Associated Banc-p(US:ASB)2023-10-25 16:00PART I. Financial Information This section covers the unaudited consolidated financial statements, management's discussion and analysis, market risk disclosures, and controls and procedures Item 1. Financial Statements (Unaudited) This section presents the unaudited consolidated financial statements for Associated Banc-Corp as of September 30, 2023, and for the three and nine-month periods then ended. It includes the Consolidated Balance Sheets, Statements of Income, Statements of Comprehensive Income, Statements of Changes in Stockholders' Equity, Statements of Cash Flows, and the accompanying Notes to Consolidated Financial Statements Consolidated Balance Sheets Consolidated Balance Sheet Highlights (Unaudited) | Balance Sheet Item | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Total Assets | $41,637,381 | $39,405,727 | +5.7% | | Loans, net | $29,847,392 | $28,486,849 | +4.8% | | Total Liabilities | $37,509,738 | $35,390,237 | +6.0% | | Total Deposits | $32,123,326 | $29,636,154 | +8.4% | | FHLB Advances | $3,733,041 | $4,319,861 | -13.6% | | Total Stockholders' Equity | $4,127,643 | $4,015,490 | +2.8% | Consolidated Statements of Income Income Statement Highlights (Unaudited) | Metric (in thousands, except EPS) | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | YoY Change | | :--- | :--- | :--- | :--- | | Net Interest Income | $786,171 | $668,332 | +17.6% | | Provision for Credit Losses | $62,014 | $13,006 | +376.8% | | Noninterest Income | $194,195 | $220,713 | -12.0% | | Noninterest Expense | $574,291 | $550,503 | +4.3% | | Net Income | $273,762 | $257,360 | +6.4% | | Diluted EPS | $1.75 | $1.65 | +6.1% | Consolidated Statements of Comprehensive Income - For the nine months ended September 30, 2023, the company reported a total other comprehensive loss of $66.3 million, primarily driven by a $46.8 million after-tax unrealized loss on Available for Sale (AFS) securities and a $19.4 million after-tax unrealized loss on cash flow hedge derivatives14 Consolidated Statements of Changes in Stockholders' Equity - Total stockholders' equity increased from $4.015 billion at December 31, 2022, to $4.128 billion at September 30, 2023. The increase was primarily driven by net income of $273.8 million, partially offset by cash dividends of $104.6 million and a net other comprehensive loss of $66.3 million181920 Consolidated Statements of Cash Flows Cash Flow Summary (Nine Months Ended Sep 30) | Cash Flow Activity (in thousands) | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $378,110 | $722,330 | | Net cash (used in) investing activities | ($2,224,411) | ($3,980,951) | | Net cash provided by financing activities | $1,937,635 | $2,735,525 | | Net increase (decrease) in cash | $91,334 | ($523,096) | Notes to Consolidated Financial Statements - The company adopted ASU 2022-02 in the first quarter of 2023, which eliminated the accounting guidance for Troubled Debt Restructurings (TDRs) and enhanced disclosure requirements for loan modifications to borrowers experiencing financial difficulty. The adoption did not have a material impact on financial position but resulted in additional disclosures32 Investment Securities Portfolio (Sep 30, 2023) | Security Type (in thousands) | Available for Sale (Fair Value) | Held to Maturity (Amortized Cost) | | :--- | :--- | :--- | | U.S. Treasury & Agency | $122,614 | $999 | | Municipal Securities | $210,317 | $1,700,162 | | Mortgage-related Securities | $3,190,527 | $2,199,322 | | Asset Backed & Other | $141,775 | - | | Total | $3,491,679 | $3,900,483 | Loan Portfolio Composition | Loan Category (in thousands) | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Total Commercial | $18,503,736 | $17,986,742 | | Total Consumer | $11,689,451 | $10,812,828 | | Total Loans | $30,193,187 | $28,799,569 | - The Allowance for Credit Losses on Loans (ACLL) increased to $380.6 million at September 30, 2023, from $351.5 million at year-end 2022. The provision for credit losses for the first nine months of 2023 was $62.0 million94 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the Corporation's financial performance for the nine months ended September 30, 2023. Key topics include an 18% increase in net interest income driven by loan growth and higher interest rates, a significant increase in the provision for credit losses, and a 4% rise in noninterest expense. The analysis also covers balance sheet trends, credit risk management, liquidity, capital adequacy, and a review of segment performance - For 2023, management expects period-end loan growth of 5% to 6%, net interest income growth of 8% to 10%, noninterest income compression of 8% to 10%, and noninterest expense growth of 3% to 4%205206207 Income Statement Analysis - Net interest income for the first nine months of 2023 increased by $118 million (18%) year-over-year to $786 million, with the net interest margin expanding by 9 basis points to 2.86%. This was driven by higher interest income from loan growth and rising rates, which outpaced the increase in interest expense on deposits and borrowings206211218 - The provision for credit