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Associated Banc (NYSE:ASB) released second-quarter financial results and hosted an earnings call on Thursday. Read the complete transcript below.
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Summary
Associated Banc reported a strong second quarter, achieving its target of 9-10% organic C&I loan growth with an increase of over $600 million in balances.
The integration of American National Corporation is progressing well, with the company incorporating nearly $4 billion in loan balances and anticipating a systems and branch conversion by October 2026.
GAAP EPS was $0.63, or $0.73 adjusted for $24 million of non-recurring costs from the acquisition, while net interest income rose by 20% to $370 million.
Organic core customer deposit growth was 6% from June 2025 to June 2026, marking the strongest growth in five years.
The company expects a total loan growth of 18-20% and C&I loan growth of 20-22% by the end of 2026.
Management highlighted the successful expansion into new markets such as Kansas City and Dallas, and the launch of a franchise banking vertical.
Noninterest income increased to $80 million, with growth in wealth, service charges, and card-based fees, while noninterest expenses rose due to the acquisition.
Asset quality remains solid, with careful integration of American National's portfolio and a slight increase in the allowance for credit losses.
Associated Banc expects continued growth momentum into 2027, driven by strategic investments and enhanced capabilities across commercial and consumer banking sectors.
Full Transcript
Alicia, Operator
Good afternoon everyone and welcome to Associated Banc's second quarter 2026 earnings conference call. My name is Alicia, and I will be your operator today. At this time, all participants are in a listen-only mode. We will be conducting a question-and-answer session at the end of the conference. Copies of the slides referenced during today's call are available on the company's website at investor.associatedbank.com. As a reminder, this conference 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 Banc's actual results may differ materially from the results anticipated or projected in such forward-looking statements. Additional detailed information concerning the important factors that could cause Associated Banc'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 Banc's most recent Form 10-K and subsequent SEC filings.
These factors are incorporated herein by reference. For a reconciliation of the non-GAAP financial measures to the GAAP financial measures mentioned in this conference call, please refer to pages 28 through 31 of the slide presentation and to pages 10 and 11 of the press release. Financial tables follow today's presentation. Instructions will be given for the question-and-answer session. At this time, I would like to turn the conference over to Andy Harmening, President and CEO, for opening remarks.
Please go ahead, sir.
Andy Harmening, President and CEO
Thank you and good afternoon. Welcome to our second quarter earnings call. I'm Andy Harmening, and as usual I'm joined by Derek Meyer, our CFO, and Pat Ahern, our Chief Credit Officer. I'll start with some highlights from the quarter, and from there Derek will cover income statement and capital trends, and Pat will provide a credit update midway through 2026. Delivering sustainable, profitable organic growth continues to be the primary focus for our company, and we've maintained momentum in several important ways.
We are driving relationship growth, particularly in commercial. Back in January we set a target of 9% to 10% organic C&I loan growth for the year, and we've already hit that target as of June 30, thanks to the addition of over $600 million in balances during the second quarter. We're also driving relationship deposit growth. Through the first half of 2026, our organic customer household growth has held above 2% on an annualized basis, trending ahead of the 2% target we set for ourselves at the beginning of the year.
From June 30, 2025 to June 30, 2026, organic core customer deposits were up 6%, which is the strongest June-to-June growth we've seen in the last five years. As we look to the back half of 2026 and into 2027, we are well positioned to maintain our growth trajectory thanks to steady execution against our organic initiatives and the ongoing integration of American National Corporation. With respect to initiatives, our hiring has progressed as planned, and we've been pleased with the initial results we've seen from several recent investments, including our expanded Kansas City C&I team, our new Dallas C&I office, our new franchise banking vertical, and key leadership hires in our private wealth business. We expect the impact from these investments to ramp up later this year and into 2027. With respect to American National, we've incorporated their balance sheet, assessed the purchase accounting impacts, and identified cost saves as we work through the integration process. The team and the businesses have been as advertised, and it's becoming clear that we are positioned to drive organic growth momentum over time.
Our next major milestone is systems and branch conversion, which we expect to take place in October of this year. As always, our intention is to grow in a disciplined way, and maintaining our conservative approach on expenses, risk management, and credit remains at the foundation of our strategy. We look forward to providing additional updates as Associated Banc's growth journey along the way. With that, I'd like to walk through our Q2 financial highlights beginning on slide 4.
We reported GAAP EPS of $0.63 in Q2, or $0.73 after adjusting for $24 million of non-recurring costs recognized during the quarter through our acquisition of American National. With the addition of nearly $4 billion in American National loan balances during the quarter, total loans grew by 15% versus the prior quarter. Excluding the impact of American National, we saw organic loan growth of 3%, or $940 million, in Q2. The vast majority of this growth was driven by our commercial business, led by $644 million in organic C&I growth during the quarter.
