Associated Banc-Corp: Form 10-Q for the period ended Mar 31, 2025

Special Note Regarding Forward-Looking Statements

This report contains statements that may constitute forward-looking statements within the meaning of the safe-harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, such as statements other than historical facts contained or incorporated by reference into this report. These forward-looking statements include statements with respect to the Corporation’s financial condition, results of operations, plans, objectives, future performance and business, including statements preceded by, followed by or that include the words “believes,” “expects,” or “anticipates,” references to estimates or similar expressions. Future filings by the Corporation with the SEC, and future statements other than historical facts contained in written material, press releases and oral statements issued by, or on behalf of the Corporation may also constitute forward-looking statements.

All forward-looking statements contained in this report or which may be contained in future statements made for or on behalf of the Corporation are based upon information available at the time the statement is made and the Corporation assumes no obligation to update any forward-looking statements, except as required by federal securities law. Forward-looking statements are subject to significant risks and uncertainties, and the Corporation’s actual results may differ materially from the expected results discussed in such forward-looking statements. Factors that might cause actual results to differ from the results discussed in forward-looking statements include, but are not limited to, the risk factors in Item 1A, Risk Factors, in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2024, and as may be described from time to time in the Corporation’s subsequent SEC filings.

Overview

The following discussion and analysis is presented to assist in the understanding and evaluation of the Corporation’s financial condition and results of operations. It is intended to complement the unaudited consolidated financial statements, footnotes, and supplemental financial data appearing elsewhere in this Quarterly Report on Form 10-Q and should be read in conjunction therewith. Management continually evaluates strategic acquisition opportunities and various other strategic alternatives that could involve the sale or acquisition of branches or other assets, or the consolidation or creation of subsidiaries. Within the tables presented, certain columns and rows may not recalculate due to the use of rounded numbers for disclosure purposes.

Performance Summary

• Average loans of $30.1 billion increased $742 million, or 3%, from the first three months of 2024, driven primarily by increases in commercial and business lending and auto finance loans, partially offset by a decrease in residential mortgage lending resulting from the Corporation's balance sheet repositioning announced in the fourth quarter of 2024.
• Average deposits of $34.8 billion increased $1.6 billion, or 5%, from the first three months of 2024, driven by increases in all deposit types except noninterest-bearing demand and money market deposits.
• Net interest income of $286 million increased $28 million, or 11%, from the first three months of 2024, and net interest margin was 2.97%, compared to 2.79% for the first three months of 2024. The increases in net interest income and net interest margin were primarily driven by balance sheet repositioning announced in the fourth quarter of 2024.
• Provision for credit losses was $13 million compared to $24 million for the first three months of 2024, driven by nominal credit movement coupled with general macroeconomic trends.
• Noninterest income of $59 million decreased $6 million, or 10%, from the first three months of 2024, primarily driven by a $7 million loss recognized related to the settlement of the mortgage loan sale as part of the balance sheet repositioning announced in the fourth quarter of 2024.
• Noninterest expense of $211 million increased $13 million, or 7%, from the first three months of 2024, primarily driven by increases in personnel expense due to annual merit increases and other noninterest expense primarily due to a $4 million OREO write down, partially offset by a decrease in FDIC assessment expense given the recognition of the FDIC special assessment in the first quarter of 2024.

Table 1 Summary Results of Operations: Trends

($ in thousands, except per share data)

N/M = Not Meaningful

Table 2 Net Interest Income Analysis

($ in thousands)

(a) The average yield on tax-exempt loans and securities is computed on a fully tax-equivalent basis using a tax rate of 21%.

(b) Loans held for sale have been included in the average balances.

Notable Contributions to the Change in Net Interest Income

• Fully tax-equivalent net interest income and net interest income were $29 million and $28 million, or 11%, higher than the first three months of 2024, respectively. The Federal Reserve decreased the federal funds target interest rate by 100 bp in the second half of 2024 causing a decrease in the rate environment and resulted in the average yield on earning assets to decrease 19 bp and the cost of interest-bearing liabilities to decrease 49 bp from the first three months of 2024 given our ability to reprice deposits downwards. See sections Interest Rate Risk and Quantitative and Qualitative Disclosures about Market Risk for a discussion of interest rate risk and market risk.
• Average loans increased $742 million, or 3%, from the first three months of 2024, and average investment securities increased $945 million, or 11%, from the first three months of 2024.
• Average interest-bearing liabilities increased $1.6 billion, or 5%, compared to the first three months of 2024. Average interest-bearing deposits increased $1.8 billion, or 7%, from the first three months of 2024, driven by increases in all deposit types except money market. Average total short and long-term funding decreased $162 million, or 6%, from the first three months of 2024, primarily driven by a decrease in other short-term funding related to the payoff of BTFP advances, partially offset by increases in all other funding categories. Average noninterest-bearing demand deposits decreased $242 million, or 4%, from the first three months of 2024.

Provision for Credit Losses

The provision for credit losses is predominantly a function of the Corporation’s reserving methodology and judgments as to other qualitative and quantitative factors used to determine the appropriate level of the ACLL, which focuses on changes in the size and character of the loan portfolio, changes in levels of individually evaluated and other nonaccrual loans, historical losses and delinquencies in each portfolio category, the risk inherent in specific loans, concentrations of loans to specific borrowers or industries, existing economic conditions and economic forecasts, the fair value of underlying collateral, and other factors which could affect potential credit losses. See additional discussion under the sections titled Loans, Credit Risk, Nonperforming Assets, and Allowance for Credit Losses on Loans.

