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What changed in ASSOCIATED BANC-CORP's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of ASSOCIATED BANC-CORP's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+552 added−492 removedSource: 10-K (2024-02-08) vs 10-K (2023-02-13)

Top changes in ASSOCIATED BANC-CORP's 2023 10-K

552 paragraphs added · 492 removed · 361 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

93 edited+45 added−43 removed134 unchanged
Biggest changeIn addition, multiple states, Congress and regulators within and outside of the United States are considering similar laws or regulations which could create new individual privacy rights and impose increased obligations on companies handling personal data, specifically including financial institutions.
Biggest changeWhile GLBA-regulated nonpublic, personal information generally is exempt under the CCPA (as well as the other state consumer privacy laws), the CCPA and certain other state laws apply to the personal information of representatives of any business contacts that the Bank engages with who are California residents, employees who are California residents, and any other personal information that the Bank collects outside of the scope of GLBA, such as with respect to certain data collected from visitors to our website. 12 In addition, multiple states, Congress and regulators within and outside of the United States are considering similar laws or regulations which could create new individual privacy rights and impose increased obligations on companies handling personal information, specifically including financial institutions.
The operational and managerial standards in the Guidelines relate to the following: (1) internal controls and information systems; (2) internal audit systems; (3) loan documentation; (4) credit underwriting; (5) interest rate exposure; (6) asset growth; (7) compensation, fees and benefits; (8) asset quality; and (9) earnings.
The operational and managerial standards in the Guidelines relate to the following: (1) internal controls and information systems; (2) internal audit systems; (3) loan documentation; (4) credit underwriting; (5) interest rate exposure; (6) asset growth; (7) 6 compensation, fees and benefits; (8) asset quality; and (9) earnings.
Accordingly, the agencies have begun to enhance their supervisory expectations regarding the climate risk management practices of larger banking organizations, including by encouraging such banks to: ensure that management of climate-related risk exposures has been incorporated into existing governance structures; evaluate the potential impact of climate-related risks on the bank’s financial condition, operations and business objectives as part of its strategic planning process; account for the effects of climate change in stress testing scenarios and systemic risk assessments; revise expectations for credit portfolio concentrations based on climate-related factors; consider investments in climate-related initiatives and lending to communities disproportionately impacted by the effects of climate change; evaluate the impact of climate change on the bank’s borrowers and consider possible changes to underwriting criteria to account for climate-related risks to mortgaged properties; incorporate climate-related financial risk into the bank’s internal 15 reporting, monitoring and escalation processes; and prepare for the transition risks to the bank associated with the adjustment to a low-carbon economy and related changes in laws, regulations, governmental policies, technology, and consumer behavior and expectations.
Accordingly, the agencies have begun to enhance their supervisory expectations regarding the climate risk management practices of larger banking organizations, including by encouraging such banks to: ensure that management of climate-related risk exposures has been incorporated into existing governance structures; evaluate the potential impact of climate-related risks on the bank’s financial condition, operations and business objectives as part of its strategic planning process; account for the effects of climate change in stress testing scenarios and systemic risk assessments; revise expectations for credit portfolio concentrations based on climate-related factors; consider investments in climate-related initiatives and lending to communities disproportionately impacted by the effects of climate change; evaluate the impact of climate change on the bank’s borrowers and consider possible changes to underwriting criteria to account for climate-related risks to mortgaged properties; incorporate climate-related financial risk into the bank’s internal reporting, monitoring and escalation processes; and prepare for the transition risks to the bank associated with the adjustment to a low-carbon economy and related changes in laws, regulations, governmental policies, technology, and consumer behavior and expectations.
In determining whether to approve a proposed bank acquisition, federal bank regulators will consider, among other factors, the 6 effect of the acquisition on competition, the public benefits expected to be received from the acquisition, the projected capital ratios and levels on a post-acquisition basis, and the acquiring institution’s record of addressing the credit needs of the communities it serves, including the needs of LMI neighborhoods, consistent with the safe and sound operation of the bank, under the CRA.
In determining whether to approve a proposed bank acquisition, federal bank regulators will consider, among other factors, the effect of the acquisition on competition, the public benefits expected to be received from the acquisition, the projected capital ratios and levels on a post-acquisition basis, and the acquiring institution’s record of addressing the credit needs of the communities it serves, including the needs of LMI neighborhoods, consistent with the safe and sound operation of the bank, under the CRA.
Banks' service providers are required under the final rule to notify any affected bank to or on behalf of which the service provider provides services "as soon as possible" after determining that it has experienced an incident that materially disrupts or degrades, or is reasonably likely to materially disrupt or degrade, covered services provided to such bank for as much as four hours.
Banks' service providers are required under the rule to notify any affected bank to or on behalf of which the service provider provides services "as soon as possible" after determining that it has experienced an incident that materially disrupts or degrades, or is reasonably likely to materially disrupt or degrade, covered services provided to such bank for as much as four hours.
Other Banking Regulations The Bank is also subject to a variety of other regulations with respect to the operation of its businesses, including but not limited to the Dodd-Frank Act, which among other restrictions placed limitations on the interchange fees charged for debit card transactions, TILA, Truth in Savings Act, Equal Credit Opportunity Act, Electronic Funds Transfer Act, Fair Housing Act, Home Mortgage Disclosure Act, Fair Debt Collection Practices Act, Fair Credit Reporting Act, Expedited Funds Availability (Regulation CC), Reserve Requirements (Regulation D), Insider Transactions (Regulation O), Privacy of Consumer Information (Regulation P), Margin Stock Loans (Regulation U), Right To Financial Privacy Act, Flood Disaster Protection Act, Homeowners Protection Act, Servicemembers Civil Relief Act, RESPA, Telephone Consumer Protection Act, CAN-SPAM Act, Children’s Online Privacy Protection Act, and the John Warner NDAA.
Other Banking Regulations The Bank is also subject to a variety of other regulations with respect to the operation of its businesses, including but not limited to the Dodd-Frank Act, which among other restrictions placed limitations on the interchange fees charged for debit card transactions, TILA, Truth in Savings Act, Equal Credit Opportunity Act, Electronic Funds Transfer Act, Fair Housing Act, Home Mortgage Disclosure Act, Fair Debt Collection Practices Act, Fair Credit Reporting Act, Expedited Funds Availability (Regulation CC), Reserve Requirements (Regulation D), Insider Transactions (Regulation O), Privacy of Consumer Information (Regulation P), Margin Stock Loans (Regulation U), Right To Financial Privacy Act, Flood Disaster Protection Act, Homeowners Protection Act, Servicemembers Civil Relief Act, RESPA, TCPA, CAN-SPAM Act, Children’s Online Privacy Protection Act, and the John Warner NDAA.
The Patriot Act mandates that financial service companies implement additional policies and procedures and take heightened measures designed to address any or all of the following matters: customer identification programs, money laundering, terrorist financing, identifying and reporting suspicious activities and currency transactions, currency crimes, and cooperation between financial institutions and law enforcement authorities.
The Patriot Act mandates that financial 13 service companies implement additional policies and procedures and take heightened measures designed to address any or all of the following matters: customer identification programs, money laundering, terrorist financing, identifying and reporting suspicious activities and currency transactions, currency crimes, and cooperation between financial institutions and law enforcement authorities.
The proposal would provide a set of general standards, including an occupancy test and excess capacity standards, that the OCC will 17 use to determine whether the acquisition and holding of real estate is necessary for the transaction of an institution's business. The prospects and timing for the adoption of a final rule are uncertain at this time.
The proposal would provide a set of general standards, including an occupancy test and excess capacity standards, that the OCC will use to determine whether the acquisition and holding of real estate is necessary for the transaction of an institution's business. The prospects and timing for the adoption of a final rule are uncertain at this time.
In general, subject to certain exceptions as discussed further below, minimum capital standards established under the risk-based capital regulations include a CET1 capital to risk-weighted assets ratio of 4.5 percent, a Tier 1 capital to risk-weighted assets ratio of 6.0 percent, a total capital to risk-weighted assets ratio of 8.0 percent, and a Tier 1 capital to adjusted 7 average total assets leverage ratio of 4.0 percent.
In general, subject to certain exceptions as discussed further below, minimum capital standards established under the risk-based capital regulations include a CET1 capital to risk-weighted assets ratio of 4.5 percent, a Tier 1 capital to risk-weighted assets ratio of 6.0 percent, a total capital to risk-weighted assets ratio of 8.0 percent, and a Tier 1 capital to adjusted average total assets leverage ratio of 4.0 percent.
In addition, national banks are required to adopt a customer identification program as part of their BSA compliance program. National banks are also required to file SARs when they detect certain known or suspected violations of federal law or suspicious transactions related to 12 a money laundering activity or a violation of the BSA.
In addition, national banks are required to adopt a customer identification program as part of their BSA compliance program. National banks are also required to file SARs when they detect certain known or suspected violations of federal law or suspicious transactions related to a money laundering activity or a violation of the BSA.
Although the Corporation will continue to monitor and stress test its capital consistent with the safety and soundness expectations of the federal regulators, the Corporation no longer publishes stress testing results as a result of the legislative and regulatory amendments.
Although the Corporation will continue to monitor and stress test its capital consistent with the safety and soundness expectations of the 9 federal regulators, the Corporation no longer publishes stress testing results as a result of the legislative and regulatory amendments.
Under the CECL model, we are required to present certain financial assets carried at amortized cost, such as loans held for investment and HTM securities, at the net amount expected to be 8 collected.
Under the CECL model, we are required to present certain financial assets carried at amortized cost, such as loans held for investment and HTM securities, at the net amount expected to be collected.
In addition, less than well-capitalized banks are subject to restrictions on the interest rates they may pay on deposits. The characterization of deposits as "brokered" may result 10 in the imposition of higher deposit assessments on such deposits.
In addition, less than well-capitalized banks are subject to restrictions on the interest rates they may pay on deposits. The characterization of deposits as "brokered" may result in the imposition of higher deposit assessments on such deposits.
The CFPB also has implemented the TILA-RESPA Integrated Disclosure rules, which harmonize disclosure and certain regulatory compliance requirements required under those two statutes with respect to residential mortgage loans.
The CFPB also has implemented the TILA-RESPA Integrated 15 Disclosure rules, which harmonize disclosure and certain regulatory compliance requirements required under those two statutes with respect to residential mortgage loans.
Firms with significant trading activities (i.e. , those with $20 billion or 13 more in trading assets and liabilities) have heightened compliance obligations.
Firms with significant trading activities (i.e. , those with $20 billion or more in trading assets and liabilities) have heightened compliance obligations.
During 2021, the Corporation launched our Associated Culture Team, with the intent to have approximately 15 colleagues representing diverse business lines, positions, and geographies across the Corporation. The team's purpose is to provide a voice for colleague feedback regarding current and desired states of our corporate culture.
During 2021, the Corporation launched our Associated Culture Team, with the intent to have approximately 12 colleagues representing diverse business lines, positions, and geographies across the Corporation. The team's purpose is to provide a voice for colleague feedback regarding current and desired states of our corporate culture.
At December 31, 2022, the Bank satisfied the capital requirements necessary to be deemed “well capitalized.” In the event of a change to this status, the imposition of any of the measures described above could have a material adverse effect on the Corporation and on its profitability and operations.