losses was $62 million for the first nine months of 2023, a significant increase from $13 million in the same period of 2022. This was attributed to loan growth, minor credit quality shifts, and macroeconomic trends206220 - Noninterest income decreased by 12% year-over-year, primarily due to a $10 million reduction in service charges and deposit account fees following fee eliminations in 2022, and a $9 million decrease in capital markets revenue207223 - Noninterest expense rose by 4% year-over-year, driven by a $12 million increase in personnel costs from strategic hiring, a $9 million increase in FDIC assessment expense due to a rate change, and a $9 million increase in technology expense from digital investments224225 Balance Sheet Analysis - Total assets grew to $41.6 billion at September 30, 2023, a 6% increase from year-end 2022, primarily due to a $1.4 billion (5%) increase in loans229230 - Total deposits increased by $2.5 billion (8%) from year-end 2022, driven by growth in time deposits and network transaction deposits, which offset a decline in noninterest-bearing demand deposits230 - Nonperforming assets (NPAs) as a percentage of total assets increased to 0.43% at September 30, 2023, from 0.32% at December 31, 2022. The increase was primarily driven by a $57 million rise in nonaccrual loans, mainly in the commercial and industrial portfolio254268 Liquidity and Capital Resources Liquidity Sources (Sep 30, 2023) | Source | Available Amount (in thousands) | | :--- | :--- | | Funding available within one business day | $7,646,682 | | Available federal funds lines | $2,518,000 | | Available brokered deposits capacity | $1,240,488 | | Unsecured debt capacity | $1,000,000 | | Total available liquidity | $12,405,170 | - The coverage ratio of uninsured and uncollateralized deposits with total available funding was 172% as of September 30, 2023278 Key Capital Ratios | Ratio | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | CET1 capital ratio | 9.55% | 9.35% | | Tier 1 capital ratio | 10.12% | 9.95% | | Total capital ratio | 12.25% | 11.33% | | Tier 1 leverage ratio | 8.42% | 8.59% | Segment Review Segment Net Income (Nine Months Ended Sep 30, 2023) | Segment | Net Income (in thousands) | YoY Change (%) | | :--- | :--- | :--- | | Corporate and Commercial Specialty | $215,688 | +27% | | Community, Consumer, and Business | $238,897 | +178% | | Risk Management and Shared Services | ($180,823) | N/M | | Consolidated Total | $273,762 | +6% | Quantitative and Qualitative Disclosures About Market Risk This section details the Corporation's management of market and interest rate risk. The primary goal is to control exposure within policy limits using simulation models to measure Earnings at Risk (EAR) and Market Value of Equity (MVE) at risk. As of September 30, 2023, the Corporation's EAR profile is asset sensitive Estimated % Change in Rate Sensitive Earnings at Risk (EAR) Over 12 Months | Gradual Rate Change | Dynamic Forecast (Sep 30, 2023) | Static Forecast (Sep 30, 2023) | | :--- | :--- | :--- | | +100 bp | 2.0% | 2.2% | | +200 bp | 4.0% | 4.4% | | -100 bp | (0.6)% | (0.9)% | | -200 bp | (0.8)% | (1.3)% | Controls and Procedures Management, including the CEO and CFO, evaluated the Corporation's disclosure controls and procedures and concluded they were effective as of September 30, 2023. There were no material changes to internal control over financial reporting during the last fiscal quarter - The Chief Executive Officer and Chief Financial Officer concluded that the Corporation's disclosure controls and procedures were effective as of September 30, 2023321 PART II. Other Information This section includes legal proceedings, risk factors, unregistered sales of equity securities, other information, and exhibits Legal Proceedings This section refers to Note 11 of the financial statements for information regarding pending and threatened legal proceedings arising in the normal course of business Risk Factors The Corporation states that there have been no material changes to the risk factors described in its 2022 Annual Report on Form 10-K, other than those disclosed in the Form 10-Q for the quarter ended March 31, 2023 Unregistered Sales of Equity Securities and Use of Proceeds During the third quarter of 2023, the Corporation repurchased approximately 14,282 shares of its common stock for a total of $261,000. All repurchases were related to tax withholding on equity compensation and did not involve open market purchases. As of September 30, 2023, $80 million remained authorized for repurchase under the Board's 2021 authorization Common Stock Purchases (Q3 2023) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | July 2023 | 6,763 | $18.17 | | August 2023 | 7,163 | $18.47 | | September 2023 | 356 | $17.66 | | Total | 14,282 | $18.31 | Other Information The report states that during the third quarter of 2023, no director or officer of the Corporation adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement Exhibits This section lists the exhibits filed with the Form 10-Q, including Sarbanes-Oxley certifications by the CEO and CFO, and interactive data files (XBRL)