Noninterest Income

Table 3 Noninterest Income

($ in thousands, except as noted)

N/M = Not Meaningful

(a) $ in millions. Excludes assets held in brokerage accounts.

Notable Contributions to the Change in Noninterest Income

• Loss on mortgage portfolio sale increased $7 million from the first three months of 2024, due to the recognition of a loss in the first quarter of 2025 related to the settlement of the mortgage sale announced in the fourth quarter of 2024.
• Bank and corporate owned life insurance increased $3 million from the first three months of 2024, driven by an increased number of claims.
• Investment securities gains (losses), net, decreased $4 million from the first three months of 2024, as a result of the sale of the Corporation's remaining Visa B shares in the first quarter of 2024.

Noninterest Expense

Table 4 Noninterest Expense

($ in thousands)

(a) Average FTEs without overtime.

Notable Contributions to the Change in Noninterest Expense

• Personnel expense increased $5 million from the first three months of 2024, primarily driven by annual merit increases.
• FDIC expense decreased $4 million from the first three months of 2024 as the first three months of 2024 included an $8 million nonrecurring expense related to the FDIC special assessment.

Income Taxes

The Corporation records income tax expense during interim periods based on the best estimate of the full year's effective tax rate as adjusted for discrete items, if any, taken into account in the relevant interim period. Each quarter, the Corporation updates its estimate of the annual effective tax rate and the effect of any change in the estimated rate is recorded on a cumulative basis. The Corporation recognized income tax expense of $19 million for the three months ended March 31, 2025, compared to income tax expense of $20 million for the three months ended March 31, 2024. The Corporation's effective tax rate from continuing operations was 16.03% and 19.78% for the three months ended March 31, 2025, and 2024, respectively. The decrease in income tax expense of $1 million and lower effective tax rate during the first three months of 2025 as compared to the same period of 2024 were primarily due to a partial release of a valuation allowance on deferred taxes offset by higher net income in the current period.

Income tax expense recorded on the consolidated statements of income involves the interpretation and application of certain accounting pronouncements and federal and state tax laws and regulations. The Corporation is subject to examination by various taxing authorities. Examination by taxing authorities may impact the amount of tax expense and/or the reserve for uncertainty in income taxes if their interpretations differ from those of management, based on their judgments about information available to them at the time of their examinations.

Balance Sheet Analysis

• At March 31, 2025, total assets were $43.3 billion, up $286 million, or 1%, from December 31, 2024, and up $2.2 billion, or 5%, from March 31, 2024.
• Interest bearing deposits in other financial institutions were $711 million at March 31, 2025, up $257 million, or 57%, from December 31, 2024, and up $291 million, or 69%, from March 31, 2024.
• AFS investment securities, at fair value were $4.8 billion at March 31, 2025, up $215 million, or 5%, from December 31, 2024, and up $1.1 billion, or 29%, from March 31, 2024. HTM investment securities, net, at amortized cost were $3.7 billion at March 31, 2025, down $33 million, or 1%, from December 31, 2024, and down $127 million, or 3%, from March 31, 2024. See Note 5 Investment Securities of the notes to consolidated financial statements for additional details.
• Loans of $30.3 billion at March 31, 2025 were up $526 million, or 2%, from December 31, 2024, and up $800 million, or 3%, from March 31, 2024. These increases were primarily driven by increases in the commercial loan portfolio. The increase from the first quarter of 2024 was partially offset by reductions in the residential mortgage portfolio as a result of the mortgage portfolio sale announced in the fourth quarter of 2024 and the sale closed in January 2025. The closure of this sale was the driver of the $599 million decrease in residential loans held for sale from December 31, 2024 to March 31, 2025. See Note 6 Loans of the notes to consolidated financial statements for additional details.
• At March 31, 2025, total deposits of $35.2 billion were up $548 million from December 31, 2024, or 2%, and were up $1.5 billion, or 4%, from March 31, 2024. See section Deposits and Customer Funding for additional information on deposits.
• Short-term funding was $311 million at March 31, 2025, decreasing $159 million, or 34%, from December 31, 2024 mainly due to lower federal funds purchased and down $454 million, or 59%, from March 31, 2024 primarily due to the payoff of BTFP advances. FHLB advances were $2.0 billion at March 31, 2025, up $173 million, or 9%, from December 31, 2024, and up $694 million, or 52%, from March 31, 2024. Other long-term funding was $591 million at March 31, 2025, down $246 million, or 29%, from December 31, 2024, due to subordinated notes maturing and up $55 million, or 10%, from March 31, 2024 due to the issuance of senior notes in 2024 that exceeded the subordinated notes that matured in the first quarter of 2025. See Note 8 Short and Long-Term Funding of the notes to consolidated financial statements for additional details.

Loans

Table 5 Period End Loan Composition

($ in thousands)

The Corporation has long-term guidelines relative to the proportion of Commercial and Business, CRE, and Consumer loan commitments within the overall loan portfolio, with each targeted to represent 30% to 40% of the overall loan portfolio. The targeted long-term guidelines were unchanged during 2024 and the first three months of 2025. Furthermore, certain sub-asset classes within the respective portfolios are further defined and dollar limitations are placed on these sub-portfolios. These guidelines and limits are reviewed quarterly and approved annually by the Enterprise Risk Committee of the Corporation’s Board of Directors. These guidelines and limits are designed to create balance and diversification within the loan portfolios.