At December 31, 2023, the Bank satisfied the capital requirements necessary to be deemed “well-capitalized.” In the event of a change to this status, the imposition of any of the measures described above could have a material adverse effect on the Corporation and on its profitability and operations.
Market-based Pay and Rewards: We regularly review our pay and benefits programs so that we are offering a total compensation package, including salary, incentive pay, and benefits that we believe is fair, equitable, and competitive in our marketplace. Culture: We believe our success begins and ends with people.
Market-based Pay and Rewards: We regularly review our pay and benefits programs so that we are offering a total compensation package, including salary, incentive opportunities, and benefits that we believe is fair, equitable, and competitive in our marketplace. 4 Culture: We believe our success begins and ends with people.
The regulations implementing the BSA require financial institutions to established risk-based procedures for conducting ongoing customer due diligence and procedures for understanding the nature and purpose of customer relationships for the purpose of developing a customer risk profile.
The regulations implementing the BSA require financial institutions to establish risk-based procedures for conducting ongoing customer due diligence and procedures for understanding the nature and purpose of customer relationships for the purpose of developing a customer risk profile.
More recently, on January 3, 2023, the federal banking agencies issued additional guidance in the form of a joint statement addressing digital asset-related risks to banking organizations.
On January 3, 2023, the federal banking agencies issued additional guidance in the form of a joint statement addressing digital asset-related risks to banking organizations.
None of our colleagues are represented by unions. Talent Acquisition, Development, and Retention: We believe attracting and retaining diverse talent in a highly competitive candidate market fuels our ability to serve our customers and support our communities. We are focused on sourcing diverse, passive talent through engagement with workforce development programs, partnerships with diverse organizations, and active campus recruitment.
None of our colleagues are represented by unions. Talent Acquisition, Development, and Retention: We believe attracting and retaining diverse talent in a highly competitive candidate market fuels our ability to serve our customers and support our communities. We are focused on sourcing talent from all backgrounds through engagement with workforce development programs, partnerships with diverse organizations, and active campus recruitment.
At December 31, 2022, we owned one nationally chartered commercial bank headquartered in Green Bay, Wisconsin, which serves local communities across the upper Midwest, one nationally chartered trust company headquartered in Wisconsin, and 10 limited purpose banking and nonbanking subsidiaries either located in or conducting business primarily in our three state branch footprint (Wisconsin, Illinois, and Minnesota) that are closely related or incidental to the business of banking or financial in nature.
At December 31, 2023, we owned one nationally chartered commercial bank headquartered in Green Bay, Wisconsin, which serves local communities across the upper Midwest, one nationally chartered trust company headquartered in Milwaukee, Wisconsin, and 12 limited purpose banking and nonbanking subsidiaries either located in or conducting business primarily in our three state branch footprint (Wisconsin, Illinois, and Minnesota) that are closely related or incidental to the business of banking or financial in nature.
The increase is being instituted to account for extraordinary growth in insured deposits during the first and second quarters of 2020, which caused a substantial decrease in the DIF reserve ratio. The FDIC has indicated that the new assessment rate schedules will remain in effect until the DIF reserve ratio meets or exceeds 2 percent.
The increase was instituted to account for extraordinary growth in insured deposits during the first and second quarters of 2020, which caused a substantial decrease in the DIF reserve ratio. The FDIC indicated that the new assessment rate schedules will remain in effect until the DIF reserve ratio meets or exceeds 2 percent.
During 2022, many of our colleagues and community members responded to and recognized our efforts: • Colleague engagement is a focus for our company. During 2022, 91% of our colleagues provided feedback through an annual workplace survey conducted by a third party on key topics related to the overall health and culture of the organization.
During 2023, many of our colleagues and community members responded to and recognized our efforts: • Colleague engagement is a focus for our company. During 2023, 92% of our colleagues provided feedback through an annual workplace survey conducted by a third-party on key topics related to the overall health and culture of the organization.
Diversity, Equity and Inclusion: Our DE&I efforts focus on shared commitment and action across business lines to seek out and diversify our workforce and foster a culture of belonging and inclusion among our colleagues. Our efforts extend to our markets by strengthening our DE&I efforts in our relationships with customers and the communities that we live in and serve.
Diversity, Equity and Inclusion: Our DE&I efforts focus on shared commitment and action across business lines to foster a culture of belonging and inclusion among our colleagues. Our efforts extend to our markets by strengthening our DE&I efforts in our relationships with customers and the communities that we live in and serve.
The survey respondent percentage is well above the average response rate for commercial banks. For the sixth year in a row, we received more than 8,000 colleague comments, which we believe demonstrates that colleagues are interested in, and comfortable with, sharing candid feedback. • Associated Bank continues to be recognized as a Top Workplace.
The survey respondent percentage is well above the average response rate for commercial banks. For the seventh year in a row, we received more than 8,000 colleague comments, including more than 9,000 in 2023, which we believe demonstrates that colleagues are interested in, and comfortable with, sharing candid feedback. • Associated Bank continues to be recognized as a Top Workplace.
Measured by total assets reported at December 31, 2022, we are the largest bank holding company headquartered in Wisconsin.
Measured by total assets reported at December 31, 2023, we are the largest bank holding company headquartered in Wisconsin.
Services Through Associated Bank and various nonbanking subsidiaries, we provide a broad array of banking and nonbanking products and services to individuals and businesses through 202 banking branches at December 31, 2022, serving more than 100 communities, primarily within our three state branch footprint.
Services Through Associated Bank and various nonbanking subsidiaries, we provide a broad array of banking and nonbanking products and services to individuals and businesses through 196 banking branches at December 31, 2023, serving more than 100 communities, primarily within our three-state branch footprint.
If adopted as expected in 2023, the rules would require new climate-related disclosures in SEC filings and audited financial statements, including certain climate-related metrics and greenhouse gas emissions data, information about climate-related targets and goals, transition plans, if any, and attestation requirements.
If adopted as expected, the rules would require new climate-related disclosures in SEC filings and audited financial statements, including certain climate-related metrics and GHG emissions data, information about climate-related targets and goals, transition plans, if any, and attestation requirements.
Notable aspects of the rule include (1) the establishment of bright-line standards for determining whether an entity meets the statutory definition of "deposit broker"; (2) the identification of a number of business relationships in which the agent of nominee is automatically not deemed to be a "deposit broker" because their primary purpose is not the placement of funds with depository institutions (the "primary purpose exception"); (3) the establishment of a more transparent application process for entities that seek the "primary purpose exception", but do not qualify as one of the identified business relationships to which the exception is automatically applicable; and (4) the clarification that third parties that have an exclusive deposit-placement arrangement with only one IDI are not considered a "deposit broker." Full compliance with the amended brokered deposits regulation was required by January 1, 2022.
Notable aspects of the rule include (1) the establishment of bright-line standards for determining whether an entity meets the statutory definition of "deposit broker"; (2) the identification of a number of business relationships in which the agent of nominee is automatically not deemed to be a "deposit broker" because their primary purpose is not the placement of funds with depository institutions (the "primary purpose exception"); (3) the establishment of a more transparent application process for entities that seek the "primary purpose exception", but do not qualify as one of the identified business relationships to which the exception is automatically applicable; and (4) the clarification that third parties that have an exclusive deposit-placement arrangement with only one IDI are not considered a "deposit broker." Full compliance with the amended brokered deposits regulation was required by January 1, 2022. 11 The FDIC staff continues to implement the final rule through the issuance of interpretative guidance and other administrative actions.
Although these risk management principles, if adopted as proposed, would not apply to the Bank directly based upon our current size, the OCC has indicated that all banks, regardless of their size, may have material exposures to climate-related financial and other risks that require prudent management.
Although these risk management principles do not apply to the Bank directly based upon our current size, the OCC has indicated that all banks, regardless of their size, may have material exposures to climate-related financial and other risks that require prudent management.
The agencies’ previous capital regulations were amended in 2013 to strengthen the components of regulatory capital, increase risk-based capital requirements, and make selected changes to the calculation of risk-weighted assets.
The agencies’ previous capital regulations were amended in 2013 following the enactment of the Dodd-Frank Act to strengthen the components of regulatory capital, increase risk-based capital requirements, and make selected changes to the calculation of risk-weighted assets.
Specifically, the final rule requires banking organizations to notify their primary federal regulator as soon as possible and no later than 36 hours after the discovery of a "computer-security incident" that rises to the level of a "notification incident" within the meaning attributed to those terms by the final rule.
Specifically, the rule requires banking organizations to notify their primary federal regulator as soon as possible and no later than 36 hours after the discovery of a "computer-security incident" that rises to the level of a "notification incident," as those terms are defined under the final rule.
At year end, women and people of color represented 64% of all Assistant Vice President roles and women represented 32% of all Senior Vice President roles. • In addition, 21% of our Executive Leadership Team and 40% of our Board of Directors are represented by women and people of color.
At year end, women and people of color represented 65% of all Assistant Vice President roles and women represented 31% of all Senior Vice President roles. • In addition, 40% of both our Executive Leadership Team and Board of Directors are represented by women and people of color.
We continue to exceed all capital requirements necessary to be deemed "well-capitalized" for all regulatory purposes under the capital regulations.
We continue to exceed all capital requirements necessary to be deemed “well-capitalized” for all regulatory purposes under the capital regulations.
Under TILA as implemented by Regulation Z, mortgage lenders are required to make a reasonable and good faith determination based on verified and documented information that a consumer applying for a mortgage loan has a reasonable ability to repay 14 the loan according to its terms.
Under TILA as implemented by Regulation Z, mortgage lenders are required to make a reasonable and good faith determination based on verified and documented information that a consumer applying for a mortgage loan has a reasonable ability to repay the loan according to its terms. Mortgage lenders are required to determine consumers’ ATR in one of two ways.
As of December 31, 2022, as a result of these efforts, our colleague representation is as follows: • People of color represented 17%, protected veterans represented 2%, people with disabilities represented 11%, and women represented 63% of our total workforce. • We continue to advance diversity representation at all levels across our organization.
As of December 31, 2023, as a result of these efforts, our colleague representation is as follows: • People of color represented 18%, protected veterans represented 2%, people with disabilities represented 11%, and women represented 62% of our total workforce. • We continue to advance representation from all backgrounds at all levels across our organization.
We are not dependent upon a single or a few customers, the loss of which would have a material adverse effect on us. Human Capital Matters We are very fortunate to have what we believe is a diverse, committed team of approximately 4,200 FTE colleagues who are capable, determined and empowered to drive our company forward.
We are not dependent upon a single or a few customers, the loss of which would have a material adverse effect on us. 3 Human Capital Matters We are very fortunate to have a diverse, committed team of approximately 4,100 colleagues at December 31, 2023 who are capable, determined and empowered to drive our company forward.
These groups help to drive greater organizational awareness and work to address the unique needs of people of different 4 cultures and marginalized groups not limited to, but including, people of color, young professionals, women, veterans, LGBTQ+, and people with disabilities.
These groups, which are open to all employees, help to drive greater organizational awareness and work to address the unique needs of people of different cultures and underrepresented groups not limited to, but including, people of color, young professionals, women, veterans, LGBTQ+, and people with disabilities.
The Dodd-Frank Act may have a material impact on the Corporation’s and the Bank’s operations, particularly through increased compliance costs resulting from possible future consumer and fair lending regulations. See the Risk Factors section for a more extensive discussion of this topic.
