Associated Banc-p(ASB) - 2024 Q1 - Quarterly Report

PART I. Financial Information This part presents the unaudited consolidated financial statements and management's discussion and analysis of financial condition and results of operations Item 1. Financial Statements (Unaudited) This section presents Associated Banc-Corp's unaudited consolidated financial statements, including balance sheets, income, comprehensive income, equity changes, cash flows, and detailed notes on accounting policies and key financial items Consolidated Balance Sheets This section provides a snapshot of the Corporation's financial position, detailing assets, liabilities, and stockholders' equity at specific dates | Metric (in thousands) | Mar 31, 2024 (Unaudited) | Dec 31, 2023 (Audited) | |:----------------------|:-------------------------|:-----------------------| | Assets | | | | Total assets | $ 41,137,084 | $ 41,015,855 | | Loans, net | 29,138,257 | 28,865,124 | | AFS investment securities, at fair value | 3,724,148 | 3,600,892 | | HTM investment securities, net, at amortized cost | 3,832,967 | 3,860,160 | | Liabilities | | | | Total liabilities | $ 36,968,412 | $ 36,841,882 | | Total deposits | 33,713,158 | 33,446,049 | | FHLB advances | 1,333,411 | 1,940,194 | | Stockholders' Equity | | | | Total stockholders' equity | 4,168,673 | 4,173,973 | Consolidated Statements of Income This section presents the Corporation's revenues, expenses, and net income over specific periods, highlighting profitability | Metric (in thousands, except per share data) | Three Months Ended Mar 31, 2024 | Three Months Ended Mar 31, 2023 | |:---------------------------------------------|:--------------------------------|:--------------------------------| | Total interest income | $ 523,388 | $ 442,817 | | Total interest expense | 265,530 | 168,807 |\ | Net interest income | 257,858 | 274,010 | | Provision for credit losses | 24,001 | 17,971 | | Total noninterest income | 64,985 | 62,073 | | Total noninterest expense | 197,657 | 187,412 | | Income before income taxes | 101,185 | 130,700 | | Income tax expense | 20,016 | 27,340 | | Net income | 81,169 | 103,360 | | Net income available to common equity | $ 78,294 | $ 100,485 | | Basic earnings per common share | $ 0.52 | $ 0.67 | | Diluted earnings per common share | $ 0.52 | $ 0.66 | Consolidated Statements of Comprehensive Income This section details the Corporation's comprehensive income, including net income and other comprehensive income (loss) components | Metric (in thousands) | Three Months Ended Mar 31, 2024 | Three Months Ended Mar 31, 2023 | |:----------------------|:--------------------------------|:--------------------------------| | Net income | $ 81,169 | $ 103,360 | | Other comprehensive (loss) income, net of tax: | | | | AFS investment securities | (20,746) | 28,853 | | Cash flow hedge derivatives | (16,326) | 10,331 | | Defined benefit pension and postretirement obligations | (1,712) | 27 | | Total other comprehensive (loss) income | (38,785) | 39,211 | | Comprehensive income | $ 42,384 | $ 142,571 | Consolidated Statements of Changes in Stockholders' Equity This section outlines changes in the Corporation's stockholders' equity over time, including net income, dividends, and stock transactions | Metric (in thousands) | Balance, Dec 31, 2023 | Net Income | Other Comprehensive (Loss) | Stock-based Compensation Plans, net | Purchase of Treasury Stock, open market | Purchase of Treasury Stock, stock-based compensation | Cash Dividends, Common Stock | Cash Dividends, Preferred Stock | Stock-based Compensation Expense, net | Balance, Mar 31, 2024 | |:----------------------|:----------------------|:-----------|:---------------------------|:------------------------------------|:----------------------------------------|:-------------------------------------|:-----------------------------|:--------------------------------|:--------------------------------------|:----------------------| | Preferred Equity | $ 194,112 | — | — | — | — | — | — | (2,875) | — | $ 194,112 | | Common Stock | 1,752 | — | — | — | — | — | — | — | — | 1,752 | | Surplus | 1,714,822 | — | — | (13,839) | — | — | — | — | 7,669 | 1,708,652 | | Retained Earnings | 2,946,805 | 81,169 | — | — | — | — | (33,527) | (2,875) | — | 2,991,571 | | Accumulated Other Comprehensive (Loss) | (171,096) | — | (38,785) | — | — | — | — | — | — | (209,881) | | Treasury Stock | (512,421) | — | — | 17,749 | (18,289) | (4,572) | — | — | — | (517,533) | | Total | $ 4,173,973 | 81,169 | (38,785) | 3,910 | (18,289) | (4,572) | (33,527) | (2,875) | 7,669 | $ 4,168,673 | Consolidated Statements of Cash Flows This section reports the Corporation's cash inflows and outflows from operating, investing, and financing activities | Metric (in thousands) | Three Months Ended Mar 31, 2024 | Three Months Ended Mar 31, 2023 | |:----------------------|:--------------------------------|:--------------------------------| | Net cash provided by operating activities | $ 154,500 | $ 47,470 | | Net cash (used in) investing activities | (275,320) | (1,076,322) | | Net cash provided by financing activities | 48,580 | 1,230,238 | | Net (decrease) increase in cash and cash equivalents | (72,239) | 201,385 | | Cash and cash equivalents at beginning of period | 923,823 | 621,455 | | Cash and cash equivalents at end of period | $ 851,583 | $ 822,840 | Supplemental Disclosures (in thousands) | Supplemental Disclosures (in thousands) | 2024 | 2023 | |:----------------------------------------|:------------|:----------| | Cash paid for interest | $ 249,660 | $ 153,760 | | Cash paid for income and franchise taxes | 1,995 | 1,086 | Notes to Consolidated Financial Statements This section provides detailed explanations and additional information supporting the consolidated financial statements Note 1 Basis of Presentation Interim financial statements adhere to SEC rules and GAAP, with management estimates, especially for ACLL, being critical and subject to variation - Interim consolidated