Total deposits and core customer deposits both grew by 12% in Q2 after adding over $4 billion in American National balances to our balance sheet. Excluding the impact of American National, total deposits decreased by 1% due to the normal seasonality we typically see in our portfolios in Q2. With that said, we saw organic core customer deposit growth of 6%, or $1.7 billion, from June 30 of last year through June 30 of this year. This was the strongest June-to-June growth we've seen since I arrived at the bank over five years ago.
Moving to the income statement, Q2 net interest income of $370 million increased by 20%, or $63 million, versus the prior quarter following the addition of American National. Total noninterest income of $80 million increased by $5 million versus the prior quarter, led by growth in wealth, service charges, and card-based fees. Total noninterest expense of $272 million increased by $53 million versus the prior quarter following the incorporation of American National.
Our Q2 expenses also included $24 million in one-time expenses tied to the deal. Shifting to credit, asset quality trends remained solid in Q2 as we absorbed American National's balance sheet. During the quarter we booked $19 million in provision. Our ACL ratio increased by 2 basis points, and we saw $23 million in charge-offs for the quarter. After excluding approximately $7 million in net charge-offs for a handful of credits inherited from American National, our charge-offs were largely in line with historical trends.
On slide 5 we provided an update to key transaction estimates we shared when we announced the American National deal in December of last year, and by and large the transaction has come in as expected. While nonrecurring merger expenses have come in slightly above expectations and fair value marks were impacted by the shift in rates, the credit mark was in line, and our expected cost saves have increased from 25% of American National's expense base to approximately 30%.
Taken together, our expected earn-back has held firm at 2.25 years. We remain on track for the systems and branch conversion expected to take place in October. Shifting to slide 6, we highlight our quarterly loan trends through Q2. As mentioned previously, our second quarter flows were impacted by the addition of nearly $4 billion of American National balances that were added to our balance sheet as of April 1. With the addition of American National, total loans grew by 15%, or $4.7 billion, on a spot basis relative to Q1.
Excluding the impact of American National, total period-end loans grew by 3%, or $940 million. Organically, growth was led by C&I, which grew $640 million, or 5%, during the quarter. We also saw organic CRE balances increase by $251 million as production outpaced payoffs again in Q2. We continue to expect elevated payoffs in the back half of the year as outlined on slide 7. Our results over the first half of the year reflect continued growth momentum.
This is particularly true with respect to the growth we've seen in our commercial business, which is a reflection of both the investments we've made in the business over the past five years and incremental tailwinds expected from our latest wave of investments in 2026. Throughout the past five years, we bolstered our leadership team with top talent, increased RMs by nearly 50%, and expanded our capabilities to grow commercial relationships. After posting over $500 million growth in C&I in Q1, we delivered another $644 million of organic growth in Q2.
Taken together, we've grown organic C&I loans by nearly $1.2 billion, or 10%, through June 30, effectively hitting our original four-year growth target within the first six months of the year. We expect these prior investments to sustain our growth momentum in the coming quarters, but we also intend to sustain our growth in 2027 and beyond. With that in mind, we remain focused on expanding our capabilities and hiring talented bankers to deepen relationships and take share in major metro markets.
After launching a new C&I office in Kansas City last year and seeing promising initial results, we doubled the size of the team earlier this year. And based on the successful model we deployed in Kansas City, we also officially launched a new C&I office in Dallas with the hiring of respected market leader Brandon White in May. We're rounding out our team as we speak, and we're bullish about the commercial opportunity in the state of Texas. And finally, our new franchise banking team, led by industry veteran Shawn Cord, has already started to book deals after just launching the business in April.
For the combined company, we now expect period-end total loan growth of 18% to 20% in 2026 and continue to expect C&I loan growth of 20% to 22% as compared to Associated Banc standalone results for the year ended December 31, 2025. Moving to slide 8, our Q2 deposit balances grew by 12%, due in large part to the addition of over $4 billion in deposits from American National. Excluding these balances, period-end deposits decreased by 1% versus the prior quarter, largely driven by the seasonality we typically see in our deposit base during the second quarter each year.
With that being said, slide 9 shows a clearer view of the organic growth story within our deposit base excluding the impacts of American National or short-term seasonality. And as we've discussed previously, we have spent five years building out our capabilities to fund our loan growth sustainably over time, primarily with relationship-focused customer deposits, and those efforts are paying off. On the consumer side, we've made significant investments to modernize our digital banking experience, enhance our product set, improve our marketing acquisition capabilities, and develop a successful mass affluent program.
We've enhanced our ability to attract, deepen, and retain customer relationships to grow our customer base organically in a way this company hasn't seen before. Year to date through June 30, we've grown primary checking households by 2.4% on an annualized basis, the strongest growth rate we've seen since we began tracking over a decade ago. And in commercial, we've not only grown our RM base by nearly 50%, but we've also sharpened our focus on deepening relationships across the team.