The Dodd-Frank Act may have a material impact on the Corporation’s and the Bank’s operations, particularly through increased compliance costs resulting from possible future consumer and fair lending regulations. See Item 1A, Risk Factors — Legal, Regulatory, Compliance and Reputational Risks for additional discussion of this topic.
With regard to environmental sustainability, this includes Environmental Risk Management; Climate Change, Carbon Emissions and Natural Resources; and Environmental and Social Lending. 16 • The Compensation & Benefits Committee is the approval authority for compensation and benefits related oversight, such as executive compensation, human capital, human rights, DE&I, and workforce practices and policies. • The Audit Committee has oversight responsibility for the Corporation's policies and practices related to ESG, including the risk management framework.
With regard to environmental sustainability, this includes Environmental Risk Management; Climate Change, Carbon Emissions and Natural Resources; and Environmental and Social Lending. • The Compensation & Benefits Committee is the approval authority for compensation and benefits related oversight, such as executive compensation, human capital, human rights, DE&I, and workforce practices and policies. • The Audit Committee has been delegated responsibility to oversee management of financial reporting and audit functions.
Topics include, but are not limited to, educating on different lived experiences, benefits of having a diverse workforce, and the importance of having an intentional focus on hiring and retaining underrepresented groups.
Topics include, but are not limited to, educating on different lived experiences, determining factors that promote inclusion, benefits of having a diverse workforce, and the importance of having an intentional focus on hiring and retaining groups from different backgrounds.
Colleague Engagement: By strengthening our workforce and providing opportunities for all colleagues to apply their talent and grow as professionals, we strive to foster pride in working for Associated and to be recognized as the employer of choice among Midwestern financial services firms.
In 2023, we added a third program aimed at successfully onboarding new leaders. Colleague Engagement: By strengthening our workforce and providing opportunities for all colleagues to apply their talent and grow as professionals, we strive to foster pride in working for Associated and to be recognized as the employer of choice among Midwestern financial services firms.
Pursuant to this “scorecard” method, two scores (a performance score and a loss severity score) will be combined and converted to an initial base assessment rate. The performance score measures an institution’s financial performance and ability to withstand stress. The loss severity score measures the relative magnitude of potential losses to the DIF in the event of the institution’s failure.
Pursuant to this “scorecard” method, two scores (a performance score and a loss severity score) will be combined and converted to an initial base assessment rate. The performance score measures an institution’s financial performance and ability to withstand stress.
On October 21, 2021, the Financial Stability Oversight Council published a report identifying climate-related financial risks as an “emerging threat” to financial stability. On December 16, 2021, the OCC issued proposed principles for climate-related financial risk management for national banks with more than $100 billion in total assets.
On October 21, 2021, the Financial Stability Oversight Council published a report identifying climate-related financial risks as an “emerging threat” to financial stability. On October 24, 2023, the OCC, the FDIC and the Federal Reserve jointly finalized principles for climate-related financial risk management for national banks with more than $100 billion in total assets.
Oversight for climate-related risks includes Board-level, senior management and board and management committee oversight. The Corporation’s Board of Directors is responsible for overseeing the corporate ESG strategies and risks of Associated, including risks and opportunities related to environmental sustainability.
The Corporation’s Board of Directors is responsible for overseeing the corporate ESG strategies and risks of Associated, including risks and opportunities related to environmental sustainability.
As climate-related supervisory guidance is formalized, and relevant risk areas and corresponding control expectations are further refined, we may be required to expend significant capital and incur compliance, operating, maintenance and remediation costs in order to conform to such requirements.
As climate-related supervisory guidance is formalized, and relevant risk areas and corresponding control expectations are further refined, we may be required to expend significant capital and incur compliance, operating, maintenance and remediation costs in order to conform to such requirements. In addition, states are considering taking similar actions on climate-related financial risks, including certain states in which we operate.
Further, in June of 2020, the five agencies referenced above issued a final rule that modified the Volcker Rule's prohibition on banking entities' investing in or sponsoring "covered funds." The final rule (1) streamlined the covered funds portion of the rule; (2) addressed the extraterritorial treatment of certain foreign funds; and (3) permits banking entities to offer financial services and engage in other activities that do not raise concerns that the Volcker Rule was intended to address.
Further, in June of 2020, the five agencies referenced above issued a final rule that modified the Volcker Rule's prohibition on banking entities' investing in or sponsoring "covered funds." The final rule (1) streamlined the covered funds portion of the rule; (2) addressed the extraterritorial treatment of certain foreign funds; and (3) permits banking entities to offer financial services and engage in other activities that do not raise concerns that the Volcker Rule was intended to address. 14 Incentive Compensation Policies and Restrictions The federal banking agencies have issued guidance on sound incentive compensation policies that applies to all banking organizations supervised by the agencies (thereby including both the Parent Company and the Bank).
The timing and prospects for the formal adoption by the federal banking agencies of modified regulatory standards for the evaluation of bank mergers and acquisitions is uncertain at this time. See the Risk Factors section for a more extensive discussion of this topic.
The timing and prospects for the formal adoption by the federal banking agencies of modified regulatory standards for the evaluation of bank mergers and acquisitions is uncertain at this time.
As of December 31, 2022: • Nearly 3,000 colleagues and spouses participated in an annual wellness visit with a primary care provider. • More than 1,550 colleagues received a well-being reimbursement for the purchase of items such as gym memberships, home fitness equipment, and/or fitness tracking devices. • Throughout 2022, Associated Bank colleagues received nearly $500,000 in well-being program incentives, including well-being platform rewards and reimbursements for items such as gym memberships, fitness tracking devices, home fitness equipment, and more.
As of December 31, 2023: • Nearly 3,000 colleagues and spouses participated in an annual wellness visit with a primary care provider. • Nearly 1,725 colleagues received a well-being reimbursement for the purchase of items such as gym memberships, home fitness equipment, and/or fitness tracking devices.
Banking Subsidiary Dividends The Parent Company is a legal entity separate and distinct from the Bank and other nonbanking subsidiaries. A substantial portion of our cash flow comes from dividends paid to us by Associated Bank.
See Item 1A, Risk Factors — Operational Risks for additional discussion of this topic. 7 Banking Subsidiary Dividends The Parent Company is a legal entity separate and distinct from the Bank and other nonbanking subsidiaries. A substantial portion of our cash flow comes from dividends paid to us by Associated Bank.
Climate-Related Risk Management and Regulation In recent years the federal banking agencies have increased their focus on climate-related risks impacting the operations of banks, the communities they serve and the broader financial system.
See Item 1A, Risk Factors — Legal, Regulatory, Compliance and Reputational Risks for additional discussion of this topic. Climate-Related Risk Management and Regulation In recent years the federal banking agencies have increased their focus on climate-related risks impacting the operations of banks, the communities they serve and the broader financial system.
Accordingly, banking organizations not subject to the advanced approaches capital rule may deduct from CET1 capital any amount of MSAs, temporary difference DTAs, and investments in the capital of unconsolidated financial institutions that individually exceeds 25 percent of CET1 capital.
Specifically, such institutions may deduct from CET1 capital any amount of MSAs, temporary difference DTAs, and investments in the capital of unconsolidated financial institutions that individually exceeds 25 percent of CET1 capital.
As a result, we were able to hire over 140 more external candidates in 2022 than in the prior year. At the same time, in 2022, we had low voluntary turnover of 16% while 26% of colleagues advanced their careers at the Corporation through nearly 1,100 internal promotions or lateral moves.
As a result, we were able to hire nearly 750 external candidates in 2023. At the same time, in 2023, we had low voluntary turnover of 12% while 20% of colleagues advanced their careers at the Corporation through nearly 850 internal promotions or lateral moves.
We offer free and confidential health coaching and weight management programs, mental health resources, virtual live fitness classes, and a 24/7/365 employee assistance program which provides access to free counseling services, financial coaching, and a variety of additional resources to support the unique needs of our colleagues and their families (e.g. elder, adult, child, and family support and legal services).
Our dedicated Total Well-being team provides free and confidential health coaching while a 24/7/365 Employee Assistance Program (EAP) provides access to complimentary counseling services, financial coaching, and a variety of additional resources to support the unique needs of our colleagues and their families (e.g. elder, adult, child, family support and legal services).
An affiliate is any company or entity, which controls, is controlled by or is under common control with the bank. In a holding company context, at a minimum, the parent holding company of a national bank, and any companies that are controlled by such parent holding company, are affiliates of the bank.
In a holding company context, at a minimum, the parent holding company of a national bank, and any companies that are controlled by such parent holding company, are affiliates of the bank.
Alternatively, the mortgage lender can originate QMs, which are entitled to a presumption that the creditor making the loan satisfied the ATR requirements. In general, a QM is a mortgage loan without negative amortization, interest-only payments, balloon payments, or terms exceeding 30 years.
Alternatively, the mortgage lender can originate "qualified mortgages," or QMs, which generally are mortgage loans without negative amortization, interest-only payments, balloon payments, or terms exceeding 30 years. QMs are entitled by rule to a presumption that the creditor making the loan satisfied the ATR requirements provided certain requirements are met. The Corporation is predominantly an originator of compliant QMs.
Supervision and Regulation Overview The Corporation and its banking and nonbanking subsidiaries are subject to extensive regulation and oversight both at the federal and state levels.
Supervision and Regulation Overview The Corporation and its banking and nonbanking subsidiaries are subject to extensive regulation and oversight both at the federal and state levels. The following is an overview of the statutory and regulatory framework that affects the business of the Corporation and our subsidiaries.
Additionally, leaders are required to complete an in-depth workshop around unconscious bias. • We have an Associated Bank Honors Program that includes a wide range of veteran-focused initiatives in an effort to reach and recruit military veterans while helping support our military connected customers, colleagues, and communities.
Additionally, sessions are offered specifically to leaders on topics such as cultural competency and interrupting bias to further promote inclusive leadership. • We have an Associated Bank Honors Program that includes a wide range of veteran-focused initiatives in an effort to reach and recruit military veterans while helping support our military connected customers, colleagues, and communities.
Our DE&I efforts have been recognized in 2022 by our communities as follows: • Associated Bank continues to be recognized as a Best for Vets employer by Military Times for the sixth consecutive year. • Associated Bank was recognized as a Disability Equality Index Best Place to Work for Disability Inclusion. Competition The financial services industry is highly competitive.
Our DE&I efforts have been recognized in 2023 by our communities as follows: • Associated Bank was recognized with a top score of 100 on the Human Rights Campaign Foundation's 2023 Corporate Equality Index and recognized as a Leader in LGBTQ+ Workplace Inclusion. • Recognized as a 2023 Best Places to Work for Disability Inclusion from Disability:IN Disability Equality Index ® . • Associated Bank continues to be recognized as a Best for Vets employer from Military Times for the seventh consecutive year. 5 Competition The financial services industry is highly competitive.
This amendment since has been adopted on a permanent basis. Banking Acquisitions We are required to obtain prior Federal Reserve approval before acquiring more than 5 percent of the voting shares, or substantially all of the assets, of a bank holding company, bank or savings association.
See Item 1A, Risk Factors — Operational Risks for additional discussion of this topic. Banking Acquisitions We are required to obtain prior Federal Reserve approval before acquiring more than 5 percent of the voting shares, or substantially all of the assets, of a bank holding company, bank or savings association.
