonaccrual loans and early-stage auto delinquencies in the fourth quarter. A fourth straight increase would force higher loan-loss provisions in 2027 and eat into the earnings gains from the commercial shift.
New Lending Almost Stopped in the Quarter
The bank's central growth story is its commercial lending push, which is also a key watch item because management warned of second-half real estate loan payoffs. Headline period-end loans rose 18.0% from a year ago to $36.52 billion, but that includes $3.73 billion acquired with ANC in April. Stripping out the acquired balance at close, underlying loans grew 5.9% from a year ago by our math.
During the third quarter itself, total period-end loans rose by just $53 million, or 0.1%, and C&I loans rose by $54 million, or 0.4%, down from $644 million of underlying C&I additions in the second quarter. Consumer loans shrank by $85 million as residential mortgages continued to run off. Associated held its full-year loan growth outlook of 18% to 20%, which requires adding about $565 million of net new loans in the fourth quarter, by our math.
What to watch: fourth-quarter net new C&I and total loan balances. Falling short of the $565 million needed for the middle of the full-year plan would show that commercial payoffs and slower borrower demand are overpowering the new sales teams.
Risks this quarter didn't answer
Three standing watch items from prior quarters cannot be read from the third-quarter earnings release alone and await the conference call or quarterly filing.
- Full-year C&I loan growth outlook: the release reaffirmed the total loan target of 18% to 20% but omitted the separate 20% to 22% C&I target, which requires $356 million of fourth-quarter C&I additions to reach its low end.
- Commercial loan pipeline: management previously cited 20% year-over-year pipeline growth on conference calls; the release does not report pipeline figures.
- Criticized and classified loans: the broader bucket of downgraded business loans (which stood at $1.74 billion in the second quarter) is only disclosed in the quarterly Form 10-Q filing.
💲 Other KPIs
Pre-tax pre-provision income — operating profit before credit provisions and taxes — rose 14.3% from last quarter and 19.8% from a year ago. The increase came from higher net interest income, stronger capital markets fees, and an $11.5 million drop in merger-related expenses compared with the second quarter.
The Common Equity Tier 1 (CET1) ratio — a bank's core equity cushion as a share of risk-weighted assets — dipped 9 basis points from 10.47% last quarter because the bank spent $100 million on share buybacks. It remains 5 basis points higher than a year ago and inside the bank's 10.0% to 10.75% target range.
Tangible book value per share — net worth per share excluding goodwill and intangible assets — fell 2.2% from $22.15 last quarter as share repurchases at $30.88 above book value reduced common equity. Compared with a year ago, it is up 1.5% from $21.36.
🔮 Guidance
Unchanged. Associated still plans for total loans to finish 2026 up 18% to 20% against its standalone 2025 base of $31.16 billion. By our math, reaching the 19% middle of the range requires adding $565 million of net new loans in the fourth quarter, up from just $53 million added in the third quarter.
Unchanged. The bank continues to forecast 17% to 19% total deposit growth over the standalone 2025 base of $35.55 billion. By our math, the 18% middle of the range calls for $1.57 billion of deposit inflows in the fourth quarter, up from $450 million in the third quarter.
Unchanged. Management kept its target of 19% to 21% growth in core customer deposits over the 2025 base of $29.60 billion. By our math, hitting the 20% middle of the range leaves $677 million of net new core deposits for the fourth quarter, matching the $671 million gathered in the third quarter.
Unchanged. The full-year plan still calls for net interest income to rise 19% to 21% from last year's standalone $1.20 billion. By our math, the 20% middle of the range leaves $386.9 million for the fourth quarter, which is up 2.6% from the third quarter and up 24.8% from a year ago.
Raised. The bank lifted its full-year fee income forecast by 4 percentage points after strong third-quarter capital markets and deposit fees. By our math, the 13% middle of the range implies $80.2 million of fee revenue in the fourth quarter, up 1.1% from a year ago and down $6.9 million from the third quarter.
Cut (favorable). Associated lowered its full-year cost growth outlook by 1 percentage point, including one-time ANC merger charges ($38.5 million booked through September). By our math, the 19.5% middle of the range leaves $271.1 million of expense for the fourth quarter, up 23.5% from a year ago as final conversion costs hit.
Raised (unfavorable). After the effective tax rate reached 22.86% in the third quarter and 22.37% for the first nine months, the bank moved its full-year tax range up by 1 percentage point. By our math, even hitting the 21% middle of the new range would require a fourth-quarter tax rate near 17.4%.
❓ Key Questions
Why did the release drop the C&I loan growth target?
Prior quarters guided standalone C&I loan growth of 20% to 22% for 2026. C&I loans grew just $54 million in the third quarter, leaving $356 million needed in the fourth quarter to hit 20%. Did management quietly retire that target?
Are the new C&I nonaccrual loans organic or acquired?
C&I nonaccrual loans jumped another 46% this quarter to $65.0 million. Investors need to know whether these defaults are coming from the newly hired commercial relationship teams or from the acquired American National book.
What is driving the jump in early auto loan delinquencies?
Accruing auto loans 30 to 89 days past due more than doubled from $20.4 million last quarter to $46.2 million, and auto net charge-offs rose from 15 to 35 basis points. Is credit tightening required in the auto portfolio?
How much purchase-accounting accretion was in the 3.20% margin?
Last quarter included 6 basis points of temporary merger accounting benefits in the net interest margin. How much remained in the third quarter's 3.20% figure, and what is the underlying margin expansion?