The Corporation’s loan distribution and interest rate sensitivity as of March 31, 2025 are summarized in the following table:

Table 6 Loan Distribution and Interest Rate Sensitivity

($ in thousands)

(a) Demand loans, past due loans, overdrafts, and credit cards are reported in the “Within 1 Year” category.

At March 31, 2025, $20.6 billion, or 68%, of the loans outstanding and $17.5 billion, or 90%, of the commercial loans outstanding were floating rate, adjustable rate, re-pricing within one year, or maturing within one year.

Credit Risk

An active credit risk management process is used for commercial loans to ensure that sound and consistent credit decisions are made. Credit risk is controlled by detailed underwriting procedures, comprehensive loan administration, and periodic review of borrowers’ outstanding loans and commitments. Borrower relationships are formally reviewed and graded on an ongoing basis for early identification of potential problems. Further analysis by customer, industry, and geographic location are performed to monitor trends, financial performance, and concentrations. See Note 6 Loans of the notes to consolidated financial statements for additional information on managing overall credit quality.

The loan portfolio is widely diversified by types of borrowers, industry groups, and market areas primarily within the Corporation's lending footprint. Significant loan concentrations are considered to exist when there are amounts loaned to numerous borrowers engaged in similar activities that would cause them to be similarly impacted by economic or other conditions. At March 31, 2025, no significant concentrations existed in the Corporation’s portfolio in excess of 10% of total loan exposure.

Commercial and business lending: The commercial and business lending classification primarily includes commercial loans to large corporations, middle market companies, small businesses, and ABL and equipment financing.

Table 7 Largest Commercial and Industrial Industry Group Exposures, by NAICS Subsector

($ in thousands)

(a) Includes REIT lines.

(b) 62% of the total utilities exposure comes from renewable energy sources (wind, solar, hydroelectric, and geothermal).

(c) Includes mortgage warehouse lines.

The remaining commercial and industrial portfolio is spread over a diverse range of industries, none of which exceed 2% of total loan exposure.

The CRE-owner occupied portfolio is spread over a diverse range of industries, none of which exceed 2% of total loan exposure.

The credit risk related to commercial and business lending is largely influenced by general economic conditions and the resulting impact on a borrower’s operations or on the value of underlying collateral, if any.

Commercial real estate - investor: CRE-investor is comprised of loans secured by various non-owner occupied or investor income producing property types.

Table 8 Largest Commercial Real Estate - Investor Property Type Exposures

The remaining CRE-investor portfolio is spread over various other property types, none of which exceed 2% of total loan exposure.

Credit risk is managed in a similar manner to commercial and business lending by employing sound underwriting guidelines, lending primarily to borrowers in local markets and businesses, periodically evaluating the underlying collateral, and formally reviewing the borrower’s financial soundness and relationship on an ongoing basis.

Real estate construction: Real estate construction loans are primarily short-term or interim loans that provide financing for the acquisition or development of commercial income properties, multi-family projects, or residential development, both single family and condominium. Real estate construction loans are made to developers and project managers who are generally well known to the Corporation and have prior successful project experience. The credit risk associated with real estate construction loans is generally confined to specific geographic areas but is also influenced by general economic conditions. The Corporation controls the credit risk on these types of loans by making loans in familiar markets to developers, reviewing the merits of individual projects, controlling loan structure, and monitoring project progress and construction advances.

Table 9 Largest Real Estate Construction Property Type Exposures

The remaining real estate construction portfolio is spread over various other property types, none of which exceed 2% of total loan exposure.

The Corporation’s current lending standards for CRE and real estate construction lending are determined by property type and specifically address many criteria, including: maximum loan amounts, maximum LTV, requirements for pre-leasing and/or presales, minimum borrower equity, and maximum loan-to-cost. Currently, the maximum standard for LTV is 80%, with lower limits established for certain higher risk types, such as raw land that has a 50% LTV maximum. The Corporation’s LTV guidelines are in compliance with regulatory supervisory limits. In most cases, for real estate construction loans, the loan amounts include interest reserves, which are built into the loans and sized to fund loan payments through construction and lease up and/or sell out.

Residential mortgages: Residential mortgage loans are primarily first-lien home mortgages with a maximum loan-to-collateral value without credit enhancement (e.g. private mortgage insurance) of 80%. The residential mortgage portfolio is focused primarily in the Corporation's three-state branch footprint, with approximately 89% of the outstanding loan balances in the Corporation's branch footprint at March 31, 2025. The rates on adjustable rate mortgages adjust based upon the movement in the underlying index which is then added to a margin and rounded to the nearest 0.125%. That result is then subjected to any periodic caps to produce the borrower's interest rate for the coming term. Adjustable rate mortgages are typically offered with an initial fixed rate term of 5, 7 or 10 years.

The Corporation generally retains certain fixed-rate residential real estate mortgages in its loan portfolio, including retail and private banking jumbo mortgages and CRA-related mortgages. As part of management’s historical practice of originating and servicing residential mortgage loans, generally the Corporation’s 30-year, agency conforming, fixed-rate residential real estate mortgage loans have been sold in the secondary market with servicing rights retained. Subject to management’s analysis of the current interest rate environment, among other market factors, the Corporation may choose to retain mortgage loan production on its balance sheet.

The Corporation’s underwriting and risk-based pricing guidelines for residential mortgage loans include minimum borrower FICO score and maximum LTV of the property securing the loan. Residential mortgage products generally are underwritten using FHLMC and FNMA secondary marketing guidelines.