An unsatisfactory rating may be used as the basis for denial of such an application. The Bank received a “Satisfactory” CRA rating in its most recent evaluation. 11 On May 5, 2022, the federal banking agencies issued a joint notice of proposed rulemaking to revise the regulations implementing the CRA.
An unsatisfactory rating may be used as the basis for denial of such an application. The Bank received a “Satisfactory” CRA rating in its most recent evaluation. On October 24, 2023, the federal banking agencies jointly issued a final rule to strengthen and modernize the existing CRA regulations.
The Corporation’s assessment rate for FDIC was approximately 7 bp for 2022. The FDIC is authorized to conduct examinations of and require reporting by FDIC-insured institutions.
These assessments continued until the bonds matured in September 2019. The Corporation’s assessment rate for FDIC was approximately 9 bp for 2023. The FDIC is authorized to conduct examinations of and require reporting by FDIC-insured institutions.
In addition to establishing the minimum regulatory capital requirements, the capital regulations limit capital distributions and certain discretionary bonus payments to management if the institution does not hold a capital conservation buffer consisting of 2.5 percent of CET1 capital to risk-weighted assets above the amount necessary to meet its minimum risk-based capital requirements.
In assessing an institution’s capital adequacy, the OCC takes into consideration not only these numeric factors, but qualitative factors as well, and has the authority to establish higher capital requirements for individual institutions where deemed necessary. 8 In addition to establishing the minimum regulatory capital requirements, the capital regulations limit capital distributions and certain discretionary bonus payments to management if the institution does not hold a capital conservation buffer consisting of 2.5 percent of CET1 capital to risk-weighted assets above the amount necessary to meet its minimum risk-based capital requirements.
A financial institution also should have a robust business continuity program to recover from a cyberattack and procedures for monitoring the security of third-party service providers that may have access to nonpublic data at the institution. During 2022, the Corporation did not discover any material cybersecurity incidents.
A financial institution also should have a robust business continuity program to recover from a cyberattack and procedures for monitoring the security of third-party service providers that may have access to nonpublic data at the institution. See Item 1A, Risk Factors — Operational Risks for additional discussion of this topic.
These guidelines, along with related regulatory materials, increasingly focus on risk management and processes related to information technology and the use of third parties in the provision of financial services.
The federal banking agencies have also adopted guidelines for establishing information security standards and cybersecurity programs for implementing safeguards under the supervision of the board of directors. These guidelines, along with related regulatory materials, increasingly focus on risk management and processes related to information technology and the use of third parties in the provision of financial services.
As part of this authority, Associated Bank and our trust company subsidiary are required to file periodic reports with the OCC and are subject to regulation, supervision and examination by the OCC. To support its supervisory function, the OCC has the authority to assess and charge fees on all national banks according to a set fee schedule.
The OCC has primary supervisory and regulatory authority over the operations of Associated Bank and the Corporation's trust company subsidiary. As part of this authority, Associated Bank and our trust company subsidiary are required to file periodic reports with the OCC and are subject to regulation, supervision and examination by the OCC.
Under privacy protection provisions of the Gramm-Leach-Bliley Act of 1999 and its implementing regulations and guidance, we are limited in our ability to disclose certain non-public information about consumers to nonaffiliated third parties.
Privacy, Data Protection, and Cybersecurity We are subject to a number of U.S. federal, state, local and foreign laws and regulations relating to consumer privacy and data protection. Under privacy protection provisions of the GLBA and its implementing regulations and guidance, we are limited in our ability to disclose certain non-public information about consumers to nonaffiliated third parties.
Total scores are converted pursuant to a predetermined formula into an initial base assessment rate. Assessment rates range from 2.5 bp to 45 bp for large institutions. The FDIC has the flexibility to adopt actual rates that are higher or lower than the total base assessment rates adopted without notice and comment, if certain conditions are met.
The FDIC has the flexibility to adopt actual rates that are higher or lower than the total base assessment rates adopted without notice and comment, if certain conditions are met.
Additionally, in March of 2022, the SEC proposed new climate-related disclosure rules, the Proposed Rules for The Enhancement and Standardization of the Climate-Related Disclosure for Investors File No. S7-10-22.
State-level initiatives such as these may require us to expend capital to conform to any requirements that apply to us. Additionally, in March of 2022, the SEC proposed new climate-related disclosure rules, the Proposed Rules for The Enhancement and Standardization of the Climate-Related Disclosure for Investors File No. S7-10-22.
The statement stressed that each agency has developed, and expects banking organizations to follow, supervisory processes for evaluating proposed and existing digital asset activities.
The statement stressed that each agency has developed, and expects banking organizations to follow, supervisory processes for evaluating proposed and existing digital asset activities. On February 23, 2023, the federal banking agencies issued a joint statement addressing liquidity risks to banking organizations resulting from crypto-asset market vulnerabilities.
In addition, the OCC is permitted to take any one of a number of discretionary supervisory actions, including but not limited to the issuance of a capital directive and the replacement of senior executive officers and directors. 9 Finally, bank regulatory agencies have the ability to impose higher than normal capital requirements known as individual minimum capital requirements for institutions with a high-risk profile.
In addition, the OCC is permitted to take any one of a number of discretionary supervisory actions, including but not limited to the issuance of a capital directive and the replacement of senior executive officers and directors.
In connection with applicable requirements, bank holding companies file periodic reports and other information with the Federal Reserve.
BHC Act Requirements As a registered bank holding company under the BHC Act, we are regulated, supervised, and examined by the Federal Reserve. In connection with applicable requirements, bank holding companies file periodic reports and other information with the Federal Reserve.
In 2022, we earned the Top Workplaces USA Award for the third consecutive year. Regionally, Associated Bank was named a Top Workplaces 2022 award winner in Milwaukee, Southeast Wisconsin, and Madison. Associated Bank also received Top Workplaces 2022 for Employee Well-Being and Professional Development. The Top Workplace awards are issued by Energage.
In 2023, we earned the Top Workplaces USA Award for the fourth consecutive year. Regionally, Associated Bank was named a Top Workplaces 2023 award winner in Chicago, Milwaukee and Southeast Wisconsin, and the Greater Madison area. Associated Bank also received Top Workplaces 2023 for Professional Development, Employee Appreciation, Employee Well-Being, Leadership, Innovation, Compensation & Benefits, Work-Life Flexibility, and Financial Services.
The laws and regulations to which we are subject are constantly under review by Congress, the federal regulatory agencies, and the state authorities. These laws and regulations could be changed drastically in the future, which could affect our profitability, our ability to compete effectively, or the composition of the financial services industry in which we compete.
These laws and regulations could be changed drastically in the future, which could affect our profitability, our ability to compete effectively, or the composition of the financial services industry in which we compete. 18 Government Monetary Policies and Economic Controls Our earnings and growth, as well as the earnings and growth of the banking industry, are affected by the credit policies of monetary authorities, including the Federal Reserve.
At December 31, 2022, the average tenure of our workforce was approximately 8.1 years while the average tenure of our executive leadership team was 11.7 years. 3 Through internal and external training and development programs, we aim to help our colleagues improve their skills so they can achieve their career goals and transition to more challenging roles. • Beginning in 2023, the Corporation initiated individual development plans for all colleagues designed to enhance colleague development, growth and career pathing through identification of career interests, and detailed action plans focused on development areas. • In 2022, we introduced a significant development initiative to accelerate the leadership skills in the organization through leadership learning paths tailored to the three primary levels of leadership in the organization, which are first level, mid-level and senior leaders.
Through internal and external training and development programs, we aim to help our colleagues improve their skills so they can achieve their career goals and transition to more challenging roles. • Beginning in 2023, the Corporation initiated individual development plans for all colleagues designed to enhance colleague development, growth and career pathing through identification of career interests, and detailed action plans focused on development areas. • In 2023, we introduced significant training and resources for development and career planning to include workshops for both leaders and colleagues.
Government Monetary Policies and Economic Controls Our earnings and growth, as well as the earnings and growth of the banking industry, are affected by the credit policies of monetary authorities, including the Federal Reserve. An important function of the Federal Reserve is to regulate the national supply of bank credit in order to combat recession and curb inflationary pressures.
An important function of the Federal Reserve is to regulate the national supply of bank credit in order to combat recession and curb inflationary pressures.
DIF-insured institutions pay a FICO assessment in order to fund the interest on bonds issued in the 1980s in connection with the failures in the thrift industry. The FICO assessment was computed on assets as required by the Dodd-Frank Act. These assessments continued until the bonds matured in September 2019.
See Item 1A, Risk Factors — Legal, Regulatory, Compliance and Reputational Risks for additional discussion of this topic. DIF-insured institutions pay a FICO assessment in order to fund the interest on bonds issued in the 1980s in connection with the failures in the thrift industry. The FICO assessment was computed on assets as required by the Dodd-Frank Act.
As such, this role provides indirect strategic guidance into the Environmental Sustainability Risk Policy and gives second level approval for all policy components. The Chief Credit Officer oversees lending aspects of environmental risk. To help identify, implement and effectuate priorities for the Corporation’s environmental initiatives, the Corporation also established an Environmental Sustainability Council.
As such, this role provides indirect strategic guidance into the Environmental Sustainability Risk Policy and gives second level approval for all policy components. The Chief Credit Officer oversees lending aspects of environmental risk. 17 During 2023, the Corporation elevated environmental sustainability as a mainstream corporate initiative and established a management-level Sustainability Committee which reports through ERMC.
In addition, these regulators must establish regulations or guidelines requiring enhanced disclosure to regulators of incentive-based compensation arrangements. In October of 2022, the SEC adopted a final regulation implementing the incentive-based recovery (or "clawback") provisions of the Dodd-Frank Act.
In addition, these regulators must establish regulations or guidelines requiring enhanced disclosure to regulators of incentive-based compensation arrangements.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeIn each case, credit performance over the medium- and long-term is susceptible to economic and market forces and therefore forecasts remain uncertain. Instability and uncertainty in the commercial and residential real estate markets, as well as in the broader commercial and retail credit markets, could have a material adverse effect on our financial condition and results of operations.
Biggest changeInstability and uncertainty in the commercial and residential real estate markets, as well as in the broader commercial and retail credit markets, could have a material adverse effect on our financial condition and results of operations. Changes in U.S. trade policies, including the imposition of tariffs and retaliatory tariffs, may adversely impact our business, financial condition, and results of operations.
Our ability to compete successfully depends on a number of factors, including, among other things: • the ability to develop, maintain, and build upon long-term customer relationships based on top quality service, high ethical standards, and safe, sound assets; • the ability to expand our market position; • the scope, relevance, and pricing of products and services offered to meet customer needs and demands; • the rate at which we introduce new products and services relative to our competitors; • customer satisfaction with our level of service; and • industry and general economic trends.
Our ability to compete successfully depends on a number of factors, including, among other things: • the ability to develop, maintain, and build upon long-term customer relationships based on top quality service, high ethical standards, and safe, sound assets; • the ability to expand our market position; • the scope, relevance, and pricing of products and services offered to meet customer needs and demands; • the rate at which we introduce new products and services relative to our competitors; • customer satisfaction with our level of service; and 32 • industry and general economic trends.