In addition to loans, we're driving other business, including deposit growth, TM, Capital Markets, and HSA. As an example, our Treasury Management and HSA businesses are both growing double digits year over year. We've also officially completed the tech upgrades necessary for our deposit-focused HOA and title company vertical, which we expect to be a meaningful driver of commercial deposit growth going forward. As we continue to attract and deepen relationships across the bank, that presents a natural opportunity to develop a stronger pipeline into the private wealth business, particularly in major metro markets where we're underpenetrated.
To better facilitate the connectivity of our teams across the footprint and at the local level, we've added several talented executives to our private wealth leadership team, including our new Director of Private Banking for major metro markets, Lisa Buteau in the Twin Cities, and another executive in the Twin Cities, Ken Lachance. And finally, the integration of American National is proceeding as expected. We're confident that this partnership will provide opportunities to deepen relationships with existing customers while also providing growth opportunities in attractive markets like Omaha and the Twin Cities.
Taken together, these efforts have helped us build a sustainable deposit-gathering engine that is having a real impact on our financial results. From June 30 of last year to June 30 of this year, we posted organic core customer deposit growth of 6% compared to 4% the previous year and 2% the year before that. Going forward, we're confident in our ability to drive sustainable core customer deposit growth thanks to best-in-class consumer value proposition, household growth momentum supported by increased marketing acquisition spend in growth markets, and significant enhancements to our commercial deposit-gathering capabilities.
We continue to expect 2026 period-end total deposit growth of 17% to 19% and period-end core customer deposit growth of 19% to 21% as compared to Associated Banc standalone results for the year ended December 31, 2025. With that, I'll pass it to Derek to discuss our income statement and capital needs.
Derek Meyer, Chief Financial Officer
Thanks, Andy. I'll start with yield trends on Slide 10. In Q2, we saw the yields on most earning asset categories increase following the addition of American National to our balance sheet. Of note, the yield on our auto portfolio increased by 38 basis points reflecting the impact from deferred loan cost and fee adjustments tied to the acquisition of American National. We also saw our quarterly investment yields increase by 5 basis points following our repositioning of American National's securities portfolio earlier in the quarter.
Within that transaction, we sold their securities portfolio with a book value of approximately $1 billion and reinvested the same amount at a yield of approximately 4.6%. Overall, the yield on total earning assets increased by 12 basis points during the quarter while the rate on total interest-bearing liabilities decreased by 1 basis point. Net free funds expanded by 2 basis points versus the prior quarter. Moving to Slide 11, second quarter net interest income of $370 million increased $63 million versus the prior quarter and increased $70 million versus Q2 of 2025.
After adding American National to our balance sheet, our net interest margin increased 14 basis points to 3.17% for the quarter. On the right-hand side of the slide, we've included a table disaggregating several key impacts to our NII and margin following the addition of American National. The net accretion impacts from purchase accounting and adjustments for deferred loan costs and fees combined to drive a 6 basis point improvement in our Q2 margin.
After assessing the balance sheet and income statement impacts from the acquisition of American National, we now expect the total 2026 net interest income to grow by 19 to 21% as compared to Associated Banc standalone results for the year ended December 31, 2025. Slide 12 provides a reminder of the steps we've taken to put ourselves in a more neutral interest rate position. We're maintaining repricing flexibility by keeping our funding obligations short.
We're protecting our variable-rate loan portfolio by maintaining received-fixed swap balances of approximately $2.45 billion and we built a $4 billion fixed-rate auto book with low prepayment risk. An up 100 ramp scenario now represents a 1.9% impact to our NII as of Q2, while a down 100 scenario now represents a 1.2% impact. We expect to maintain this relatively neutral position going forward. Moving to Slide 13, total investment security balances grew to $10.2 billion in Q2 following the acquisition of American National and repositioning of their securities book early in the quarter.
Our securities-plus-cash to total assets ratio finished at 23.3% as of Q2. We continue to target a range of between 22 and 24% for the year. Slide 14 shows a detailed view of quarterly noninterest income trends. Total noninterest income of $80 million in Q2 was up $5 million from the prior quarter and $13 million versus Q2 of 2025. This increase was driven in part by our acquisition of American National, but we also saw healthy growth in our legacy wealth management and capital markets businesses.
American National has not historically focused on these areas and we view them as opportunities for our combined company as we get through conversion and into 2027. In 2026 we continue to expect total noninterest income growth of 8% to 10% as compared to Associated Banc standalone results for the year ended December 31, 2025. Moving to Slide 15, total noninterest expenses of $272 million increased by $53 million versus the prior quarter following the acquisition of American National along with the addition of $24 million in nonrecurring costs recognized in connection with the acquisition.
Most of the nonrecurring costs year to date have landed in the personnel and legal and professional categories. After adjusting for these nonrecurring expenses during the quarter, our efficiency ratio decreased to 52.9%. As we move forward, we will continue to invest in the growth of our franchise, but we're anchored on delivering positive operating leverage. After incorporating the impact of the American National acquisition, including the nonrecurring costs incurred as part of the acquisition, we now expect noninterest expense to grow by 20% to 21% in 2026 as compared to Associated Banc standalone results for the year ended December 31, 2025.