financial statements are prepared according to SEC rules and GAAP, with certain information and footnote disclosures omitted or abbreviated[25] - Management makes estimates and assumptions, with the determination of the ACLL being particularly susceptible to significant change[27] Note 2 Summary of Significant Accounting Policies Accounting policies conform to U.S. GAAP; ASU 2023-02 adoption had immaterial impact, while future ASUs 2023-07 and 2023-09 are under evaluation - The Corporation's accounting and reporting policies conform to U.S. GAAP and general practice within the financial services industry[27] New Accounting Pronouncements Adopted | Standard | Description | Date of adoption | Effect on financial statements | |:---------|:------------|:-----------------|:-------------------------------| | ASU 2023-02 Investments—Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method | Permits reporting entities to elect to account for tax equity investments using the proportional amortization method if certain conditions are met | 1st Quarter 2024 | The Corporation has determined the impact on its results of operation, financial position, liquidity, and disclosures is immaterial | Future Accounting Pronouncements | Standard | Description | Date of anticipated adoption | Effect on financial statements | |:---------|:------------|:-----------------------------|:-------------------------------| | ASU 2023-07 Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures | Improves financial reporting by requiring disclosure of incremental segment information on an annual and interim basis for all public entities | Fiscal year 2024 and interim periods beginning in 1st quarter 2025 | The Corporation is currently evaluating the impact on its disclosures | | ASU 2023-09 Income Taxes (Topic 740): Improvements to Income Tax Disclosures | Addresses investor requests for more transparency about income tax information through improvements to income tax disclosures | 1st Quarter 2025 | The Corporation is currently evaluating the impact on its disclosures | Note 3 Earnings Per Common Share Basic and diluted EPS for Q1 2024 were $0.52, a decrease from Q1 2023, primarily due to lower net income available to common equity | Metric | Three Months Ended Mar 31, 2024 | Three Months Ended Mar 31, 2023 | |:-------|:--------------------------------|:--------------------------------| | Net income available to common equity | $ 78,294 | $ 100,485 | | Basic earnings per common share | $ 0.52 | $ 0.67 | | Diluted earnings per common share | $ 0.52 | $ 0.66 | | Weighted average common shares outstanding (Basic) | 149,855 | 149,763 | | Diluted weighted average common shares outstanding | 151,292 | 151,128 | - Approximately 2 million anti-dilutive common stock options were excluded from the earnings per common share calculations for both the three months ended March 31, 2024 and 2023[34] Note 4 Stock-Based Compensation Stock-based compensation expense is amortized over vesting; Q1 2024 saw $8 million in restricted stock award expense and $30 million in unrecognized costs - Compensation expense for stock options and restricted stock awards is amortized on a straight-line basis over the vesting period[35] Stock Options Activity | Metric (in thousands) | Mar 31, 2024 | |:----------------------|:-------------| | Outstanding at Dec 31, 2023 | 3,792 | | Exercised | 179 | | Outstanding at Mar 31, 2024 | 3,613 | | Intrinsic value of stock options exercised (Q1 2024) | $ 722 | | Fair value of stock options vested (Q1 2024) | $ 489 | - Expense for restricted stock awards was $8 million for Q1 2024, compared to $6 million for Q1 2023, including $3 million for accelerated vesting for retirement eligible colleagues[38] - Unrecognized compensation costs related to restricted stock awards were $30 million at March 31, 2024[38] Note 5 Investment Securities Investment securities include AFS and HTM; unrealized losses are due to interest rates, not credit, with no intent to sell, and Visa B shares were sold for a $4 million gain AFS Investment Securities (Mar 31, 2024) | Metric (in thousands) | Amortized Cost | Gross Unrealized Gains | Gross Unrealized (Losses) | Fair Value | |:----------------------|:---------------|:-----------------------|:--------------------------|:-----------| | Total AFS investment securities | $ 3,902,762 | $ 6,359 | $ (184,973) | $ 3,724,148| HTM Investment Securities (Mar 31, 2024) | Metric (in thousands) | Amortized Cost | Gross Unrealized Gains | Gross Unrealized (Losses) | Fair Value | |:----------------------|:---------------|:-----------------------|:--------------------------|:-----------| | Total HTM investment securities | $ 3,833,043 | $ 50,145 | $ (581,903) | $ 3,301,284| - Management does not believe any unrealized losses at March 31, 2024, represent credit deterioration, as they are primarily attributable to changes in interest rates and current market conditions[58] - The Corporation does not intend to sell, nor does it believe it will be required to sell, these securities before recovery of their amortized cost basis[58] - During the first quarter of 2024, the Corporation sold its remaining Visa Class B restricted shares at a gain of $4 million[49] Note 6 Loans Total loans reached $29.49 billion, with 62% commercial; ACLL increased to $387.78 million due to portfolio growth and macroeconomic trends, with no significant concentrations Loan Composition (in thousands) | Loan Type | Mar 31, 2024 | Dec 31, 2023 | |:----------|:-------------|:-------------| | Commercial and industrial | $ 9,858,329 | $ 9,731,555 | | Commercial real estate — owner occupied | 1,095,894 | 1,061,700 | | Commercial real estate — investor | 5,035,195 | 5,124,245 | | Real estate construction | 2,287,041 | 2,271,398 | | Total commercial | 18,276,460 | 18,188,898 | | Residential mortgage | 7,868,180 | 7,864,891 | | Auto finance | 2,471,257 | 2,256,162 | | Home equity | 619,764 | 628,526 | | Other consumer | 258,603 | 277,740 | | Total consumer | 