These conditions include short-term and long-term interest rates, inflation, money supply, political issues, ramifications of conflicts including the Russia-Ukraine conflict, legislative and regulatory changes, fluctuations in both debt and equity capital markets, broad trends in industry and finance, the strength of the United States economy, and uncertainty in financial markets globally, all of which are beyond our control.
These conditions include short-term and long-term interest rates, inflation, money supply, political issues, ramifications of conflicts including the Russia-Ukraine conflict, legislative and regulatory changes, fluctuations in both debt and equity capital markets, broad trends in industry and finance, the strength of the United States economy, and uncertainty in financial markets 33 globally, all of which are beyond our control.
A decline in our stock price or occurrence of a triggering event following any of our quarterly earnings 26 releases and prior to the filing of the periodic report for that period could, under certain circumstances, cause us to perform a goodwill impairment test and result in an impairment charge being recorded for that period which was not reflected in such earnings release.
A decline in our stock price or occurrence of a triggering event following any of our quarterly earnings releases and prior to the filing of the periodic report for that period could, under certain circumstances, cause us to perform a goodwill impairment test and result in an impairment charge being recorded for that period which was not reflected in such earnings release.
When negative evidence (e.g., cumulative losses in recent years, history of operating loss or tax credit carryforwards expiring unused) exists, more positive evidence than negative evidence will be necessary. The impact of each of these impairment matters could have a material adverse effect on our business, results of operations, and financial condition.
When negative evidence (e.g., cumulative losses in recent years, history of operating loss or tax credit carryforwards expiring unused) exists, more positive evidence than negative evidence will be necessary. 29 The impact of each of these impairment matters could have a material adverse effect on our business, results of operations, and financial condition.
Whether customer claims and legal action related to the performance of our fiduciary responsibilities are founded or unfounded, if such claims and legal actions are not resolved in a manner favorable to us, they may result in significant financial liability 35 and/or adversely affect the market perception of us and our products and services, as well as impact customer demand for those products and services.
Whether customer claims and legal action related to the performance of our fiduciary responsibilities are founded or unfounded, if such claims and legal actions are not resolved in a manner favorable to us, they may result in significant financial liability and/or adversely affect the market perception of us and our products and services, as well as impact customer demand for those products and services.
Any such downturn, especially domestically and in the regions in which we operate, may adversely affect our asset quality, deposit levels, loan demand and results of operations. As a result of the economic and geopolitical factors discussed above, financial institutions also face heightened credit risk, among other forms of risk.
Any such downturn in economic output, especially domestically and in the regions in which we operate, may adversely affect our asset quality, deposit levels, loan demand and results of operations. As a result of the economic and geopolitical factors discussed above, financial institutions also face heightened credit risk, among other forms of risk.
If this were to happen, the value of our securities could decline significantly, and you could lose all or part of your investment. Credit Risks Changes and instability in economic conditions, geopolitical matters and financial markets, including a contraction of economic activity, could adversely impact our business, results of operations and financial condition.
If this were to happen, the value of our securities could decline significantly, and you could lose all or part of your investment. 19 Credit Risks Changes and instability in economic conditions, geopolitical matters and financial markets, including a contraction of economic activity, could adversely impact our business, results of operations and financial condition.
Certain investors are beginning to incorporate the business risks of climate change and the adequacy of companies’ responses to the risks posed by climate change and other ESG matters into their investment theses. Additionally, organizations that provide information to investors on 28 corporate governance and related matters have developed ratings processes for evaluating companies on their approach to ESG matters.
Certain investors are beginning to incorporate the business risks of climate change and the adequacy of companies’ responses to the risks posed by climate change and other ESG matters into their investment theses. Additionally, organizations that provide information to investors on corporate governance and related matters have developed ratings processes for evaluating companies on their approach to ESG matters.
Furthermore, our right to participate in a distribution of assets upon any of our subsidiaries’ liquidation or reorganization is subject to the prior claims of that subsidiary’s creditors, including holders of any preferred stock of that subsidiary. Our articles of incorporation, bylaws, and certain banking laws may have an anti-takeover effect.
Furthermore, our right to participate in a distribution of assets upon any of our subsidiaries’ liquidation or reorganization is subject to the prior claims of that subsidiary’s creditors, including holders of any preferred stock of that subsidiary. 41 Our articles of incorporation, bylaws, and certain banking laws may have an anti-takeover effect.
While we have policies and procedures designed to prevent or limit the effect of the failure, interruption, or security breach of our information systems, we cannot completely ensure that any such failures, interruptions, or security breaches will not occur or, if they do occur, that they will be adequately addressed.
While we have policies and procedures designed to prevent or limit the effect of the failure, interruption, or security breach of our communications and information systems, we cannot completely ensure that any such failures, interruptions, or security breaches will not occur or, if they do occur, that they will be adequately addressed.
Because the methods of cyber-attacks change frequently or, in some cases, are not recognized until launch, we are not able to anticipate or implement effective preventive measures against all possible security breaches and the probability of a successful 24 attack cannot be predicted.
Because the methods of cyber-attacks change frequently or, in some cases, are not recognized until launch, we are not able to anticipate or implement effective preventive measures against all possible security breaches and the probability of a successful attack cannot be predicted.
Given the lack of empirical data on the credit and other financial risks posed by climate change, it is impossible to predict how climate change may impact our financial condition and operations; however, as a banking organization, the physical effects of climate change may present certain unique risks to the Corporation.
Given the lack of empirical data on the credit and other financial risks posed by climate change, it is impossible to predict how climate change may impact our financial condition and 30 operations; however, as a banking organization, the physical effects of climate change may present certain unique risks to the Corporation.
The CFPB has initiated enforcement actions against a variety of bank and non-bank market participants with respect to a number of consumer financial products and services that has resulted in those participants expending significant time, money and resources to adjust to the initiatives being pursued by the CFPB.
The CFPB has initiated enforcement actions against a variety of bank and non-bank market participants with respect to a number of consumer financial products and services that have resulted in those participants expending significant time, money and resources to adjust to the initiatives being pursued by the CFPB.
Third party vendors provide key components of our business infrastructure, such as internet connections, network access and core application processing. While we have selected these third party vendors in accordance with supervisory requirements, we do not control their actions.
Third-party vendors provide key components of our business infrastructure, such as internet connections, network access and core application processing. While we have selected these third-party vendors in accordance with supervisory requirements, we 28 do not control their actions.
We maintain an allowance for credit losses, which is a reserve established through a provision for credit losses charged to expense, that represents management’s best 19 estimate of probable credit losses over the life of the loan within the existing portfolio of loans.
We maintain an allowance for credit losses, which is a reserve established through a provision for credit losses charged to expense, that represents management’s best estimate of probable credit losses over the life of the loan within the existing portfolio of loans.
Becoming a bank holding company imposes certain statutory and regulatory restrictions and obligations, such as providing managerial and financial strength for its bank 37 subsidiaries.
Becoming a bank holding company imposes certain statutory and regulatory restrictions and obligations, such as providing managerial and financial strength for its bank subsidiaries.
Reliance on inaccurate or misleading financial statements, credit reports, or other financial information could cause us to enter into unfavorable transactions, which could have a material adverse effect on our financial condition and results of operations. 20 Lack of system integrity or credit quality related to funds settlement could result in a financial loss.
Reliance on inaccurate or misleading financial statements, credit reports, or other financial 21 information could cause us to enter into unfavorable transactions, which could have a material adverse effect on our financial condition and results of operations. Lack of system integrity or credit quality related to funds settlement could result in a financial loss.
Acquisitions by the Corporation, particularly those of financial institutions, are subject to approval by a variety of federal and state regulatory agencies (collectively, "regulatory approvals"). The process for obtaining these required regulatory approvals has become substantially more difficult in recent years.
Acquisitions by the Corporation, particularly those of financial institutions, are subject to approval by a variety of federal and state regulatory agencies (collectively, “regulatory approvals”). The process for obtaining these required regulatory approvals has become substantially more difficult in recent years.
Accordingly, the federal bank regulatory agencies have expressed concerns about weaknesses in the current CRE market and have applied increased regulatory scrutiny to institutions with CRE loan portfolios that are fast growing or large relative to the institutions' total capital.
Accordingly, the federal banking agencies have expressed concerns about weaknesses in the current CRE market and have applied increased regulatory scrutiny to institutions with CRE loan portfolios that are fast growing or large relative to the institutions' total capital.
Any successful cyber-attack may also subject the Corporation to regulatory investigations, litigation or enforcement, or require the payment of regulatory fines or penalties or undertaking costly remediation efforts with respect to third parties affected by a cyber security incident, all or any of which could adversely affect the Corporation’s business, financial condition or results of operations and damage its reputation.
Any successful cyber-attack may also subject the Corporation to regulatory investigations, litigation (including class action litigation) or enforcement, or require the payment of regulatory fines or penalties or undertaking costly remediation efforts with respect to third parties affected by a cyber security incident, all or any of which could adversely affect the Corporation’s business, financial condition or results of operations and damage its reputation.
At the same time, revenue from MSRs can increase through increases in fair value. When rates fall, mortgage originations tend to increase and the value of MSRs tends to decline, also with some offsetting revenue effect. Even though the origination of mortgage loans can act as a "natural hedge," the hedge is not perfect, either in amount or timing.
At the same time, revenue from MSRs can increase through increases in fair value. When rates fall, mortgage originations tend to increase and the value of MSRs tends to decline, also with some offsetting revenue effect. Even though the origination of mortgage loans can act as a “natural hedge,” the hedge is not perfect, either in amount or timing.
In response to this increased congressional and regulatory scrutiny, and in anticipation of enhanced supervision and enforcement of overdraft protection practices in the future, certain banking organizations have modified their overdraft protection programs, including by discontinuing the imposition of overdraft transaction fees.
In response to this increased congressional and regulatory scrutiny, and in response to enhanced supervision and enforcement of overdraft protection practices, certain banking organizations have modified their overdraft protection programs, including by discontinuing the imposition of overdraft transaction fees.
Accordingly, digital asset service providers - which, at present are not subject to the extensive regulation as banking organizations and other financial institutions - have become active competitors for our customers' banking business.
Accordingly, digital asset service providers, which at present are not subject to the extensive regulation of banking organizations and other financial institutions, have become active competitors for our customers’ banking business.
Our failure to adequately implement enhanced risk management policies, procedures and controls could adversely affect our ability to increase this portfolio going forward and could result in an increased rate of delinquencies in, and increased losses from, this portfolio. At December 31, 2022, nonaccrual CRE loans totaled $29 million, or less than 1% of our total portfolio of CRE loans.
Our failure to adequately implement enhanced risk management policies, procedures and controls could adversely affect our ability to increase this portfolio going forward and could result in an increased rate of delinquencies in, and increased losses from, this portfolio. At December 31, 2023, nonaccrual CRE loans totaled $1 million, or less than 1% of our total portfolio of CRE loans.
In addition, on March 21, 2022, the Biden Administration issued a warning regarding the potential for Russia to engage in malicious cyber activities, specifically including attacks on critical infrastructure such as the financial sector, in response to the international economic sanctions that have been imposed against the Russian government and organizations and individuals within Russia relating to its invasion of and ongoing conflict with Ukraine.