On Slide 16, our CET1 ratio finished at 10.47% in Q2. This figure was flat from the prior quarter but up 27 basis points relative to Q2 in 2025. Our TCE ratio remained flat from the prior quarter and up 21 basis points from Q2 of 2025 at 8.27%. Our tangible book value per share finished at 22.15, down slightly from the prior quarter, but up $1.31 relative to Q2 of 2025. I'll now hand it over to 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 May 2026 baseline forecast. The forecast remains consistent with a resilient economy and containing a more optimistic GDP outlook despite the higher interest rate environment, higher levels of inflation and tariff negotiations. The Moody's forecast continues to contain less total rate cuts in the latter half of 2026 compared to prior forecasts.
In Q2, our ACLL increased by $69 million to $494 million, with the increase driven by an equal mix of loan growth and normal credit movements. Our ACL ratio as a percentage of total loans increased to 1.36%, up 2 basis points from the prior quarter and up 1 basis point from the same period a year ago. On Slide 18, we continued to see solid performance across our key credit quality metrics. In Q2, total delinquencies of $60 million decreased by $28 million versus the prior quarter and were generally in line with the levels we've seen previously.
Total criticized loans increased by $290 million versus the prior quarter, with much of the dollar increase driven by the addition of American National. However, as a percentage of total loans, criticized loans were largely in line with prior quarters. Nonaccrual balances increased to $150 million in Q2, up $39 million versus Q1. Approximately half of the increase in nonaccrual loans came from the American National portfolio. As we aligned several credits to Associated Banc's credit strategy and philosophies, Q2 net charge-offs of $23 million included $7 million of charge-offs from American National.
The net charge-offs from Associated Banc equate to approximately 18 basis points for the quarter and 13 basis points year to date, which aligns with our historical trends. And keep in mind, this is after 2/4 of 7 basis points or less of net charge-offs. And finally, we booked $19 million of provision in Q2, up $8 million from the prior quarter and up $1 million from Q2 of 2025. With the merger of American National, we have taken a thoughtful, vigilant approach toward both risk rating and charge-off decisions to best align with the Associated Banc process and philosophy.
To confirm, we are not finding any surprises in the American National portfolio relative to due diligence and we are tracking to our day one credit mark. At this time, we have completed portfolio reviews of the vast majority of American National credit, remain confident in our integration, finding the portfolio modestly exceeding our expectations. We also continue to feel comfortable with the credit performance of our core portfolio. With that said, our teams remain vigilant in reviewing our portfolios and staying in regular contact with both Associated Banc and American National customers to stay ahead of any emerging risk.
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 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 future 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 Harmening, President and CEO
Thank you, Pat. On Slide 19, we provide an update to our outlook following a Q2 that included continued organic momentum, the close of the American National acquisition, the incorporation of their balance sheet and the finalization of all purchase accounting marks. As we sit here today, our current expectations for the American National partnership are largely in line with the assumptions we provided when we announced the deal. As a reminder, this outlook does not assume any material incremental growth expectations for the American National businesses in 2026.
And with that, let's open it up for questions.
Alicia, Operator
Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. One moment, please, while we poll for questions.
Thank you. Our first question comes from the line of Brandon Rudd from Stephens. Please proceed.
Brandon Rudd, Analyst at Stephens
Hi. Thanks for taking my questions. My first one, if I could unpack the expense guide of up 20 to 21%. I understand that's a GAAP number. So if we wanted to back into a core kind of at the midpoint for '26, is it fair to say you just grow '25 by 20.5% and then strip out the $52.5 million? That kind of gets you somewhere to a number around $980 million for 2026 on a core basis.
Derek Meyer, Chief Financial Officer
Yeah, I would take the guide and just take out the numbers on Slide 5. It sounds like that's what you did. We're pretty much on track with our original 3% guidance for core Associated Banc, a little bit higher as a result of deferred comp expense, which is net-neutral because it's offset with fees in terms of EPS. But other than that, it's pretty straightforward and I think you've got it.
Brandon Rudd, Analyst at Stephens
Okay, perfect. Thank you. And the one on the balance sheet, the outlook for the total loan growth is a bit higher, but the C loan growth is unchanged. Is that related to the franchise business that you mentioned earlier, Andy, or is that coming from the commercial real estate business? I'm just curious what's driving that increment of 100 basis points.
Andy Harmening, President and CEO
Yeah, it's largely coming from CRE and the CNI balances. For us, we've had a very strong first half of the year, but we pulled forward a little bit of production and we would expect some pay downs in the second half of the year as we did at the beginning of the year. It's kind of the carryover for the industry from 2021 product. So overall couldn't be much more pleased with the first half productivity. But the reason that that shows a little bit of a slow in the second half is the timing of some production that hit in Q2 and then taking that off the board and probably having the payoffs we expected in the CRE in the second half of the year.