11,217,802 | 11,027,319 | | Total loans | $ 29,494,263 | $ 29,216,218 | Gross Charge Offs by Origination Year (in thousands) | Loan Type | YTD 2024 | 2023 | 2022 | 2021 | 2020 | Prior | Total | |:----------|:---------|:-----|:-----|:-----|:-----|:------|:------| | Commercial and industrial | $ 1,024 | $ — | $ 125 | $ 553 | $ 17,724 | $ 3 | $ 19,429 | | Residential mortgage | — | — | 40 | — | — | 49 | 89 | | Auto finance | — | — | 767 | 1,675 | 158 | — | 2,600 | | Home equity | 93 | — | — | — | — | 15 | 108 | | Other consumer | 1,688 | — | 15 | 8 | 17 | 62 | 1,790 | | Total gross charge offs | $ 2,806 | $ — | $ 947 | $ 2,236 | $ 17,899 | $ 98 | $ 24,018 | Allowance for Credit Losses on Loans (ACLL) (in thousands) | Metric | Dec 31, 2023 | Net Charge offs | Provision for credit losses | Mar 31, 2024 | |:-------|:-------------|:----------------|:----------------------------|:-------------| | Allowance for loan losses | $ 351,094 | $ (22,088) | $ 27,000 | $ 356,006 | | Allowance for unfunded commitments | 34,776 | — | (3,000) | 31,776 | | Total ACLL | $ 385,870 | $ (22,088) | $ 24,000 | $ 387,782 | Note 7 Goodwill and Other Intangible Assets Goodwill remained at $1.1 billion with no impairment; CDIs had a net book value of $38.27 million, and MSRs increased to $85.23 million - Goodwill remained at $1.1 billion at both March 31, 2024 and December 31, 2023[101] - No impairment charges were recorded in 2023 or the first three months of 2024[101] Core Deposit Intangibles (CDIs) (in thousands) | Metric | Mar 31, 2024 | |:-------|:-------------| | Net book value | $ 38,268 | | Amortization during the period | $ 2,203 | Mortgage Servicing Rights (MSRs) (in thousands) | Metric | Mar 31, 2024 | |:-------|:-------------| | MSRs at beginning of period | $ 84,390 | | Additions | 877 | | Paydowns | (1,687) | | Changes in fair value of asset | 1,646 | | MSRs at end of period | $ 85,226 | Note 8 Short and Long-Term Funding Total funding, excluding FHLB advances, increased to $1.30 billion due to $500 million in BTFP funding, while FHLB advances decreased by $607 million Short and Long-Term Funding (in thousands) | Metric | Mar 31, 2024 | Dec 31, 2023 | |:-------|:-------------|:-------------| | Short-term funding | | | | Federal funds purchased and securities sold under agreements to repurchase | $ 265,671 | $ 326,780 | | BTFP funding | 500,000 | — | | Total short-term funding | $ 765,671 | $ 326,780 | | Long-term funding | | | | Total long-term funding | $ 536,055 | $ 541,269 | | Total short and long-term funding, excluding FHLB advances | $ 1,301,726 | $ 868,049 | | FHLB advances | | | | Total FHLB advances | $ 1,333,411 | $ 1,940,194 | | Total short and long-term funding | $ 2,635,137 | $ 2,808,243 | - At March 31, 2024, the Corporation had pledged securities valued at 215% of the gross outstanding balance of repurchase agreements to manage risk[108] Note 9 Derivative and Hedging Activities Derivatives are used to manage interest rate and foreign currency risks, with gross derivative assets of $122.07 million and liabilities of $238.40 million at March 31, 2024 - The Corporation uses derivative financial instruments to manage economic risks, including interest rate, liquidity, foreign currency, and credit risk, primarily by managing its assets and liabilities and using derivatives[112] Gross Fair Values of Derivatives (in thousands) | Metric | Mar 31, 2024 Asset Fair Value | Mar 31, 2024 Liability Fair Value | Dec 31, 2023 Asset Fair Value | Dec 31, 2023 Liability Fair Value | |:-------|:------------------------------|:----------------------------------|:------------------------------|:----------------------------------| | Designated as hedging instruments: | | | | | | Interest rate-related instruments | $ 2,164 | $ 10,685 | $ 8,075 | $ 930 | | Foreign currency exchange forwards | 624 | 230 | 632 | 2,946 | | Not designated as hedging instruments: | | | | | | Interest rate-related and other instruments | 113,337 | 222,303 | 111,623 | 195,662 | | Foreign currency exchange forwards | 5,276 | 4,956 | 2,954 | 2,746 | | Mortgage banking | 666 | 222 | 439 | 673 | | Gross derivatives before netting | $ 122,067 | $ 238,397 | $ 123,723 | $ 202,958 | - The Corporation estimates that $12 million will be reclassified as a decrease to interest income over the next 12 months from amounts reported in accumulated other comprehensive income (loss) related to cash flow hedge derivatives[133] Note 10 Balance Sheet Offsetting Derivative assets and liabilities are presented net on the balance sheet using master netting and collateral offsetting, resulting in net assets of $40.81 million and liabilities of $10.71 million - Derivatives subject to a legally enforceable master netting agreement are reported with assets and liabilities offset, resulting in a net position which is further offset by any cash collateral[136] Derivative Assets and Liabilities Subject to Master Netting Arrangement (in thousands) | Metric | Gross Amounts Recognized | Gross Amounts Subject to Master Netting Arrangements Offset on Balance Sheets | Cash Collateral Received/Pledged | Net Presented Amounts on the Consolidated Balance Sheets | |:-------|:-------------------------|:------------------------------------------------------------------------------|:---------------------------------|:---------------------------------------------------------| | Derivative assets (Mar 31, 2024) | $ 102,956 | $ (6,463) | $ (55,681) | $ 40,812 | | Derivative liabilities (Mar 31, 2024) | $ 17,172 | $ (6,463) | $ — | $ 10,709 | Note 11 Commitments, Off-Balance Sheet Arrangements, Legal Proceedings, and Regulatory Matters Lending commitments total $10.83 billion, with a $31.78 million allowance for unfunded commitments; legal and regulatory matters include a $2.1 million settlement for overdraft fees Lending-Related Commitments (in thousands) | Commitment Type | Mar 31, 2024 | Dec 31, 2023 | |:----------------|:-------------|:-------------| | Commitments to extend credit | $ 10,828,869 | $ 11,170,147 | | Commercial letters of credit | 4,580 | 3,697 | | Standby letters of credit | 230,396 | 212,029 | Allowance for Unfunded Commitments (in thousands) | Metric | Mar 31, 2024 | Dec 31, 2023 | |:-------|:-------------|:-------------| | Balance at beginning of period | $ 34,776 | $ 38,776 | | Provision for unfunded commitments | (3,000) | (4,000) | | Balance at end of period | $ 31,776 | $ 34,776 | - A settlement of up to $2.1 million, including attorneys' fees, was concluded in February 2024 for an arbitration request related to APSN Fees and Representment Fees[154] - The mortgage repurchase reserve was approximately $704,000 at March 31, 2024, down from $835,000 at December 31, 2023[157] Note 12 Fair Value Measurements Assets and liabilities are measured using a three-level fair value hierarchy, with total selected assets at $36.75 billion and liabilities at $36.55 billion at March 31, 2024 Selected Assets at Fair Value (Mar 31, 2024, in thousands) | Fair Value Hierarchy | Carrying Amount | Fair Value | Level 1 | Level 2 | Level 3 | |:---------------------|:----------------|:-----------|:--------|:--------|:--------| | Total selected assets at fair value | $ 38,685,290 | $ 36,754,723 | $ 895,077 | $ 8,021,701 | $ 27,825,445 | Selected Liabilities at Fair Value (Mar 31, 2024, in thousands) | Fair Value Hierarchy | Carrying Amount | Fair Value | Level 1 | Level 2 | Level 3 | |:---------------------|:----------------|:-----------|:--------|:--------|:--------| | Total selected liabilities at fair value | $ 36,589,039 | $ 36,554,811 | $ — | $ 9,707,013 | $ 26,847,797 | Significant Unobservable Inputs for Level 3 Measurements (Mar 31, 2024) | Metric | Valuation Technique | Significant Unobservable Input | Range of Inputs | Weighted Average Input Applied | |:-------|:--------------------|:-------------------------------|:----------------|:-------------------------------| | Mortgage servicing rights | Discounted cash flow | Option adjusted spread | 5% - 8% | 5% | | Individually evaluated loans | Appraisals / Discounted cash flow | Collateral / Discount factor | 11% - 56% | 52% | | Interest rate lock commitments to originate residential mortgage loans held for sale | Discounted cash flow | Closing Ratio | 25% - 100% | 86% | Note 13 Retirement Plans The Corporation's Retirement Account Plan reported a net periodic pension cost of $(5.11) million in Q1 2024, with no contributions made Net Periodic Pension Cost (RAP) (in thousands) | Metric | 2024 | |:-------|:-----| | Service cost | $ 874 | | Interest cost | 2,719 | | Expected return on plan assets | (8,650) | | Amortization of prior service cost | (53) | | Amortization of actuarial loss | — | | Total net periodic pension cost | $ (5,111) | Net Periodic Benefit Cost (Postretirement Plan) (in thousands) | Metric | 2024 | |:-------|:-----| | Interest cost | $ 18 | | Amortization of prior service cost | (19) | | Amortization of actuarial (gain) | (7) | | Total net periodic benefit cost | $ (8) | - No contributions were made to the RAP during 2023 or the three months ended March 31, 2024[176] Note 14 Segment Reporting The Corporation reports across three segments: Corporate and Commercial Specialty, Community, Consumer, and Business, and Risk Management and Shared Services, with Q1 2024 net incomes of $80.76 million, $75.47 million, and $(75.06) million respectively - The Corporation's three reportable segments are Corporate and Commercial Specialty; Community, Consumer, and Business; and Risk Management and Shared Services[177][184] - Segment results are based on internal management accounting processes, which are highly subjective and not based on authoritative GAAP guidance[178] Segment Net Income (in thousands) | Segment | Three Months Ended Mar 31, 2024 | Three Months Ended Mar 31, 2023 | |:--------|:--------------------------------|:--------------------------------| | Corporate and Commercial Specialty | $ 80,758 | $ 77,234 | | Community, Consumer, and Business | 75,468 | 59,895 | | Risk Management and Shared Services | (75,058) | (33,770) | Note 15 Accumulated Other Comprehensive Income (Loss) AOCI decreased to $(209.88) million at March 31, 2024, primarily due to losses from AFS Investment Securities and Cash Flow Hedge Derivatives Components of Accumulated Other Comprehensive Income (Loss) (in thousands) | Metric | AFS Investment Securities | Cash Flow Hedge Derivatives | Defined Benefit Pension and Postretirement Obligations | Accumulated Other Comprehensive Income (Loss) | |:-------|:--------------------------|:----------------------------|:-------------------------------------------------------|:----------------------------------------------| | Balance December 31, 2023 | $ (148,641) | $ 3,080 | $ (25,535) | $ (171,096) | | Other comprehensive (loss) before reclassifications | (29,889) | — | — | (29,889) | | Income tax benefit (expense) | 6,885 | (1,688) | (1,633) | 3,564 | | Net other comprehensive (loss) during period | (20,746) | (16,326) | (1,712) | (38,785) | | Balance March 31, 2024 | $ (169,388) | $ (13,246) | $ (27,247) | $ (209,881) | Note 16 Leases The Corporation holds operating and finance leases; Q1 2024 operating lease costs were $1.55 million, with right-of-use assets of $23.31 million and liabilities of $25.81 million Operating and Finance Lease Costs and Cash Flows (in thousands) | Metric | Three Months Ended Mar 31, 2024 | Three Months Ended Mar 31, 2023 | |:-------|:--------------------------------|:--------------------------------| | Operating lease costs | $ 1,545 | $ 1,464 | | Finance lease costs | 23 | 23 | | Operating lease cash flows | 1,844 | 1,828 | | Finance lease cash flows | 23 | 22 | Lease Assets and Liabilities (in thousands) | Metric | Mar 31, 2024 | Dec 31, 2023 | |:-------|:-------------|:-------------| | Operating lease right-of-use asset | $ 23,310 | $ 24,712 | | Finance lease right-of-use asset | 347 | 368 | | Operating lease liability | 25,813 | 27,311 | | Finance lease liability | 361 | 383 | Weighted-Average Lease Terms