In addition, on March 21, 2022, the current Presidential Administration issued a warning regarding the potential for Russia to engage in malicious cyber activities, specifically including attacks on critical infrastructure such as the financial sector, in 25 response to the international economic sanctions that have been imposed against the Russian government and organizations and individuals within Russia relating to its invasion of and ongoing conflict with Ukraine.
Conversely, the market price of our securities may be adversely effected if a government official or agency seeks to limit the Corporation’s business with a certain government entity or initiates an investigation or enforcement action because of what is perceived to be the Corporation’s unwarranted focus on ESG matters.
Conversely, the market price of our securities may be 31 adversely affected if a government official or agency seeks to limit the Corporation’s business with a certain government entity or initiates an investigation or enforcement action because of what is perceived to be the Corporation’s unwarranted focus on ESG matters.
During 2022, the annual impairment test conducted in May, using a qualitative assessment, indicated that the estimated fair value of all of the Corporation’s reporting units exceeded the carrying value.
During 2023, the annual impairment test conducted in May, using a qualitative assessment, indicated that the estimated fair value of all of the Corporation’s reporting units exceeded the carrying value.
Moreover, the turnover of the Presidential Administration in 2021 resulted in certain changes in the leadership and senior staffs of the federal banking agencies, the CFPB, CFTC, SEC, and the Treasury Department, with certain significant leadership positions yet to be filled, including the Comptroller of the Currency.
Moreover, the turnover of the Presidential Administration in 2021 resulted in certain changes in the leadership and senior staffs of the federal banking agencies and the Treasury Department, with certain significant leadership positions yet to be filled, including the Comptroller of the Currency.
Cyber security risks for financial institutions also have evolved as a result of the increased interconnectedness of operating environments and the use of new technologies, devices and delivery channels to transmit data and conduct financial transactions.
Cybersecurity risks for financial institutions also have evolved as a result of the increased interconnectedness of operating environments and the use of new technologies, devices and delivery channels to transmit data and conduct financial transactions.
Our policy generally has been to originate CRE loans primarily in the states in which the Bank operates. At December 31, 2022, CRE loans, including owner occupied, investor, and real estate construction loans, totaled $8.2 billion, or 29%, of our total loan portfolio.
Our policy generally has been to originate CRE loans primarily in the states in which the Bank operates. At December 31, 2023, CRE loans, including owner occupied, investor, and real estate construction loans, totaled $8.5 billion, or 29%, of our total loan portfolio.
At December 31, 2022, we had goodwill of $1.1 billion, which represents approximately 28% of stockholders’ equity. In assessing the realizability of DTAs, management considers whether it is more likely than not that some portion or all of the DTAs will not be realized.
At December 31, 2023, we had goodwill of $1.1 billion, which represents approximately 26% of stockholders’ equity. In assessing the realizability of DTAs, management considers whether it is more likely than not that some portion or all of the DTAs will not be realized.
Fee revenues from overdraft protection programs constitute a significant portion of our noninterest income and may be subject to increased supervisory scrutiny. Revenues derived from transaction fees associated with overdraft protection programs offered to our customers represent a significant portion of our noninterest income. In 2022, the Corporation collected approximately $23 million in overdraft transaction fees.
Fee revenues from overdraft protection programs constitute a significant portion of our noninterest income and may be subject to increased supervisory scrutiny. Revenues derived from transaction fees associated with overdraft protection programs offered to our customers represent a significant portion of our noninterest income. In 2023, the Corporation collected approximately $14 million in overdraft transaction fees.
Cyber-attacks involving large financial institutions, including denial of service attacks designed to disrupt external customer-facing services, nation state cyberattacks and ransomware attacks designed to deny organizations access to key internal resources or systems, as well as targeted social engineering and email attacks designed to allow unauthorized persons to obtain access to an institution's information systems and data or that of its customers, are becoming more common and increasingly sophisticated.
Cyber-attacks involving large financial institutions, including distributed denial of service attacks designed to disrupt external customer-facing services, nation state cyberattacks and ransomware attacks designed to deny organizations access to key internal resources or systems or other critical data, as well as targeted social engineering and phishing email and text message attacks designed to allow unauthorized persons to obtain access to an institution’s information systems and data or that of its customers, are becoming more common and increasingly sophisticated.
Some of these parties have in the past been the target of security breaches and cyber-attacks, and because the transactions involve third parties and environments that we do not control or secure, future security breaches or cyber-attacks affecting any of these third parties could impact us through no fault of our own, and in some cases we may have exposure and suffer losses for breaches or attacks relating to them.
Some of these parties have in the past been the target of security breaches and cyber-attacks, and because the transactions involve third parties and environments that we do not control or secure, future security breaches or cyber-attacks affecting any of these third parties could impact us, and in some cases we may have exposure and suffer losses for breaches or attacks relating to them.
Any problems caused by these third parties, including as a result of their not providing us their services for any reason or their performing their services poorly, could adversely affect our ability to deliver products and services to our customers and otherwise to conduct our business. Replacing these third party vendors could also entail significant delay and expense.
The actions of these third parties, including as a result of their not providing us their services for any reason or their performing their services poorly, could adversely affect our ability to deliver products and services to our customers and otherwise to conduct our business. Replacing these third-party vendors could also entail significant delay and expense.
In recent years, governments across the world have entered into international agreements or have otherwise acted to attempt to reduce global temperatures, in part by limiting greenhouse gas emissions.
In recent years, governments across the world have entered into international agreements or have otherwise acted to attempt to reduce global temperatures, in part by limiting GHG emissions.
The process of eliminating banks as intermediaries, known as "disintermediation," could result in the loss of fee income, as well as the loss of customer deposits and the related income generated from those deposits.
The process of eliminating banks as intermediaries, known as “disintermediation,” could result in the loss of fee income, as well as the loss of customer deposits and the related income generated from those deposits.
Although the Corporation conducts comprehensive due diligence of cyber-security policies, procedures and controls of our acquisition counterparties, and the Corporation maintains adequate policies, procedures, controls and information security protocols to facilitate a successful integration, there can be no assurance that such measures, controls and protocols are sufficient to withstand a cyber-attack or other security breach with respect to the companies we acquire, particularly during the period of time between closing and final integration.
Although the Corporation conducts comprehensive due diligence of cyber-security policies, procedures and controls of our acquisition counterparties, and the Corporation maintains adequate policies, procedures, controls and information security protocols to facilitate a successful integration, there can be no assurance that such measures, controls and protocols are sufficient to withstand a cyber-attack or other security breach with respect to the companies we acquire, particularly during the period of time between closing and final integration. 26 We rely heavily on communications and information systems to conduct our business.
As of December 31, 2022, approximately 62% of our loan portfolio consisted of commercial and industrial, real estate construction, CRE loans, and ABL & equipment finance loans (collectively, "commercial loans"). Commercial loans are generally viewed as having more inherent risk of default than residential mortgage loans or other consumer loans.
As of December 31, 2023, approximately 62% of our loan portfolio consisted of commercial and industrial, real estate construction, and CRE loans (collectively, "commercial loans"). Commercial loans are generally viewed as having more inherent risk of default than residential mortgage loans or other consumer loans.
We also rely on numerous other third party service providers to conduct other aspects of our business operations and face similar risks relating to them. While we conduct security assessments on our higher risk third party service providers, we cannot be sure that their information security protocols are sufficient to withstand a cyber-attack or other security breach.
We also rely on numerous other third-party service providers to conduct other aspects of our business operations and face similar risks relating to them. We cannot be sure that such third-party information security protocols are sufficient to withstand a cyber-attack or other security breach.
We seek merger or acquisition partners that are culturally similar, have experienced management, and possess either significant market presence or have potential for improved profitability through financial management, economies of scale, or expanded services. 31 Acquiring other banks, businesses, or branches involves potential adverse impact to our financial results and various other risks commonly associated with acquisitions, including, among other things: • incurring time and expense associated with identifying and evaluating potential acquisitions and negotiating potential transactions, and with integrating acquired businesses, resulting in the diversion of resources from the operation of our existing businesses; • difficulty in estimating the value of target companies or assets and in evaluating credit, operations, management, and market risks associated with those companies or assets; • payment of a premium over book and market values that may dilute our tangible book value and earnings per share in the short and long term; • potential exposure to unknown or contingent liabilities of the target company, including, without limitation, liabilities for regulatory and compliance issues; • exposure to potential asset quality issues of the target company; • there may be volatility in reported income as goodwill impairment losses could occur irregularly and in varying amounts; • difficulties, inefficiencies or cost overruns associated with the integration of the operations, personnel, technologies, services, and products of acquired companies with ours; • inability to realize the expected revenue increases, cost savings, increases in geographic or product presence, and/or other projected benefits; • potential disruption to our business; • the possible loss of key employees and customers of the target company; and • potential changes in banking or tax laws or regulations that may affect the target company.
Acquiring other banks, businesses, or branches involves potential adverse impact to our financial results and various other risks commonly associated with acquisitions, including, among other things: • incurring time and expense associated with identifying and evaluating potential acquisitions and negotiating potential transactions, and with integrating acquired businesses, resulting in the diversion of resources from the operation of our existing businesses; • difficulty in estimating the value of target companies or assets and in evaluating credit, operations, management, and market risks associated with those companies or assets; • payment of a premium over book and market values that may dilute our tangible book value and earnings per share in the short and long term; • potential exposure to unknown or contingent liabilities of the target company, including, without limitation, liabilities for regulatory and compliance issues; • exposure to potential asset quality issues of the target company; 34 • there may be volatility in reported income as goodwill impairment losses could occur irregularly and in varying amounts; • difficulties, inefficiencies or cost overruns associated with the integration of the operations, personnel, technologies, services, and products of acquired companies with ours; • inability to realize the expected revenue increases, cost savings, increases in geographic or product presence, and/or other projected benefits; • potential disruption to our business; • the possible loss of key employees and customers of the target company; and • potential changes in banking or tax laws or regulations that may affect the target company.
Although these requirements would not apply to a banking organization of our size, as the Corporation continues to grow and expand the scope of our operations, our regulators generally will expect us to enhance our internal control programs and processes, including with respect to stress testing under a variety of adverse scenarios and related capital planning.
Although these new guidelines do not apply to a banking organization of our size, as the Corporation continues to grow and expand the scope of our operations, our regulators generally will expect us to enhance our internal control programs and processes, including with respect to risk management and stress testing under a variety of adverse scenarios and related capital planning.
The Financial Stability Oversight Council, of which the OCC is a member, published a report in October 2021 identifying climate-related financial risk as an "emerging threat" to financial stability.
The Financial Stability Oversight Council, of which the OCC is a member, published a report in October 2021 identifying climate-related financial risk as an “emerging threat” to financial stability.
Additionally, in March 2022, the SEC proposed new climate-related disclosure rules, which if adopted, would require new climate-related disclosures in SEC filings and audited financial statements, including certain climate-related metrics and greenhouse gas emissions data, information about climate-related targets and goals, transition plans, if any, and attestation requirements.
Additionally, in March 2022, the SEC proposed new climate-related disclosure rules, which if finalized, would require new climate-related disclosures in SEC filings and audited financial statements, including certain climate-related metrics and direct and indirect GHG emissions data, information about climate-related targets and goals, transition plans, if any, and attestation requirements.
The risks and uncertainties described below are not the only ones facing us. Additional risks and uncertainties that management is not aware of or focused on or that management currently deems immaterial may also impair our business operations. This report is qualified in its entirety by these risk factors.