Home equity: Home equity consists of both home equity lines of credit and closed-end home equity loans. The Corporation’s credit risk monitoring guidelines for home equity are based on an ongoing review of loan delinquency status, as well as a quarterly review of FICO score deterioration and property devaluation. The Corporation does not routinely obtain appraisals on performing loans to update LTV ratios after origination; however, the Corporation monitors the local housing markets by reviewing the various home price indices and incorporates the impact of the changing market conditions in its ongoing credit monitoring process. For junior lien home equity loans, the Corporation is unable to track the performance of the first lien loan if it does not own or service the first lien loan. However, the Corporation obtains a refreshed FICO score on a quarterly basis and monitors this as part of its assessment of the home equity portfolio.

The Corporation’s underwriting and risk-based pricing guidelines for home equity lines of credit and loans consist of a combination of both borrower FICO score and the original cumulative LTV against the property securing the loan. Currently, the Corporation's policy sets the maximum acceptable LTV at 90%. The Corporation's current home equity line of credit offering is priced based on floating rate indices and generally allows 10 years of interest-only payments followed by a 20-year amortization of the outstanding balance. The loans in the Corporation's portfolio generally have an original term of 20 years with principal and interest payments required.

Indirect Auto: The Corporation currently purchases retail auto sales contracts via a network of approved auto dealerships across 16 states throughout the Northeast, Mid-Atlantic, and Midwestern United States. The auto dealerships finance the sale of automobiles as the initial lender and then assign the contracts to the Corporation pursuant to dealer agreements. The Corporation’s underwriting and pricing guidelines are based on a dual risk grade derived from a combination of FICO auto score and proprietary internal custom score. Minimum grade and FICO score standards ensure the credit risk is appropriately managed to the Corporation’s risk appetite. Further, the grade influences loan-specific parameters such as vehicle age, term, LTV, loan amount, mileage, payment and debt service thresholds, and pricing. Maximum loan terms offered are 84 months on select grades with vehicle age, mileage, and other limitations in place to qualify. The program is designed to capture primarily prime and super prime contracts.

Other consumer: Other consumer consists of student loans, short-term personal installment loans, and credit cards. Credit risk for other consumer loans is influenced by general economic conditions, the characteristics of individual borrowers, and the nature of the loan collateral. Risks of loss are generally on smaller average balances per loan spread over many borrowers. Once charged off, there is usually less opportunity for recovery of these smaller consumer loans. Credit risk is primarily controlled by reviewing the creditworthiness of the borrowers, monitoring payment histories, and taking appropriate collateral and guarantee positions.

Nonperforming Assets

Management is committed to a proactive nonaccrual and problem loan identification philosophy. This philosophy is implemented through the ongoing monitoring and review of all pools of risk in the loan portfolio to ensure that problem loans are identified quickly and the risk of loss is minimized. Table 10 provides detailed information regarding NPAs, which include nonaccrual loans, OREO, and repossessed assets, and also includes information on accruing loans past due and restructured loans:

Table 10 Nonperforming Assets

($ in thousands)

58

Table 10 Nonperforming Assets (continued)

($ in thousands)

(a) Primarily closed branches and other bank operated real estate facilities, pending disposition.

Nonaccrual loans: Nonaccrual loans are considered to be one indicator of potential future loan losses. See Note 6 Loans of the notes to consolidated financial statements for additional nonaccrual loan disclosures. See also sections Credit Risk and Allowance for Credit Losses on Loans.

Accruing loans past due 90 days or more: Loans past due 90 days or more but still accruing interest are classified as such where the underlying loans are both well secured (the collateral value is sufficient to cover principal and accrued interest) and are in the process of collection.

Restructured loans: Loans are considered restructured loans if concessions have been granted to borrowers that are experiencing financial difficulty. See also Note 6 Loans of the notes to consolidated financial statements for additional restructured loans disclosures.

OREO: Management actively seeks to ensure OREO properties held are monitored to minimize the Corporation’s risk of loss.

Allowance for Credit Losses on Loans

Credit risks within the loan portfolio are inherently different for each loan type. Credit risk is controlled and monitored through the use of lending standards, a thorough review of potential borrowers, and ongoing review of loan payment performance. Active asset quality administration, including early problem loan identification and timely resolution of problems, aids in the management of credit risk and the minimization of loan losses. Credit risk management for each loan type is discussed in the section entitled Credit Risk. See Note 6 Loans of the notes to consolidated financial statements for additional disclosures on the ACLL.

To assess the appropriateness of the ACLL, the Corporation focuses on the evaluation of many factors, including but not limited to: evaluation of facts and issues related to specific loans, management’s ongoing review and grading of the loan portfolio, credit report refreshes, consideration of historical loan loss and delinquency experience on each portfolio category, trends in past due and nonaccrual loans, the risk characteristics of the various classifications of loan segments, changes in the size and character of the loan portfolio, concentrations of loans to specific borrowers or industries, existing economic conditions and economic forecasts, the fair value of underlying collateral, funding assumptions on lines, and other qualitative and quantitative factors which could affect potential credit losses. The forecast the Corporation used for March 31, 2025 was the Moody's baseline scenario from February 2025, which was reviewed against the March 2025 baseline scenario with no material updates made, over a two year reasonable and supportable period with straight-line reversion to historical losses over the second year of the period. Assessing these factors involves significant judgment. Because each of the criteria used is subject to change, the ACLL is not necessarily indicative of the trend of future credit losses on loans in any particular segment. Therefore, management considers the ACLL a critical accounting estimate, see section Critical Accounting Estimates in the Corporation's 2024 Annual Report on Form 10-K for additional information on the ACLL. See section Nonperforming Assets for a detailed discussion on asset quality. See also Note 6 Loans of the notes to consolidated financial statements for additional ACLL disclosures. Table 5 provides information on loan growth and period end loan composition, Table 10 provides additional information regarding NPAs, and Table 11 and Table 12 provide additional information regarding activity in the ACLL.