and Discount Rates (Mar 31, 2024) | Lease Type | Weighted-average lease term (in years) | Weighted-average discount rate | |:-----------|:---------------------------------------|:-------------------------------| | Operating leases | 5.73 | 3.21% | | Finance leases | 4.00 | 1.32% | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Associated Banc-Corp's financial condition and operating results, covering key performance indicators, balance sheet, income statement trends, and risk management Special Note Regarding Forward-Looking Statements This disclaimer notes that forward-looking statements are subject to risks and uncertainties, and actual results may differ materially - The report contains forward-looking statements that are subject to significant risks and uncertainties, and actual results may differ materially from expected results[203] - The Corporation assumes no obligation to update any forward-looking statements, except as required by federal securities law[203] Overview and Performance Summary Q1 2024 net income was $81.17 million, a recovery from Q4 2023, driven by balance sheet repositioning, with average loans up 2% and deposits up 11% YoY Summary Results of Operations (in thousands, except per share data) | Metric | Mar 31, 2024 | Dec 31, 2023 | Sep 30, 2023 | Jun 30, 2023 | Mar 31, 2023 | |:-------|:-------------|:-------------|:-------------|:-------------|:-------------| | Net income (loss) | $ 81,169 | $ (90,806) | $ 83,248 | $ 87,154 | $ 103,360 | | Net income (loss) available to common equity | 78,294 | (93,681) | 80,373 | 84,279 | 100,485 | | Earnings (loss) per common share - basic | 0.52 | (0.63) | 0.53 | 0.56 | 0.67 | | Earnings (loss) per common share - diluted | 0.52 | (0.62) | 0.53 | 0.56 | 0.66 | | Effective tax rate | 19.78 % | N/M | 18.92 % | 21.26 % | 20.92 % | - Average loans increased $523 million, or 2%, from the first three months of 2023, driven primarily by increases in auto finance and real estate construction loans, partially offset by a decrease in residential mortgage loans[204] - Net interest income of $258 million decreased $16 million, or 6%, from the first three months of 2023, and net interest margin was 2.79% compared to 3.07% for the first three months of 2023[205] - Provision for credit losses was $24 million, compared to a provision of $18 million for the first three months of 2023, driven by a mix of portfolio loan growth, nominal credit movement, and general macroeconomic trends[205] Net Interest Income Analysis Fully tax-equivalent net interest income decreased 6% YoY to $261.63 million, with net interest margin at 2.79%, due to higher cost of liabilities Net Interest Income and Margin (in thousands) | Metric | Mar 31, 2024 | Dec 31, 2023 | Mar 31, 2023 | |:-------|:-------------|:-------------|:-------------| | Fully tax-equivalent net interest income | $ 261,628 | $ 258,033 | $ 278,782 | | Net interest margin | 2.79% | 2.69% | 3.07% | | Net interest income | $ 257,858 | $ 253,403 | $ 274,010 | - The yield on earning assets increased by 70 bp, while the cost of interest-bearing liabilities increased by 107 bp from the first three months of 2023, contributing to the decrease in net interest income and net interest margin[213] - Average interest-bearing liabilities increased $2.5 billion, or 9%, compared to the first three months of 2023, primarily driven by increases in time deposits, interest-bearing demand deposits, network transaction deposits, and savings deposits[214] - Average FHLB advances decreased $2.7 billion, or 64%, from the first three months of 2023, partially offset by an increase in other short-term funding related to utilizing the BTFP[214] Provision for Credit Losses The Q1 2024 provision for credit losses was $24 million, up from $18 million YoY, driven by loan growth, credit movement, and macroeconomic trends - The provision for credit losses was $24 million for the first three months of 2024, compared to $18 million for the first three months of 2023[205] - The increase in provision for credit losses was driven by a mix of portfolio loan growth, nominal credit movement, and general macroeconomic trends[205] - The forecast used for March 31, 2024, was the Moody's baseline scenario from February 2024, reviewed against the March 2024 baseline scenario with no material updates[215] Noninterest Income Total noninterest income increased 5% YoY to $64.99 million, driven by investment securities gains and higher wealth management fees Noninterest Income (in thousands) | Metric | Mar 31, 2024 | Mar 31, 2023 | Change (%) | |:-------|:-------------|:-------------|:-----------| | Wealth management fees | $ 21,694 | $ 20,189 | 7% | | Total fee-based revenue | 49,802 | 48,045 | 4% | | Capital markets, net | 4,050 | 5,083 | (20)% | | Investment securities gains (losses), net | 3,879 | 51 | N/M | | Total noninterest income (loss) | $ 64,985 | $ 62,073 | 5% | - Wealth management fees increased $2 million from the first three months of 2023, mainly driven by increased assets under management[218] - Investment securities gains (losses), net increased $4 million from the first three months of 2023, as a result of the sale of the Corporation's remaining Visa B shares[218] Noninterest Expense Total noninterest expense increased 5% YoY to $197.66 million, primarily due to a $7 million rise in FDIC assessment expense Noninterest Expense (in thousands) | Metric | Mar 31, 2024 | Mar 31, 2023 | Change (%) | |:-------|:-------------|:-------------|:-----------| | Personnel | $ 119,395 | $ 116,420 | 3% | | Technology | 26,200 | 23,598 | 11% | | FDIC assessment | 13,946 | 6,875 | 103% | | Total noninterest expense | $ 197,657 | $ 187,412 | 5% | - FDIC expense increased $7 million from the first three months of 2023, primarily driven by the special assessment applied to the Corporation and other banks relating to the FDIC's increased estimated loss attributable to the protection of depositors at Silicon Valley Bank and Signature Bank[219] - Personnel expense