The risks and uncertainties described below are not the only ones facing us. Additional risks and uncertainties that management is not aware of or focused on or that management currently deems immaterial may also impair our business operations. This report is qualified in its entirety by these risk factors. See also, Special Note Regarding Forward-Looking Statements and Risk Factors Summary.
The total book value of the securities portfolio, which includes FHLB and Federal Reserve Bank stocks, as of December 31, 2022, was $7.0 billion and the estimated duration of the aggregate portfolio was approximately 6.1 years. The nature of fixed-income securities is such that changes in market interest rates impact the value of these assets.
The total carrying value of the securities portfolio, which includes FHLB and Federal Reserve Bank stocks, was $7.7 billion as of December 31, 2023, and the estimated duration of the aggregate portfolio was approximately 5.7 years. The nature of fixed-income securities is such that changes in market interest rates impact the value of these assets.
Our securities prices can fluctuate widely in response to a variety of factors including, among other things: • actual or anticipated variations in quarterly results of operations or financial condition; • operating results and stock price performance of other companies that investors deem comparable to us; • news reports relating to trends, concerns, and other issues in the financial services industry; • perceptions in the marketplace regarding us and/or our competitors; • new technology used or services offered by competitors; • significant acquisitions or business combinations, strategic partnerships, joint ventures, or capital commitments by or involving us or our competitors; • failure to integrate acquisitions or realize anticipated benefits from acquisitions; • changes in government regulations; • changes in international trade policy and any resulting disputes or reprisals; • geopolitical conditions, such as acts or threats of terrorism or military conflicts; and • recommendations by securities analysts. 36 General market fluctuations, industry factors, and general economic and political conditions and events, such as economic slowdowns or recessions, interest rate changes, or credit loss trends, could also cause our securities prices to decrease regardless of our operating results.
Our securities prices can fluctuate widely in response to a variety of factors including, among other things: 40 • actual or anticipated variations in quarterly results of operations or financial condition; • operating results and stock price performance of other companies that investors deem comparable to us; • news reports relating to trends, concerns, and other issues in the financial services industry; • perceptions in the marketplace regarding us and/or our competitors; • new technology used or services offered by competitors; • significant acquisitions or business combinations, strategic partnerships, joint ventures, or capital commitments by or involving us or our competitors; • failure to integrate acquisitions or realize anticipated benefits from acquisitions; • changes in government regulations; • changes in international trade policy and any resulting disputes or reprisals; • geopolitical conditions, such as acts or threats of terrorism or military conflicts; and • recommendations by securities analysts.
Our allowance for credit losses may be insufficient. All borrowers have the potential to default, and our remedies in the event of such default (such as seizure and/or sale of collateral, legal actions, and guarantees) may not fully satisfy the debt owed to us.
All borrowers have the potential to default, and our remedies in the event of such default (such as seizure and/or sale of collateral, legal actions, and guarantees) may not fully satisfy the debt owed to us.
Any enhanced regulatory scrutiny of bank mergers and acquisitions and revision of the framework for merger application review may adversely affect the marketplace for such transactions, could result in our acquisitions in future periods being delayed, impeded or restricted in certain respects and result in new rules that possibly limit the size of financial institutions we may be able to acquire in the future and alter the terms for such transactions.
Any enhanced regulatory scrutiny of bank mergers and acquisitions and revision of the framework for merger application review may adversely affect the marketplace for such transactions, could result in our acquisitions in future periods being delayed, impeded or restricted in certain respects and result in new rules that possibly limit the size of financial institutions we may be able to acquire in the future and alter the terms for such transactions. 35 Legal, Regulatory, Compliance and Reputational Risks We are subject to extensive government regulation and supervision.
Any successful cyber-attack or other security breach involving the misappropriation, loss or other unauthorized disclosure of confidential customer information or that compromises our ability to function could severely damage our reputation, erode confidence in the security of our systems, products and services, expose us to the risk of litigation and liability, disrupt our operations and have a material adverse effect on our business.
Any successful cyber-attack or other security breach involving the misappropriation, loss, leak or other unauthorized disclosure of sensitive or confidential customer information, confidential and proprietary information relating to our bank and operations, unauthorized access to our information systems or that of our third-party service providers, or unauthorized access to other data that compromises our ability to function could severely damage our reputation, erode confidence in the security of our systems, products and services, expose us to the risk of litigation and liability, disrupt our operations and have a material adverse effect on our business.
Congress, state legislatures and federal and state regulatory agencies have continued to propose and advance numerous legislative and regulatory initiatives seeking to mitigate the effects of climate change. Such initiatives have been pursued with rigor under the current Presidential Administration.
Congress, state legislatures and federal and state regulatory agencies have continued to propose and advance numerous legislative and regulatory initiatives seeking to mitigate the effects of climate change, including mandatory substantive and/or disclosure requirements regarding climate change. Such initiatives have been pursued with rigor under the current Presidential Administration.
Further, threat actors are increasingly seeking to target vulnerabilities in software systems used by large numbers of banking organizations in order to conduct malicious cyber activities. These types of attacks have resulted in increased supply chain and third-party risk.
Further, threat actors are increasingly seeking to target vulnerabilities in software systems (including bugs, vulnerabilities in third-party systems or software and technical misconfigurations in hardware and software) and weak authentication controls used by large numbers of banking organizations in order to conduct malicious cyber activities. These types of attacks have resulted in increased supply chain and third-party risk.
Should any of these regulators have serious concerns with respect to our mortgage or mortgage servicing activities in this regard, the regulators' response to such concerns could result in material adverse effects on our growth strategy and profitability.
Federal and state banking agencies closely examine the mortgage and mortgage servicing activities of depository financial institutions. Should any of these regulators have serious concerns with respect to our mortgage or mortgage servicing activities in this regard, the regulators’ response to such concerns could result in material adverse effects on our growth strategy and profitability.
We cannot assure you that we will be able to expand our market presence in our existing markets or successfully enter new markets or that any such expansion will not adversely affect our results of operations.
We may not be able to expand our market presence in our existing markets or successfully enter new markets, and any such expansion may adversely affect our results of operations.
Throughout 2022 the FOMC raised the target range for the federal funds rate on seven separate occasions and—citing factors including the hardships caused by the ongoing Russia-Ukraine conflict, continued global supply chain disruptions and imbalances, and increased inflationary pressure—the FOMC has indicated that ongoing increases may be appropriate.
Throughout 2022 and 2023, the FOMC raised the target range for the federal funds rate on eleven separate occasions, citing factors including the hardships caused by the ongoing Russia-Ukraine conflict, continued global supply chain disruptions and imbalances, and increased inflationary pressure.
In consideration of the divided control of Congress, the narrow majorities in each chamber, and the current political environment, the legislative process is expected to be more challenging in the current legislative session. 33 Although agendas are expected to vary substantially in each chamber, congressional committees with jurisdiction over the banking sector have pursued, and likely will continue to pursue, oversight in a variety of areas, including addressing climate-related risks, promoting diversity and equality within the banking industry and addressing other ESG matters, improving competition in the banking sector and enhancing oversight of bank mergers and acquisitions, and establishing a regulatory framework for digital assets and markets.
Although agendas are expected to vary substantially in each chamber, congressional committees with jurisdiction over the banking sector have pursued, and likely will continue to pursue, oversight in a variety of areas, including addressing climate-related risks, promoting diversity and equality within the banking industry and addressing other ESG matters, improving competition in the banking sector and enhancing oversight of bank mergers and acquisitions, and establishing a regulatory framework for digital assets and markets.
The loss of these revenue streams and the lower cost of deposits as a source of funds could have a material adverse effect on our financial condition and results of operations. 30 Our profitability depends significantly on economic conditions in the states within which we do business.
The timing of and prospects for any such action are uncertain at this time. The loss of these revenue streams and the lower cost of deposits as a source of funds could have a material adverse effect on our financial condition and results of operations. Our profitability depends significantly on economic conditions in the states within which we do business.
Some of our accounting policies are critical because they require management to make difficult, subjective and complex judgments about matters that are inherently uncertain and because it is likely that materially different amounts would be reported under different conditions or using different assumptions.
Some of our accounting policies are critical because they require management to make difficult, subjective and complex judgments about matters that are inherently uncertain and because it is likely that materially different amounts would be reported under different conditions or using different assumptions. If such estimates or assumptions underlying our financial statements are incorrect, we may experience material losses.
The costs and limitations related to this additional regulatory reporting regimen have yet to be fully determined, although they may be material, and the limitations and restrictions that will be placed upon the Bank with respect to its consumer product offerings and services may produce significant, material effects on the Bank’s (and the Corporation’s) profitability.
The costs and limitations related to this additional regulatory reporting regimen have yet to be fully determined, although they may be material, and the limitations and restrictions that will be placed upon the Bank with respect to its consumer product offerings and services may produce significant, material effects on the Bank’s (and the Corporation’s) profitability. 38 The Bank is periodically examined for mortgage-related issues, including mortgage loan and default services, fair lending, and mortgage banking.
In connection with prior political disputes over U.S. fiscal and budgetary issues leading to the U.S. government shutdown in 2011, S&P lowered its long term sovereign credit rating on the U.S. from AAA to AA+.
In connection with prior political disputes over U.S. fiscal and budgetary issues leading to the U.S. government shutdown in 2011, S&P lowered its long term sovereign credit rating on the U.S. from AAA to AA+. In 2023, Congress narrowly averted two separate government shutdowns by passing continuing resolutions.
Management regularly reviews and updates our internal controls, disclosure controls and procedures, and corporate governance policies and procedures. Any system of controls, however well designed and operated, is based in part on certain assumptions and can provide only reasonable, not absolute, assurances that the objectives of the controls are met.
Any system of controls, however well designed and operated, is based in part on certain assumptions and can provide only reasonable, not absolute, assurances that the objectives of the controls are met.
The Parent Company is a separate and distinct legal entity from its banking and other subsidiaries. A substantial portion of the Parent Company’s revenue comes from dividends from its subsidiaries. These dividends are the principal source of funds to pay dividends on the Parent Company’s common and preferred stock, and to pay interest and principal on the Parent Company’s debt.
A substantial portion of the Parent Company’s cash flow comes from dividends from its subsidiaries. These dividends are the principal source of funds to pay dividends on the Parent Company’s common and preferred stock, and to pay interest and principal on the Parent Company’s debt.
Interest rates are highly sensitive to many factors that are beyond our control, including general economic conditions and policies of various governmental and regulatory agencies and, in particular, the Federal Reserve.
We are subject to interest rate risk. Our earnings and cash flows are largely dependent upon our net interest income. Interest rates are highly sensitive to many factors that are beyond our control, including general economic conditions and policies of various governmental and regulatory agencies and, in particular, the Federal Reserve.
For instance, certain states have enacted laws or issued directives designed to penalize financial institutions that the state believes are boycotting certain industries such as the fossil fuel and firearms industries.
For instance, certain states have enacted laws or issued directives designed to penalize financial institutions that the state believes are boycotting certain industries such as the fossil fuel and firearms industries. These developments illustrate that ESG-based investing has become a divisive political issue.
See also, Special Note Regarding Forward-Looking Statements and Risk Factors Summary. 18 If any of the events described in the risk factors should actually occur, our financial condition and results of operations could be materially and adversely affected.