Brandon Rudd, Analyst at Stephens
Okay, thank you very much. If I could just squeeze one more in. With the October conversion, is it safe to say that the first quarter with the full run rate of cost savings is 1Q27?
Andy Harmening, President and CEO
That is fair to say, yes. But I think it'll be pretty darn clear as you exit '26 what we have. We'll see a lot of the one-timers. Clearly a lot came through in second quarter. Proponents of the rest comes through in the third quarter. And then you obviously after conversion then you have a few of the cost saves that come through in the fourth and that means that we should be heading for a very understandable year end and a clean first quarter.
Brandon Rudd, Analyst at Stephens
Okay, perfect. Thank you very much.
Alicia, Operator
Thank you, Brandon. Our next question comes from the line of Daniel Tamayo with Raymond James. Please proceed.
Daniel Tamayo, Analyst at Raymond James
Thanks, guys. Excuse me. Good afternoon. Sorry. I just want to go back to the expense guide just to make sure we're all on the same page here. So as we think about the year end number, that fourth quarter number to build on in 27 and then we get a little bit more maybe savings in the first quarter. But are you thinking the number goes down in the fourth quarter from the third quarter or, you know, if you're comfortable giving us, you know, something a little bit cleaner in terms of where we should, we should target for the fourth quarter number? I just, you know, I'm getting a number just over 260.
I don't know if that's in the ballpark of where we should be looking, but my number overall was a little bit higher than 980 based on the math I ran for the year.
Derek Meyer, Chief Financial Officer
Yeah, I don't. We're not, I think we're not ready to parse the quarters yet. It's not clear exactly based on the conversion date and the contract terminations, where the one-time costs will go. But I think the full year midpoint guidance that's implied minus the 52.5 gets you to our full year number this year. And if you back that out and, you know, it's going to be hard to pin me down to a quarterly run rate yet.
Daniel Tamayo, Analyst at Raymond James
Okay, we can, we can get close enough. I think, I think. And you thought. And so the big, the big increase in the, in the guide basically on the, on a core basis was the deferred comp, I think is what you were saying before. Like that's how we should think about the, the difference.
Derek Meyer, Chief Financial Officer
Yeah. If you go, if you go through and you're trying to reverse engineer if we've been naughty or nice. I think the only thing to take away from this is we're on track organically. Except the deferred comp. We would have been at the 3% original expense guide. We're on track with hitting our merger expenses except for the. Actually a little bit better in the long run. Except for the one-time costs are a little higher. And we're pretty transparent about that on Slide 5.
Daniel Tamayo, Analyst at Raymond James
So with the increase in the cost saves from 25 to 30%, I mean, is it fair to say that from where you guys were thinking about things last quarter, where you're thinking about things now, the 27 number would be lower or because of the deferred comp, it kind of evens out or it's higher.
Derek Meyer, Chief Financial Officer
I would say for next year compared to our original business case, we had more tangible book value dilution. I'm going to work off of page five if you're following along at home here. And there's a couple elements to it. Part of it is the expenses, right. We had higher one-time costs. And what we're finding after three months of working through this is it looks like we're going to land at a run rate going into next year that is a better run rate than what we originally anticipated.
That help gets us our tangible book value earned back to where we expect it to be. The rest of that. And I'm going to go beyond what you asked for. And this is offsetting the marks. Since interest rates were higher, we had bigger marks across a couple areas and we expect our revenue to be higher also. That showed up this quarter. We expect it to show up the next eight quarters to get us probably 60% better revenue over that time period. That also helps us recapture some of that dilution.
And then there's a little bit better credit quality as as Pat's gotten satisfied with what he's seen the last three months of actual. So hopefully that's helpful.
Daniel Tamayo, Analyst at Raymond James
It is Derek, thank you. And if I could just change gears here quickly and also a follow up ironically from the first question. But you know the increase in paydowns that you were talking about, maybe Andy, you could give us a sense of back half breakdown by kind of pay downs versus runoff expectations versus originations. Just trying to get at like kind of core origination pace if that's you know, similar picking up or going down the back.
Andy Harmening, President and CEO
Yeah. To predict every payoff that we might have in the second half of the year would be a mistake. And so what I would tell you very simply is we had a rise in mortgage warehouse of about $150 million exiting the quarter unexpectedly that went back out. So to me we have outstanding organic growth even if under any measurement. But that is something that changes going into the third quarter. We have higher than expected productivity in CRE. We have pipelines that are significantly up.
We have CNI pipelines that are up 20% versus the same period coming off an annualized 20% growth in the first half. So when all that hits and how that hits and what pays down when it's uncertain. But when we look at the natural course of CRE in particular, we would expect that we would have increased payoffs in the second half. And so that's how we gauged our guidance for the rest of the year. However, I would say that for us one of the things we're really pleased, I'm really pleased with is our nimble we look at the NIM going to 317 and then we roughly believe that about two basis points of that comes organically.