increased $3 million from the first three months of 2023, largely as a result of increased fringe benefit expense[219] - Technology expense increased $3 million from the first three months of 2023, driven by digital investments tied to our strategic initiatives[219] Income Taxes Q1 2024 income tax expense was $20.02 million, with an effective tax rate of 19.78%, driven by lower pretax income - Income tax expense was $20.02 million for the three months ended March 31, 2024, compared to $27.34 million for the three months ended March 31, 2023[220] - The Corporation's effective tax rate from continuing operations was 19.78% for Q1 2024, down from 20.92% for Q1 2023[220] - The decreases in income tax expense and effective tax rate were primarily driven by a decrease in pretax income, partially offset by an increase in nondeductible expenses[220] - The Corporation expects a full year effective tax rate of 19% to 21%, assuming no change in the statutory corporate tax rate[220] Balance Sheet Analysis Total assets increased to $41.1 billion, with loans growing to $29.5 billion and deposits to $33.7 billion, while FHLB advances decreased significantly - Total assets were $41.1 billion at March 31, 2024, up $121 million from December 31, 2023[224] - Loans of $29.5 billion at March 31, 2024, were up $278 million, or 1%, from December 31, 2023[225] - AFS investment securities, at fair value, were $3.7 billion at March 31, 2024, up $123 million, or 3%, from December 31, 2023[225] - Total deposits of $33.7 billion at March 31, 2024, were up $267 million, or 1%, from December 31, 2023[226] - FHLB advances were $1.3 billion at March 31, 2024, down $607 million, or 31%, from December 31, 2023[226] - BTFP funding was $500 million at March 31, 2024, used to pay down FHLB advances[226] Loans and Credit Risk The $29.49 billion loan portfolio is 62% commercial, with 66% of total loans being floating or re-pricing within one year, and credit risk is managed through diversification Period End Loan Composition (in thousands) | Loan Type | Mar 31, 2024 Amount | % of Total | |:----------|:--------------------|:-----------| | Commercial and industrial | $ 9,858,329 | 33 % | | Commercial real estate — owner occupied | 1,095,894 | 4 % | | Commercial real estate — investor | 5,035,195 | 17 % | | Real estate construction | 2,287,041 | 8 % | | Total commercial | 18,276,460 | 62 % | | Residential mortgage | 7,868,180 | 27 % | | Auto finance | 2,471,257 | 8 % | | Home equity | 619,764 | 2 % | | Other consumer | 258,603 | 1 % | | Total consumer | 11,217,802 | 38 % | | Total loans | $ 29,494,263 | 100 % | - At March 31, 2024, $19.6 billion, or 66%, of the loans outstanding and $16.5 billion, or 90%, of the commercial loans outstanding were floating rate, adjustable rate, re-pricing within one year, or maturing within one year[230] - No significant concentrations existed in the Corporation's portfolio in excess of 10% of total loan exposure at March 31, 2024[232] - The Corporation's current lending standards for CRE and real estate construction lending include a maximum standard for LTV of 80%, with lower limits for higher risk types like raw land (50% LTV maximum)[240] Nonperforming Assets Nonperforming assets increased to $188.03 million, driven by a 20% rise in nonaccrual loans to $178.35 million, with the nonaccrual loan ratio at 0.60% Nonperforming Assets (in thousands) | Metric | Mar 31, 2024 | Dec 31, 2023 | Mar 31, 2023 | |:-------|:-------------|:-------------|:-------------| | Total nonaccrual loans | $ 178,346 | $ 148,997 | $ 117,569 | | OREO | 8,437 | 10,506 | 15,184 | | Repossessed assets | 1,241 | 919 | 92 | | Total nonperforming assets | $ 188,025 | $ 160,421 | $ 132,845 | | Accruing loans past due 90 days or more | $ 2,417 | $ 21,689 | $ 1,703 | | Restructured loans (accruing) | $ 2,457 | $ 2,719 | $ 763 | | Nonaccrual loans to total loans | 0.60 % | 0.51 % | 0.40 % | | NPAs to total assets | 0.46 % | 0.39 % | 0.33 % | - Total nonaccrual loans increased $29 million, or 20%, from December 31, 2023, driven by increases in nonaccrual loans within CRE-investor lending and commercial and industrial lending[261] Allowance for Credit Losses on Loans ACLL increased to $387.78 million, reflecting a $24 million provision for credit losses and 1% loan growth, with management deeming the level appropriate Allowance for Credit Losses on Loans (in thousands) | Metric | Mar 31, 2024 | Dec 31, 2023 | Mar 31, 2023 | |:-------|:-------------|:-------------|:-------------| | Total ACLL | $ 387,782 | $ 385,870 | $ 366,208 | | Provision for credit losses on loans | 24,000 | 21,000 | 18,000 | | Total net (charge offs) recoveries | (22,088) | (15,701) | (3,289) | | ACLL to total loans | 1.31 % | 1.32 % | 1.25 % | | ACLL to net charge offs (annualized) | 4.4x | 6.2x | 27.5x | - Total loans increased $278 million, or 1%, from December 31, 2023, primarily due to growth in auto finance and commercial and business lending, partially offset by a decrease in CRE - investor lending[260] - Total nonaccrual loans increased $29 million, or 20%, from December 31, 2023, driven by increases in nonaccrual loans within CRE-investor lending and commercial and industrial lending[261] - YTD net charge offs increased $19 million from March 31, 2023, primarily driven by an increase in net charge offs within commercial and industrial lending[261] Deposits and Customer Funding Total deposits increased 1% QoQ to $33.71 billion, driven by brokered CDs and interest-bearing demand, with uninsured deposits at 22.9% of total Period End Deposit and Customer Funding Composition (in thousands) | Deposit Type | Mar 31, 2024 Amount | % of Total | |:-------------|:--------------------|:-----------| | Noninterest-bearing demand | $ 6,254,135 | 19 % | | Savings | 5,124,639 | 15 % | | Interest-bearing demand | 8,747,127 | 26 % | | Money market | 6,721,674 | 20 % | | Brokered CDs | 3,931,230 | 12 % | | Other time deposits | 2,934,352 | 9 % | | Total deposits | $ 33,713,158 | 100 % | | Estimated