The loan segmentation used in calculating the ACLL at March 31, 2025 and December 31, 2024 was generally comparable. The methodology to calculate the ACLL consists of the following components: a valuation allowance estimate is established for commercial and consumer loans determined by the Corporation to be individually evaluated, using discounted cash flows, estimated fair value of underlying collateral, and/or other data available. Loans are segmented for criticized loan pools by loan type as well as for non-criticized loan pools by loan type, primarily based on risk rating rates after considering loan type, historical loss and delinquency experience, credit quality, and industry classifications. Loans that have been criticized are considered to have a higher risk of default than non-criticized loans, as circumstances were present to support the lower loan grade, warranting higher loss factors. Additionally, management allocates ACLL to absorb losses that may not be provided for by the other components due to qualitative factors evaluated by management, such as limitations within the credit risk grading process, known current economic or business conditions that may not yet show in trends, industry or other concentrations with current issues that impose higher inherent risks than are reflected in the loss factors, and other relevant considerations. The total allowance is available to absorb losses from any segment of the loan portfolio.

Table 11 Allowance for Credit Losses on Loans

($ in thousands)

60

Table 12 Annualized Net (Charge Offs) Recoveries(a)

(a) Annualized ratio of net charge offs to average loans by loan type.

Notable Contributions to the Change in the Allowance for Credit Losses on Loans

• Total nonaccrual loans increased $12 million, or 9%, from December 31, 2024, and decreased $44 million, or 24%, from March 31, 2024. The increase from December 31, 2024 was driven by increases in CRE - investor lending and residential mortgage lending, partially offset by a decrease in commercial and industrial lending. The decrease from March 31, 2024 was driven by a decrease in commercial and industrial lending, partially offset by increases in CRE - investor lending and residential mortgage lending. See Note 6 Loans of the notes to consolidated financial statements and Table 10 for additional disclosures on the changes in asset quality.
• YTD net charge offs decreased $13 million from March 31, 2024, primarily driven by a decrease within commercial and industrial lending, partially offset by an increase in CRE - investor lending. See Table 11 and Table 12 for additional information on the activity in the ACLL.

Management believes the level of ACLL to be appropriate at March 31, 2025.

Deposits and Customer Funding

The following table summarizes the composition of our deposits and customer funding:

Table 13 Period End Deposit and Customer Funding Composition

($ in thousands)

(a) Includes repurchase agreements.

(b) Included above in interest-bearing demand and money market.

(c) Total deposits and other customer funding, excluding brokered CDs and network transaction deposits.

• Total deposits, which are the Corporation's largest source of funds, increased $548 million, or 2% from December 31, 2024, and increased $1.5 billion, or 4%, from March 31, 2024. The increase from December 31, 2024, was driven by increases in all deposit categories besides brokered CDs and interest-bearing demand deposits which partially offset the overall increase, while the increase from March 31, 2024 was driven by increases in all deposit categories except non-interest bearing demand deposits.
• Estimated uninsured and uncollateralized deposits, excluding intercompany deposits, were 26.1% of total deposits at March 31, 2025, compared to 23.0% at December 31, 2024 and 22.9% at March 31, 2024. The increase was primarily driven by increases in uninsured balances in business deposit accounts.

Liquidity

The objective of liquidity risk management is to ensure that the Corporation has the ability to generate sufficient cash or cash equivalents in a timely and cost effective manner to satisfy the cash flow requirements of depositors and borrowers and to meet its other commitments as they become due. The Corporation’s liquidity risk management process is designed to identify, measure, and manage the Corporation’s funding and liquidity risk to meet its daily funding needs in the ordinary course of business, as well as to address expected and unexpected changes in its funding requirements. The Corporation engages in various activities to manage its liquidity risk, including diversifying its funding sources, stress testing, and holding readily-marketable assets which can be used as a source of liquidity, if needed.

The Corporation performs dynamic scenario analysis in accordance with industry best practices. Measures have been established to ensure the Corporation has sufficient high quality short-term liquidity to meet cash flow requirements under stressed scenarios. In addition, the Corporation also reviews static measures such as deposit funding as a percentage of total assets and liquid asset levels. Strong capital ratios, credit quality, and core earnings are also essential to maintaining cost effective access to wholesale funding markets. At March 31, 2025, 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.