We're going into the second half of the year with momentum on we believe relative to prior periods and prior years on deposits and loans, we have momentum in our customer growth. That means that you're starting to get checking account granular checking account growth. We haven't seen that in a long time. But June to June we saw 3.6% increase in that category. We see a mix shift as a result of increasing our commercial loans and decrease in our resi.
And what that means for us in a world that's always competitive is we believe that we'll have NIM expansion in the third quarter and we believe we'll have NIM expansion in the fourth quarter. And to me that's a really exciting story for us as we start to hit 317 and we believe we can go beyond that with regards to specific dollars and payoffs by category. Beyond that, I wouldn't hasten to guess on that.
Daniel Tamayo, Analyst at Raymond James
No, that's helpful. I know it's a tough question, but I appreciate all the color. Derek and Andy, I'll step back.
Alicia, Operator
Thanks. Thanks, Daniel. Our next question comes to the line of Casey Hare with Autonomous Research. Please proceed.
Casey Hare, Analyst at Autonomous Research
Yeah, great, thanks. Good afternoon, guys. So maybe a follow up on the NIM, which sounds pretty positive. So maybe can you help us out with how deposit cost trends and where new money loan yields are on a core basis versus that 560 level in the second quarter?
Derek Meyer, Chief Financial Officer
Yeah. Good. Yeah, we haven't so one deposit trends have been. We're very pleased with it. In fact, we were our conclusion after we went through all these materials because we had really strong loan growth and we liked the way that the first quarter turned out with ANC was that our deposit pricing was sort of the unsung hero of the quarter. We had strong point to point growth. Deposit costs actually improved modestly second quarter at legacy ASB in terms of funding costs.
And this is usually a quarter where we're most exposed to wholesale funding because we have seasonal declines in our core customer deposits even though we're up 6% year over year. So I would say an environment where everyone's trying to understand where the strong loan demand is going to drive funding cost. We were very satisfied with the performance from that standpoint. Loan yields are still going to continue to be grinding up over time. And we think once we get through a few quarters where we have a lot of this accretion burn through because it comes in quickly, we've got the schedule in there that shows it that we're going to start to continue to grind up on our margin as a result of the remix of the portfolio. And that you'll see that in spades when you look at the yields on the CRE and CNI relative to what's happening with resi. And we also got the benefit of repositioning the securities book.
Casey Hare, Analyst at Autonomous Research
Okay, very good. And then switching to capital management. Just wondering. You've got A and B now closed here. You get the conversion upcoming. Where are you guys in terms of M and A appetite? It sounds like things are going, you know, organically. Got very nice pipelines and NIM on the way up. Just, just wondering what the appetite is on the M and A front.
Andy Harmening, President and CEO
Casey, I almost went for a head fake thinking you're going to ask about buybacks, but I'm happy to talk about M and A. M and A. I bet you I get somebody to ask about buybacks next. But the M and A side for me, I'll answer it in this way. The primary growth strategy for our company was organic growth. The question when we did this deal back in December was would we take our eye off the ball and lose momentum in organic growth? I don't recall having 20% annualized C& I growth as a company ever.
And to see the deposit growth on top of that, that has been our goal and we're achieving that halfway through the year. The second goal is to have continued organic growth while completing the American national integration that is really on track. And frankly getting through all the detailed marks and understanding where we stood on credit in particular and seeing that we're in a good spot there and still being at the due diligence two and a quarter, that was good news.
Really good news for us. The third piece of it is, hey, with A and B, can we leverage A and B with the current Associated Banc capabilities? Well, we do that largely after systems conversion a little bit right now. But we're going to be adding wealth capabilities, capital markets capabilities, consumer products, health savings accounts and an upgraded consumer digital platform. When you look at that in a growth market like Omaha, I can't be much more excited.
I'm trying to calm down. This is an earnings call. But when I look at this, we say we are well on our way to showing that AMB enhances our organic growth strategy. And I've said this a few times. The number one thing I don't want to do is throw away five years of hard work to become an organic machine on a bad deal. So that's how I'm thinking about life right now. As we get through this conversion and we execute on the way we are so far, we can have more thoughts on the M A front.
Casey Hare, Analyst at Autonomous Research
Gotcha. Thank you.
Alicia, Operator
Thank you. Our next question comes from the line of Jared Shaw with Barclays. Please proceed.
John Rowe, Analyst at Barclays
Hi, this is John Rowe. Enter Jared. Really good trends it looks like. I'm, I guess the balance sheet as a whole, but digging into the deposit side and funding remix over the next few years. So what does that look like in terms of brokered balances as a percentage of deposits and FHLB? Like what are the priorities of reducing those more non core funding sources?