uninsured and uncollateralized deposits (% of total deposits) | 22.9 % | | - Total deposits increased $267 million, or 1%, from December 31, 2023, and increased $3.4 billion, or 11%, from March 31, 2023[264] - Estimated uninsured and uncollateralized deposits, excluding intercompany deposits, were 22.9% of total deposits at March 31, 2024, compared to 22.7% at December 31, 2023[267] Liquidity Total available liquidity was $12.01 billion, with $8.89 billion available within one business day, and a 115% coverage ratio for uninsured deposits - At March 31, 2024, the Corporation was in compliance with its internal liquidity objectives and had sufficient asset-based liquidity to meet its obligations even under a stressed scenario[266] Liquidity Sources and Uninsured Deposit Coverage Ratio (in thousands) | Metric | Mar 31, 2024 | Dec 31, 2023 | Mar 31, 2023 | |:-------|:-------------|:-------------|:-------------| | Available FHLB Chicago capacity | $ 7,035,768 | $ 5,985,385 | $ 3,453,813 | | Available Federal Reserve Bank discount window capacity | 1,438,992 | 1,433,655 | 1,799,453 | | Funding available within one business day | 8,894,314 | 8,363,353 | 6,402,351 | | Total available liquidity | $ 12,010,827 | $ 11,051,865 | $ 13,821,744 | | Uninsured and uncollateralized deposits | $ 7,710,911 | $ 7,586,047 | $ 7,938,690 | | Coverage ratio of uninsured and uncollateralized deposits with secured funding available within one business day | 115 % | 110 % | 81 % | | Coverage ratio of uninsured and uncollateralized deposits with total funding | 156 % | 146 % | 174 % | - For the three months ended March 31, 2024, net cash provided by operating and financing activities was $155 million and $49 million, respectively, while net cash used in investing activities was $275 million, for a net decrease in cash and cash equivalents of $72 million since year-end 2023[272] Quantitative and Qualitative Disclosures about Market Risk Market and interest rate risk are managed centrally, with EAR showing a 1.7% increase for a 100 bp rate rise, and MVE sensitivity indicating a (9.5)% decrease - The primary goal of interest rate risk management is to control exposure to interest rate risk within policy limits approved by the Board of Directors[276] - The Corporation's EAR profile is asset sensitive at March 31, 2024, meaning a higher yield curve generally adds to income[277] Estimated % Change in Rate Sensitive Earnings at Risk Over 12 Months | Gradual Rate Change | Mar 31, 2024 Dynamic Forecast | Mar 31, 2024 Static Forecast | |:--------------------|:------------------------------|:-----------------------------| | 100 bp increase in interest rates | 1.7 % | 1.6 % | | 100 bp decrease in interest rates | (1.0)% | (1.0)% | Estimated % Change in Market Value of Equity (MVE) | Instantaneous Rate Change | Mar 31, 2024 | |:--------------------------|:-------------| | 100 bp increase in interest rates | (9.5)% | | 100 bp decrease in interest rates | 9.1 % | - The MVE measure in the 200 bp increase in interest rates scenario is outside of the policy limit, which has been reported to the Corporation's Board[283] Contractual Obligations, Commitments, Off-Balance Sheet Arrangements, and Contingent Liabilities Total contractual obligations were $9.53 billion, with $7.90 billion due within one year, including time deposits, short-term funding, and FHLB advances Significant Contractual Obligations and Other Commitments (in thousands) | Obligation Type | One Year or Less | One to Three Years | Three to Five Years | Over Five Years | Total | |:----------------|:-----------------|:-------------------|:--------------------|:----------------|:------| | Time deposits | $ 6,744,548 | $ 103,594 | $ 17,435 | $ 5 | $ 6,865,582 | | Short-term funding | 765,671 | — | — | — | 765,671 | | FHLB advances | 138,000 | 997,989 | 196,981 | 440 | 1,333,411 | | Other long-term funding | 249,913 | 180 | 92 | 285,869 | 536,055 | | Operating leases | 5,578 | 9,367 | 6,875 | 3,994 | 25,813 | | Total | $ 7,903,710 | $ 1,111,130 | $ 221,383 | $ 290,308 | $ 9,526,532 | Capital The Corporation's capital ratios exceeded regulatory minimums, with CET1 at 9.43%, Tier 1 at 10.02%, and Total capital at 12.08% at March 31, 2024 - At March 31, 2024, the capital ratios of the Corporation and its banking subsidiaries were in excess of regulatory minimum requirements[286] Capital Ratios | Metric | Mar 31, 2024 | Dec 31, 2023 | Mar 31, 2023 | |:-------|:-------------|:-------------|:-------------| | CET1 capital ratio | 9.43 % | 9.39 % | 9.45 % | | Tier 1 capital ratio | 10.02 % | 9.99 % | 10.05 % | | Total capital ratio | 12.08 % | 12.21 % | 12.22 % | | Tier 1 leverage ratio | 8.24 % | 8.06 % | 8.46 % | Non-GAAP Measures Non-GAAP measures include tangible common equity to tangible assets at 7.08% and return on average tangible common equity at 11.31% for Q1 2024 Selected Equity and Performance Ratios (Non-GAAP) | Metric | Mar 31, 2024 | |:-------|:-------------| | Tangible common equity / tangible assets | 7.08 % | | Return on average tangible common equity | 11.31 % | | Return on average CET1 | 10.27 % | | Fully tax-equivalent efficiency ratio | 59.63 % | Adjusted Net Income Reconciliation (in thousands) | Metric | Mar 31, 2024 | |:-------|:-------------| | Net income | $ 81,169 | | Other intangible amortization, net of tax | 1,652 | | Adjusted net income | $ 82,821 | Sequential Quarter Results Q1 2024 net income was $81 million, a recovery from Q4 2023, with net interest income up 1% and noninterest income surging due to repositioning - Net income for Q1 2024 was $81 million, compared to a net loss of $91 million for Q4 2023, due to the balance sheet repositioning[292] - Fully tax-equivalent net interest income for Q1 2024 was $262 million, $4 million, or 1%, higher than Q4 2023, with net interest margin up 10 bp to 2.79%[293] - Noninterest income for Q1 2024 was $65 million, up $196 million from Q4 2023, primarily due to one-time items related to the balance sheet repositioning[294] - Noninterest