The Corporation maintains diverse and readily available liquidity sources, including:

• Lines of credit with the Federal Reserve Bank and FHLB, which require eligible loan and investment collateral to be pledged. Based on the amount of collateral pledged, the FHLB established a collateral value from which the Bank may draw advances, and issue letters of credit in favor of public fund depositors, against the collateral. As of March 31, 2025, the Bank had $6.4 billion available for future funding. The Federal Reserve Bank also establishes a collateral value of assets to support borrowings from the discount window. As of March 31, 2025, the Bank had $3.3 billion available for discount window borrowings.
• Dividends and service fees from subsidiaries, as well as the proceeds from issuance of capital, which are also funding sources for the Parent Company.
• Acquisition related equity issuances by the Parent Company; the Corporation has filed a shelf registration statement with the SEC under which the Parent Company may, from time to time, offer shares of the Corporation’s common stock in connection with acquisitions of businesses, assets, or securities of other companies.
• Other issuances by the Parent Company; the Corporation maintains on file with the SEC a universal shelf registration statement, under which the Parent Company may offer the following securities, either separately or in units: debt securities, preferred stock, depositary shares, common stock, and warrants.
• Bank issuances; the Bank may also issue institutional CDs, network transaction deposits, and brokered CDs.
• Global Bank Note Program issuances; the Bank has implemented a program pursuant to which it may from time to time offer up to $2.0 billion aggregate principal amount of its unsecured senior and subordinated notes.

The following table presents secured and total available liquidity sources, estimated uninsured and uncollateralized deposits (excluding intercompany deposits), and coverage of estimated uninsured and uncollateralized deposits:

Table 14 Liquidity Sources and Uninsured Deposit Coverage Ratio

($ in thousands)

(a) Estimated based on normal course of operations with indicated institution.

(b) Availability based on internal policy limitations. The Corporation includes outstanding deposits that have received a primary purpose exemption in the brokered deposit classification as they have similar funding characteristics and risk as brokered deposits.

(c) Estimated availability based on the Corporation's current internal funding considerations.

Based on contractual obligations and ongoing operations, the Corporation's sources of liquidity are sufficient to meet present and future liquidity needs. See Table 17 for information about the Corporation's contractual obligations and other commitments. See section Deposits and Customer Funding for information about uninsured deposits and concentrations.

Credit ratings impact the Corporation's ability to issue debt securities and the cost to borrow money. Adverse changes in credit ratings impact not only the ability to raise funds in the capital markets but also the cost of these funds. For additional information regarding risks related to adverse changes in our credit ratings, see Part II, Item 1A, Risk Factors.

For the three months ended March 31, 2025, net cash provided by operating and financing activities was $98 million and $242 million, respectively, while net cash used in investing activities was $127 million, for a net increase in cash and cash equivalents of $213 million since year-end 2024. At March 31, 2025, assets of $43.3 billion increased $286 million, or 1%, from year-end 2024. On the funding side, deposits of $35.2 billion increased $548 million, or 2% from year-end 2024, short-term funding decreased $159 million, or 34%, and other long-term funding decreased $246 million, or 29%.

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. At March 31, 2024, assets of $41.1 billion increased $121 million, from year-end 2023. On the funding side, deposits of $33.7 billion increased $267 million, or 1%, from year-end 2023, short-term funding increased $439 million, or 134%, and FHLB advances decreased $607 million, or 31%.

Quantitative and Qualitative Disclosures about Market Risk

Market risk and interest rate risk are managed centrally. Market risk is the potential for loss arising from adverse changes in the fair value of fixed-income securities, equity securities, other earning assets, and derivative financial instruments as a result of changes in interest rates or other factors. Interest rate risk is the potential for reduced net interest income resulting from adverse changes in the level of interest rates. As a financial institution that engages in transactions involving an array of financial products, the Corporation is exposed to both market risk and interest rate risk. In addition to market risk, interest rate risk is measured and managed through a number of methods. The Corporation uses financial modeling simulation techniques that measure the sensitivity of future earnings due to changing rate environments to measure interest rate risk.

Policies established by the Corporation’s ALCO and approved by the Board of Directors are intended to limit these risks. The Board has delegated day-to-day responsibility for managing market and interest rate risk to ALCO. The primary objectives of market risk management are to minimize any adverse effect that changes in market risk factors may have on net interest income and to offset the risk of price changes for certain assets recorded at fair value.

Interest Rate Risk

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. These limits and guidelines reflect the Corporation's risk appetite for interest rate risk over both short-term and long-term horizons.

The major sources of the Corporation's non-trading interest rate risk are timing differences in the maturity and re-pricing characteristics of assets and liabilities, changes in the shape of the yield curve, and the potential exercise of explicit or embedded options. We measure these risks and their impact by identifying and quantifying exposures through the use of sophisticated simulation and valuation models which are employed by management to understand interest rate sensitive EAR and MVE at risk. The Corporation’s interest rate risk profile is such that, generally, a higher yield curve adds to income while a lower yield curve has a negative impact on earnings. The Corporation's EAR profile is asset sensitive at March 31, 2025.

For further discussion of the Corporation's interest rate risk and corresponding key assumptions, see the Interest Rate Risk section of Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Corporation’s 2024 Annual Report on Form 10-K.

The sensitivity analysis included below is measured as a percentage change in EAR due to gradual moves in benchmark interest rates from a baseline scenario over 12 months. We evaluate the sensitivity using: 1) a dynamic forecast incorporating expected growth in the balance sheet, and 2) a static forecast where the current balance sheet is held constant.

While a gradual shift in interest rates was used in this analysis to provide an estimate of exposure under a probable scenario, an instantaneous shift in interest rates would have a more significant impact. No EAR breaches occurred during the first three months of 2025.

Table 15 Estimated % Change in Rate Sensitive Earnings at Risk Over 12 Months

At March 31, 2025, the MVE profile indicates a decrease in net balance sheet value due to instantaneous upward changes in rates and an increase in net balance sheet value due to instantaneous downward changes in rates.