Derek Meyer, Chief Financial Officer
Yeah, if you look at the, the, if you treat those as fungible, so add them, add the FHLB and brokered and network deposits, we expect even by the end of this year for that as a mic as a percent to be down 1 or 2% versus what we previously forecasted. So we think we took another step in that direction. This structurally helps us and it adds a market like Omaha where we can put in place the wealth strategies, the mass affluent strategies, the product segmentation in a market that's growing faster and give us some tailwinds behind some of those.
So we're eager to take that metro market and help it thrive and drive down that wholesale borrowing. I think because of our overall pace of growth to target materially faster wholesale repositioning would be a challenge. We do not want to hold back the rest of the bank waiting for that to happen.
Andy Harmening, President and CEO
I can thankfully say no, I can't think of anything holding that back. And I say that a little tongue in cheek. We had to build out some technology, digital capabilities for that business. And so we had brought in a very seasoned team that knows this business, that had started that business at another major institution. What can that be for this for us? We think over time it should be hundreds of millions, hundreds of millions of dollars. The technology on that literally launched in June, Juneish time frame and we've already seen dollars coming into that at the end of June, beginning of July.
So we think we'll see some growth in the second half. And if I had to handicap that, you know, and leaving 2027, you're probably talking about a business that would have 2 to $300 million in deposits because there's just no lack of understanding of who the players in that market. If you're starting this business and you haven't been in it, you probably have a challenge. The technology is important. Relationships and knowledge of people is as well.
So we think that that could have a steady significant impact to our growth over time. So that's one piece. Secondly, that I haven't gotten into this as much as. But our Treasury Management sales are up over 20% year to date. Well over 20%. The reason I care about that is not from the fees from Treasury Management. Those are nice. But the correlation as a leading indicator to deposit growth has always been significant. So that is pretty exciting to see for us on the go forward.
And that's something we have not had at that level in the last several years. So you combine that with the HOA and title and then you start to see the remix of where we're getting growth in our consumer checking accounts, we've not seen 3.6% growth in several years in that category. And that comes from a customer growth that goes from negative three to minus one to zero to one to one and a half to two. And so we are starting to just now see the tailwinds on repeatable fungible deposit growth as a company.
So those several things together. But thank you for asking about the HOA title business. It's very timely for us. Great, thanks, Elder Kohler.
Alicia, Operator
Thank you. Our next question comes from the line of John Arstrom from RBC Capital Markets. Please proceed.
John Arstrom, Analyst at RBC Capital Markets
Good afternoon, guys. Hey, Andy. How do you feel about buying back stock?
Andy Harmening, President and CEO
Oh, my gosh. Yeah. Oh, my gosh. Okay, you got me a little. Yeah, no, we've talked about this. And the things I needed to see, I needed to see that we were pulling. Pulling through the increased profitability profile. We clearly are. I mean, you can see that in the margin. And now when I look at the rest of the year, what I see is forecasted growth and the rate curve feel pretty good about where that is going to be. We've also gotten through the A and balance sheet and we understand what it is, we understand what the marks are. And so we're in a pretty good position to deploy the already approved share repurchases in the third quarter and the fourth quarter.
John Arstrom, Analyst at RBC Capital Markets
Okay, good.
Andy Harmening, President and CEO
Thanks for the question, John.
John Arstrom, Analyst at RBC Capital Markets
Yeah, you got it. That was easy. Derek, to the extent you can. Can you just remind us of the typical deposit seasonality you see in the second half of the year, just so we can understand the mix a little better?
Derek Meyer, Chief Financial Officer
Yeah, I mean, the second half of the year is when we see most of the growth, which is why we keep looking year over year to make sure we're tracking that way. And it really starts mid quarter, it stabilizes. It's the first half of the quarter, it's mid quarter, and then grows really strongly, both really across all the lines of business. The rest of the year, it's in our wealth, it's in our commercial business through government deposits and consumer.
Everybody knows this, who does a lot of consumer work, even outside of banking. When summer's over and the action starts really from there through the end of the year, the economic activity also drives more account acquisition. And so we start acquiring households and expanding the ones we already picked up. So it's really across the board.
Andy Harmening, President and CEO
And just to reiterate this, John, I mean, we have a tracker that basically shows when the dip starts almost to the day and week each year. And the only thing different about this year is we're growing more year to year than we had in the past. But the dip is all similar in the probably. The other thing that is different is the launch of the new vertical, the HOA title vertical that we just launched more or less in June with the technology introduction.
John Arstrom, Analyst at RBC Capital Markets
Okay, just one more I want to squeeze in here, but I don't know if it's for you, Pat, or Andy, but there have been questions on other calls about the competitive environment and lending. Based on what I'm seeing in your growth and your yields, it doesn't feel like you feel like it's overly competitive. But any thoughts or comments on the environment?
Andy Harmening, President and CEO
Yeah, I'll take that one. And certainly Pat, you can, since you're looking at like every deal coming across. But the thing that's interesting for us right now, that's exciting for me and gives me confidence is there's always competition and there's competition now. However, we are seeing growth in commercial through small business, which is our smaller revenue businesses, business banking, which is the next segment up, commercial banking and community banking. So if you think about that, four different lines of business are all seeing double digit growth because we've invested in every single one of those businesses.