expense for Q1 2024 was $198 million, down $42 million, or 17%, from Q4 2023, driven primarily by the FDIC special assessment[294] Segment Review Corporate and Commercial Specialty revenue rose 7% YoY to $183.62 million, Community, Consumer, and Business revenue increased 10% YoY to $212.85 million, while Risk Management and Shared Services revenue decreased $45 million Segment Total Revenue and Net Income (in thousands) | Segment | Mar 31, 2024 Total Revenue | Mar 31, 2024 Net Income | Mar 31, 2023 Total Revenue | Mar 31, 2023 Net Income | |:--------|:---------------------------|:------------------------|:---------------------------|:------------------------| | Corporate and Commercial Specialty | $ 183,617 | $ 80,758 | $ 170,860 | $ 77,234 | | Community, Consumer, and Business | 212,845 | 75,468 | 194,310 | 59,895 | | Risk Management and Shared Services | (73,620) | (75,058) | (29,087) | (33,770) | - Corporate and Commercial Specialty segment's total revenue increased $13 million from Q1 2023, primarily attributable to higher loan volumes and interest rates driving net interest income higher[298] - Risk Management and Shared Services segment's total revenue decreased $45 million from Q1 2023, primarily driven by increased interest expense as a result of holding more brokered CDs and other short term funding[300] - Risk Management and Shared Services segment's noninterest expense increased $7 million from Q1 2023, driven by the FDIC special assessment[301] Critical Accounting Estimates No changes in critical accounting estimates since December 31, 2023, with ACLL determination remaining highly susceptible to change - There have been no changes in the Corporation's application of critical accounting estimates since December 31, 2023[302] - The determination of the ACLL is particularly susceptible to significant change, as it requires management to make estimates and assumptions[302] Recent Developments The Board declared regular quarterly cash dividends for common and preferred stocks, payable on June 17, 2024 - On April 30, 2024, the Board of Directors declared a regular quarterly cash dividend of $0.22 per common share, payable on June 17, 2024[303] - Regular quarterly cash dividends were also declared for Series E Preferred Stock ($0.3671875 per depositary share) and Series F Preferred Stock ($0.3515625 per depositary share), payable on June 17, 2024[303] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section refers to the detailed market and interest rate risk disclosures found in Item 2 - Information required by this item is set forth in Item 2 under the captions Quantitative and Qualitative Disclosures about Market Risk and Interest Rate Risk[304] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2024, with no material changes to internal control over financial reporting - The Corporation's disclosure controls and procedures were evaluated and concluded to be effective as of March 31, 2024[307] - No changes were made to the Corporation's internal control over financial reporting during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Corporation's internal control over financial reporting[307] PART II. Other Information This part provides additional information on legal proceedings, risk factors, equity sales, and other disclosures Item 1. Legal Proceedings This section refers to legal proceedings information detailed in Note 11 of the consolidated financial statements - The information required by this item is set forth in Part I, Item 1 under Note 11 Commitments, Off-Balance Sheet Arrangements, Legal Proceedings, and Regulatory Matters of the notes to consolidated financial statements[309] Item 1A. Risk Factors No material changes have occurred in the Risk Factors previously described in the Corporation's 2023 Annual Report on Form 10-K - There have been no material changes in the Risk Factors described in the Corporation's 2023 Annual Report on Form 10-K[310] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The Corporation repurchased $23 million of common stock in Q1 2024, with $61 million remaining under the 2021 authorization - During the first quarter of 2024, the Corporation repurchased $23 million of common stock, including $18 million of open market purchases and $5 million of repurchases related to tax withholding on equity compensation[311] Common Stock Purchases (Q1 2024) | Period | Total Number of Shares Purchased | Average Price Paid per Share | Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs | |:-------|:---------------------------------|:-----------------------------|:---------------------------------------------------------------|:-----------------------------------------------------------------------------| | Total | 1,126,299 | $ 20.30 | 900,000 | 2,852,467 | - At March 31, 2024, there remained $61 million authorized to be repurchased under the Board of Directors' 2021 $100 million authorization[312] Item 5. Other Information No director or officer adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during Q1 2024 - During the three months ended March 31, 2024, no director or 'officer' of the Corporation adopted or terminated a 'Rule 10b5-1 trading arrangement' or 'non-Rule 10b5-1 trading arrangement'[314] Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including CEO/CFO certifications and interactive data files (XBRL) - Exhibits include Certifications Under Section 302 and Section 906 of Sarbanes-Oxley by the Chief Executive Officer and Chief Financial Officer[316] - Interactive data files (XBRL) are provided for the unaudited consolidated financial statements and notes, and the cover page is formatted in Inline XBRL[317] Signatures The report is signed by the President and CEO, CFO, and Chief Accounting Officer of Associated Banc-Corp on April 30, 2024 - The report is signed by Andrew J. Harmening (President and Chief Executive Officer), Derek S. Meyer (Chief Financial Officer), and Tammy C. Stadler (Chief Accounting Officer) on April 30, 2024[321]