Table 16 Market Value of Equity Sensitivity

64

Since MVE measures the discounted present value of cash flows over the estimated lives of instruments, the change in MVE does not directly correlate to the degree that earnings would be impacted over a shorter time horizon (i.e., the current year). Further, MVE does not take into account factors such as future balance sheet growth, changes in product mix, changes in yield curve relationships, and changes in product spreads that could mitigate the adverse impact of changes in interest rates. 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.

The above EAR and MVE measures do not include all actions that management may undertake to manage this risk in response to anticipated changes in interest rates.

Contractual Obligations, Commitments, Off-Balance Sheet Arrangements, and Contingent Liabilities

The following table summarizes significant contractual obligations and other commitments at March 31, 2025, at those amounts contractually due to the recipient, including any unamortized premiums or discounts, hedge basis adjustments, or other similar carrying value adjustments.

Table 17 Contractual Obligations and Other Commitments

($ in thousands)

The Corporation also has obligations under its derivatives, lending-related commitments, and retirement plans as described in Note 9 Derivative and Hedging Activities, Note 11 Commitments, Off-Balance Sheet Arrangements, Legal Proceedings, and Regulatory Matters, and Note 13 Retirement Plans of the notes to consolidated financial statements, respectively. Further discussion of the nature of each obligation is included in the referenced note to the consolidated financial statements.

Capital

Management actively reviews capital strategies for the Corporation and each of its subsidiaries in light of perceived business risks, future growth opportunities, industry standards, and compliance with regulatory requirements. The assessment of overall capital adequacy depends on a variety of factors, including asset quality, liquidity, stability of earnings, changing competitive forces, economic conditions in markets served, and strength of management. At March 31, 2025, the capital ratios of the Corporation and its banking subsidiaries were in excess of regulatory minimum requirements. The Corporation’s capital ratios are summarized in the following table.

Compliance with regulatory minimum capital requirements is a tool used in assessing the Corporation's capital adequacy, but not determinative of how the Corporation would fare under extreme stress. Factors that may affect the adequacy of the Corporation's capital include the inherent limitations of fair value estimates and the assumptions thereof, the inherent limitations of the regulatory risk-weights assigned to various asset types, the inherent limitations of accounting classifications of certain investments and the effect on their measurement, external macroeconomic conditions and their effects on capital and the Corporation's ability to raise capital or refinance capital commitments, and the extent of steps taken by state or federal government authorities in periods of extreme stress.

For additional information regarding the potential for additional regulation and supervision, see Part I, Item 1A, Risk Factors in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2024.

Table 18 Capital Ratios

($ in thousands)

N/M = Not Meaningful

(a) The Federal Reserve establishes regulatory capital requirements, including well-capitalized standards for the Corporation. The Corporation follows Basel III, subject to certain transition provisions. These regulatory capital measurements are used by management, regulators, investors, and analysts to assess, monitor, and compare the quality and composition of the Corporation's capital with the capital of other financial services companies.

(b) Ratio is based upon basic earnings per common share.

See Part II, Item 2, Unregistered Sales of Equity Securities and Use of Proceeds, for information on the shares repurchased during the first quarter of 2025.

Non-GAAP Measures

Table 19 Non-GAAP Measures

($ in thousands)

66

($ in thousands)

(a) These capital measurements are used by management, regulators, investors, and analysts to assess, monitor, and compare the quality and composition of our capital with the capital of other financial services companies.

(b) The ratio tangible common equity to tangible assets excludes goodwill and other intangible assets, net. This financial measure has been included as it is considered to be a critical metric with which to analyze and evaluate financial condition and strength.

(c) Adjusted net income and adjusted net income available to common equity, which are used in the calculation of return on average tangible assets and return on average tangible common equity, respectively, add back other intangible amortization, net of tax.

(d) The Corporation is not classified as an advanced approaches holding company as defined by the Federal Reserve. As such, the Corporation has elected to be subject to the AOCI-related adjustments when calculating common equity tier 1 capital which allows the Corporation to opt-out of the requirement to include most components of AOCI in common equity tier 1 capital. This adjustment reflects that election.

(e) Management believes this measure is meaningful because it reflects adjustments commonly made by management, investors, regulators, and analysts to evaluate the adequacy of earnings per common share, provide greater understanding of ongoing operations, and enhance comparability of results with prior periods.

Sequential Quarter Results

The Corporation reported net income of $102 million for the first quarter of 2025, compared to a net loss of $162 million for the fourth quarter of 2024, with the net loss attributable to impacts of balance sheet restructuring announced in the fourth quarter of 2024. Net income available to common equity was $99 million for the first quarter of 2025, or $0.60 for basic earnings per common share and $0.59 for diluted earnings per common share. Comparatively, the net loss available to common equity for the fourth quarter of 2024 was $164 million, or $1.04 for basic loss per common share and $1.03 for diluted loss per common share (see Table 1).

Fully tax-equivalent net interest income for the first quarter of 2025 was $290 million, $16 million, or 6%, higher than the fourth quarter of 2024. The net interest margin in the first quarter of 2025 was up 16 bp to 2.97%. Average earning assets increased $404 million, or 1%, to $39.3 billion in the first quarter of 2025. Average loans decreased $91 million, primarily driven by a decrease in residential mortgage lending as a result of the completion of the Corporation's mortgage loan sale as part of the balance sheet repositioning announced in the fourth quarter of 2024. On the funding side, average total interest-bearing deposits increased $594 million, or 2%, driven primarily by and increase in interest-bearing demand deposits. In the first quarter of 2025, average FHLB advances increased $140 million, or 10%, given funding needs and average other long-term funding decreased $213 million, or 25%, due to subordinated notes maturing in the first quarter of 2025 (see Table 2).