And those businesses span significant geographies, primarily Chicago, Milwaukee, Twin Cities, North Dakota, Northern Wisconsin, Kansas City, St. Louis and Omaha. And so between geographic distribution, business line distribution, we have a pretty good advantage. And then when you put on top of that that we've expanded in geographies and we've added new verticals, it puts us in a position where we don't have to press down to take deals that we either don't like from a credit standpoint or we don't like from a return profile standpoint. It's also why I see this as a sustainable model for us, Pat, add to that.
Pat Ahern, Chief Credit Officer
Yeah, I mean, I would just echo the comment that there's always competition. It's always, you know, depending on the lines of business. I think to Andy's point, you know, we're evaluating each credit as they come into how it fits into the bank's overall strategy. So there's the credit aspect, the return aspect, but that's kind of our discipline is we want to make sure it fits the ongoing long term plan.
Andy Harmening, President and CEO
I'd say the other thing to remember is we're remixing the balance sheet. And I know you know that, John, but when the return profile in a commercial relationship that brings in deposits versus a non customer res E deal that we have running off right now. That's why we feel comfortable that we've been kind of dripping up on our margin each quarter and with increased productivity you continue to see that. So those are a couple different things in play that might be unique to us.
John Arstrom, Analyst at RBC Capital Markets
Yep. Okay. Thanks a lot.
Andy Harmening, President and CEO
I appreciate it. Thank you.
Alicia, Operator
Our next question comes from the line of Christopher McGrady with KBW. Please proceed.
Chris O'Connell, Analyst at KBW
Hey, good afternoon, this is Chris O'Connell filling in for Chris. So just wanted to see if you guys could provide some color on the NPL increase for the quarter. I know credit overall has been very solid. I think half of it was driven by the A and B acquisition, but just a little bit of color on each part. Pat?
Andy Harmening, President and CEO
Christopher. Chris.
Pat Ahern, Chief Credit Officer
Yeah, sure. In terms of the non accruals, like you said, about half that came from the American national portfolio. There were several credits there, relatively small. It was really trying to align risk rating into our process and philosophy. No concentrations, no overarching concerns, whether it be industry, geography, etc. So we're comfortable with that. I think overall the stuff that we saw in the ASB side was just kind of normal evolution of business cycles.
We're not seeing anything emerging as an area that we're concerned about again relative to industries, geography, lines of business, et cetera. And from a criticized standpoint, again the dollar amounts went up via the acquisition. But from a basis standpoint, we're consistent one or two basis point shift there. So we're very comfortable with that. And we've been, as we mentioned earlier, very pleased with the overall profile of the portfolio. It's lived up to expectations, so we're happy with that and we'll continue our deep dives.
But we've been through the majority of it and we like what we've seen.
Chris O'Connell, Analyst at KBW
Great. Thanks, Pat. And then in terms of the net charge offs coming from American national, this is 7 million typical kind of run rate for them in that loan portfolio that you would think going forward. And then on the overall reserve ratio as well, given the puts and takes of the deal bringing on the marked portfolio and the overall loan mix shift leaning more towards higher reserve C and I maybe expectations as to if that overall reserve ratio will be more steady or kind of trend up over time.
Pat Ahern, Chief Credit Officer
I think from a reserve ratio, I think we're going to be pretty steady. We're not seeing anything on the horizons that's going to shift how we look at our ACL ratio right now in terms of charge off rate. We accelerated a couple credits. Again, some pretty small bite sized things that we wanted to more align with our process and philosophies and how we manage some stress credits. But we don't expect that to replicate itself going forward.
Andy Harmening, President and CEO
Yeah, I mean, just for clarity, that came after a full portfolio review using the ASB approach to underwriting on a granular level. So that is not a repetitive situation. And I'll just reiterate, the approach to credit from American national bank is very good. So we feel comfortable that we basically identified this, but it also fit within the mark, the expected marks that we have because we know as you go as deep as you can possibly go, you're going to find something within there that may not fit exactly, but we found it and that's through extensive deep dive.
So I feel pretty good about the fact that we frankly, I would say found really nothing outside of what we expected from due diligence. In fact, I think we're within a few hundred thousand dollars on a multi billion dollar portfolio on the mark. And we feel extremely well reserved overall in the portfolio for both companies.
Chris O'Connell, Analyst at KBW
Perfect. Thanks for taking my questions.
Alicia, Operator
Thank you. There are no further questions. I'd like to pass the call back over to management for any closing remarks.
Andy Harmening, President and CEO
Well, I would just say thank you for the great questions today and for the interest in Associated Banc. We look forward to speaking with you in the near future and continuing to tell our story. Thank you very much.
Alicia, Operator
This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
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