The provision for credit losses was $13 million for the first quarter of 2025 and $17 million for the fourth quarter of 2024 (see Table 11). See discussion under sections: Provision for Credit Losses, Nonperforming Assets, and Allowance for Credit Losses on Loans.

Noninterest income for the first quarter of 2025 was $59 million, compared to a loss of $207 million in the fourth quarter of 2024, as a result of the impacts of the balance sheet restructuring announced in the fourth quarter of 2024 (see Table 3).

Noninterest expense for the first quarter of 2025 was $211 million, down $14 million, or 6%, from the fourth quarter of 2024, driven primarily by the recognition of a loss on prepayment of FHLB advances as part of the balance sheet restructuring announced in the fourth quarter of 2024 (see Table 4).

For the first quarter of 2025, the Corporation recognized income tax expense of $19 million, compared to an income tax benefit of $16 million for the fourth quarter of 2024 given the net income recognized in the first quarter as compared to the net loss recognized in the fourth quarter. See section Income Taxes for a more detailed discussion.

Segment Review

The reportable segments are Corporate and Commercial Specialty; Community, Consumer and Business; and Risk Management and Shared Services. The financial information of the Corporation’s segments was compiled utilizing the accounting policies described in the Corporation’s 2024 Annual Report on Form 10-K and Note 14 Segment Reporting of the notes to consolidated financial statements.

Table 20 Selected Segment Financial Data

($ in thousands)

N//M = Not meaningful

Notable Changes in Segment Financial Data

Corporate and Commercial Specialty

• Average earning assets and average loans both increased $977 million from the three months ended March 31, 2024, primarily driven by growth in commercial and business lending.

Community, Consumer, and Business

• Net income decreased $5 million from the three months ended March 31, 2024, driven by a $7 million decrease in net interest income due to lower FTP allocations and a $2 million increase in noninterest expense primarily due to increased technology expenses. These were offset by a $2 million increase in noninterest income primarily due to increased mortgage banking revenues and a $1 million reduction in income tax expense due to lower pre-tax income.
• Average deposits increased $1.2 billion from the three months ended March 31, 2024, driven by increases in all interest-bearing deposit categories, partially offset by decreases in noninterest bearing demand deposits.

Risk Management and Shared Services

• Total revenue increased $24 million from the three months ended March 31, 2024, primarily driven by more favorable FTP allocations.
• Noninterest expense increased $8 million from the three months ended March 31, 2024, primarily due to a $4 million increase in personnel expense, a $2 million increase in occupancy expense, and a $6 million increase in other noninterest expense primarily due to a $4 million OREO write down. These increases were offset by a $4 million decrease in FDIC expense due to a nonrecurring FDIC special assessment expense incurred in the first quarter of 2024 and lower allocated expenses.
• Net loss decreased $27 million from the three months ended March 31, 2024, primarily due to the changes noted above and a $3 million income tax benefit primarily due to the release of a valuation reserve on deferred taxes.
• Average earning assets increased $846 million from the three months ended March 31, 2024, driven by higher balances of AFS investment securities in the portfolio and higher deposits in other financial institutions offset by a decrease in average loans.
• Average loans decreased $94 million from the three months ended March 31, 2024, driven by lower balances in all loan categories.
• Average deposits increased $433 million from the three months ended March 31, 2024, primarily driven by increases in all deposit types except for time deposits.

Critical Accounting Estimates

In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenues and expenses for the period. Actual results could differ significantly from those estimates. The determination of the ACLL is particularly susceptible to significant change. A discussion of these estimates can be found in the Critical Accounting Estimates section in Management's Discussion and Analysis of Financial Condition and Results of Operations included in the Corporation’s 2024 Annual Report on Form 10-K. There have been no changes in the Corporation's application of critical accounting estimates since December 31, 2024.

Recent Developments

On April 29, 2025, the Corporation’s Board of Directors declared a regular quarterly cash dividend of $0.23 per common share, payable on June 16, 2025, to shareholders of record at the close of business on June 2, 2025.

The Board of Directors also declared a regular quarterly cash dividend of $0.3671875 per depositary share on Associated's 5.875% Series E Perpetual Preferred Stock, payable on June 16, 2025, to shareholders of record at the close of business on June 2, 2025.

The Board of Directors also declared a regular quarterly cash dividend of $0.3515625 per depositary share on Associated's 5.625% Series F Perpetual Preferred Stock, payable on June 16, 2025, to shareholders of record at the close of business on June 2, 2025.

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.

The Corporation maintains disclosure controls and procedures as required under Rule 13a-15 promulgated under the Securities Exchange Act of 1934, as amended, that are designed to ensure that information required to be disclosed in the Corporation's Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Corporation’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

As of March 31, 2025, the Corporation’s management carried out an evaluation, under the supervision and with the participation of the Corporation’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of its disclosure controls and procedures. Based on the foregoing, its Chief Executive Officer and Chief Financial Officer concluded that the Corporation’s disclosure controls and procedures were effective as of March 31, 2025.

No changes were made to the Corporation’s internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act of 1934) during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Corporation’s internal control over financial reporting.