If any of the events described in the risk factors should actually occur, our financial condition and results of operations could be materially and adversely affected.
However, due to elevated levels of inflation and corresponding pressure to raise interest rates, the Federal Reserve announced in January of 2022 that it would be slowing the pace of its bond purchasing and increasing the target range for the federal funds rate over time. The FOMC since has increased the target range seven times throughout 2022.
In January 2022, due to elevated levels of inflation and corresponding pressure to raise interest rates, the Federal Reserve announced after several periods of historically low federal funds rates and yields on Treasury notes that it would be slowing the pace of its bond purchasing and increasing the target range for the federal funds rate over time.
The CFPB also has published guidance containing instructions for financial institutions to avoid the imposition of unlawful overdraft fees.
The CFPB also has published guidance containing instructions for financial institutions to avoid the imposition of unlawful overdraft fees. The CFPB is expected to commence rulemaking in this area in the coming months.
If adopted, these rules would impose increased costs, which could materially and adversely affect our financial performance. Severe weather, natural disasters, public health issues, civil unrest, acts of war or terrorism, and other external events could significantly impact our ability to conduct business.
Severe weather, natural disasters, public health issues, civil unrest, acts of war or terrorism, and other external events could significantly impact our ability to conduct business.
To address supervisory expectations with respect to financial institutions' handling of CRE borrowers who are experiencing financial difficulty, in August of 2022, the OCC and FDIC issued a request for comment on a proposed interagency policy statement addressing prudent CRE loan accommodations and workouts.
To address supervisory expectations with respect to financial institutions' handling of CRE borrowers who are experiencing financial difficulty, in June of 2023, the federal banking agencies, including the OCC, issued an interagency policy statement addressing prudent CRE loan accommodations and workouts.
Further, staff changes to key positions within the CFPB under the current Presidential Administration have resulted in the CFPB pursuing more strict enforcement policies, specifically in the area of fair lending, loan servicing, collections and other consumer related areas. 34 We may experience unanticipated losses as a result of residential mortgage loan repurchase or reimbursement obligations under agreements with secondary market purchasers .
Further, staff changes to key positions within the CFPB under the current Presidential Administration have resulted in the CFPB pursuing more strict enforcement policies, specifically in the area of fair lending, loan servicing, collections and other consumer related areas.
The occurrence of any failures, interruptions, or security breaches of our information systems could damage our reputation, result in a loss of customer business, subject us to additional regulatory scrutiny, or expose us to civil litigation and possible financial liability, any of which could have a material adverse effect on our financial condition and results of operations. 25 We are dependent upon third parties for certain information system, data management and processing services, and to provide key components of our business infrastructure .
The occurrence of any failures, interruptions, or security breaches of our or our third-party vendors' communications and information systems, including those caused by a cybersecurity attack, could damage our reputation, result in a loss of customer business, subject us to additional regulatory scrutiny, or expose us to civil litigation and possible financial liability, any of which could have a material adverse effect on our financial condition and results of operations.
As a result, our results of operations in future periods may be impacted adversely to the extent of any significant stock repurchases by the Corporation. Impairment of investment securities, goodwill, other intangible assets, or DTAs could require charges to earnings, which could result in a negative impact on our results of operations.
Impairment of investment securities, goodwill, other intangible assets, or DTAs could require charges to earnings, which could result in a negative impact on our results of operations.
Legal, Regulatory, Compliance and Reputational Risks We are subject to extensive government regulation and supervision. We are subject to extensive federal and applicable state regulation and supervision, primarily through Associated Bank and certain nonbank subsidiaries. Banking regulations are primarily intended to protect depositors’ funds, federal deposit insurance funds, and the banking system as a whole, not shareholders.
We are subject to extensive federal and applicable state regulation and supervision, primarily through Associated Bank and certain nonbank subsidiaries. Banking regulations are primarily intended to protect depositors’ funds, federal deposit insurance funds, and the banking system as a whole, not shareholders. These regulations affect our lending practices, capital structure, investment practices, dividend policy, and growth, among other things.
If the interest rates paid on deposits and other borrowings increase at a faster rate than the interest rates received on loans and other investments, our net interest income, and therefore earnings, could be adversely affected.
Our interest rate spread, net interest margin and net interest income increased during this period of rising interest rates as our interest earning assets generally reprice more quickly than our interest earning liabilities. 23 If the interest rates paid on deposits and other borrowings increase at a faster rate than the interest rates received on loans and other investments, our net interest income, and therefore earnings, could be adversely affected.
Increasing, complex and evolving regulatory and stakeholder expectations on ESG matters could adversely affect our reputation, our access to capital and the market price of our securities. The Corporation is subject to a variety of risks arising from ESG matters as governmental and regulatory bodies, investors, customers, employees and other stakeholders have been increasingly focused on ESG matters.
The Corporation is subject to a variety of risks arising from ESG matters as governmental and regulatory bodies, investors, customers, employees and other stakeholders and third parties have been increasingly focused on ESG matters.
These and similar developments at the state level are likely to result in even greater competition within all areas of our operations. 29 In addition, as customer preferences and expectations continue to evolve, technology has lowered barriers to entry and made it possible for nonbanks to offer products and services traditionally provided by banks, such as automatic transfer and automatic payment systems.
In addition, as customer preferences and expectations continue to evolve, technology has lowered barriers to entry and made it possible for nonbanks to offer products and services traditionally provided by banks, such as automatic transfer and automatic payment systems.
Adverse economic developments, specifically including inflation-related impacts, may have a negative effect on the ability of our borrowers to make timely repayments of their loans or to finance future home purchases.
Adverse economic developments, specifically including inflation-related impacts, may have a negative effect on the ability of our borrowers to make timely repayments of their loans or to finance future home purchases. According to the Federal Reserve's October 2023 Financial Stability Report, CRE values remained elevated relative to fundamentals, even as prices continued to decline.
Changes in requirements relating to the standard of conduct for broker-dealers under applicable federal and state law may adversely affect our business.
Such an increase in our assessment fees may have a materially adverse effect on our results of operations and financial condition. Changes in requirements relating to the standard of conduct for broker-dealers under applicable federal and state law may adversely affect our business.
The Corporation may be subject to the data risks and cyber security vulnerabilities of the acquired company until the Corporation has sufficient time to fully integrate the acquiree’s customers and operations.
The integration of core systems and processes for such transactions often occurs after the closing, which may create elevated risk of cyber incidents. The Corporation may be subject to the data risks and cyber security vulnerabilities of the acquired company until the Corporation has sufficient time to fully integrate the acquiree’s customers and operations.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeBased on gross square feet, at December 31, 2022, Associated Bank owned 92% of our total property portfolio. At December 31, 2022, Associated Bank operated 202 banking branches serving over 100 different communities throughout Wisconsin, Illinois, and Minnesota.
Biggest changeBased on gross square feet, at December 31, 2023, Associated Bank owned 92% of our total property portfolio. At December 31, 2023, Associated Bank operated 196 banking branches serving over 100 different communities throughout Wisconsin, Illinois, and Minnesota.
ITEM 2. Properties The Corporation operated 2.4 million square feet of space spread across 228 facilities, including 202 banking branches at December 31, 2022. Our corporate headquarters is located at 433 Main Street in Green Bay, Wisconsin and is approximately 118,000 square feet.
ITEM 2. Properties The Corporation operated 2.4 million square feet of space spread across 222 facilities, including 196 banking branches at December 31, 2023. Our corporate headquarters is located at 433 Main Street in Green Bay, Wisconsin and is approximately 118,000 square feet.

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

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Biggest changeMorgan Chase & Co., and one of its predecessors, Bank One Corporation, from 1989 until joining Associated in 2005. John P. Thayer - Age 69 John P. Thayer has been Executive Vice President, Head of Private Wealth of Associated and Associated Bank and Chief Executive Officer of Associated Trust Company, N.A. since July 2021. Mr.
Biggest changeMorgan Chase & Co., and one of its predecessors, Bank One Corporation, from 1989 until joining Associated in 2005. John A. Utz - Age: 55 John A.
ITEM 4. Mine Safety Disclosures Not applicable. 39 INFORMATION ABOUT OUR EXECUTIVE OFFICERS The following is a list of names and ages of executive officers of Associated indicating all positions and offices held by each such person and each such person’s principal occupation(s) or employment during the past five years.
ITEM 4. Mine Safety Disclosures Not applicable. INFORMATION ABOUT OUR EXECUTIVE OFFICERS The following is a list of names and ages of executive officers of Associated indicating all positions and offices held by each such person and each such person’s principal occupation(s) or employment during the past five years.
Schmidt brings more than 32 years of banking experience to Associated. Most recently, he held the position of Executive Vice President, Division Manager, CRE at Wells Fargo from 2002 to 2015. Tammy C. Stadler - Age: 57 Tammy C. Stadler has been Executive Vice President, Corporate Controller and Chief Accounting Officer of Associated and Associated Bank since July 2021.
Schmidt brings more than 32 years of banking experience to Associated. Most recently, he held the position of Executive Vice President, Division Manager, CRE at Wells Fargo from 2002 to 2015. Tammy C. Stadler - Age: 58 Tammy C. Stadler has been Executive Vice President, Corporate Controller and Chief Accounting Officer of Associated and Associated Bank since July 2021.
Prior to that, he served as Chief Marketing Officer from 2015 to 2018 and Senior Vice President of Deposit Products & Pricing at Huntington Bank from 2010 to 2015. Dennis M. DeLoye - Age: 59 Dennis M. DeLoye has been Executive Vice President, Head of Community Markets and Regional President Northeast Wisconsin of Associated and Associated Bank since April 2022.
Prior to that, he served as Chief Marketing Officer from 2015 to 2018 and Senior Vice President of Deposit Products & Pricing at Huntington Bank from 2010 to 2015. Dennis M. DeLoye - Age: 60 Dennis M. DeLoye has been Executive Vice President, Head of Community Markets and Regional President Northeast Wisconsin of Associated and Associated Bank since April 2022.
Prior to joining Associated, he served as senior executive vice president, consumer and business banking director for Huntington Bank from 2017 to 2021. Mr. Harmening also held several key consumer, small business and commercial banking positions at Bank of The West from 2005 to 2017. Patrick E. Ahern - Age: 56 Patrick E.
Prior to joining Associated, he served as senior executive vice president, consumer and business banking director for Huntington Bank from 2017 to 2021. Mr. Harmening also held several key consumer, small business and commercial banking positions at Bank of The West from 2005 to 2017. Patrick E. Ahern - Age: 57 Patrick E.
Mr. DeLoye previously served as Executive Vice President, Deputy Head of Community Markets and Regional President Northeast Wisconsin from November 2021 to April 2022. DeLoye joined Associated in 2016 and has served as community market president for the Central and Northern Wisconsin markets. Angie M. DeWitt - Age: 53 Angie M.
Mr. DeLoye previously served as Executive Vice President, Deputy Head of Community Markets and Regional President Northeast Wisconsin from November 2021 to April 2022. DeLoye joined Associated in 2016 and has served as community market president for the Central and Northern Wisconsin markets. Angie M. DeWitt - Age: 54 Angie M.
From 1990 to 1992 she held the position of Senior Tax Analyst with Fort Howard Paper Corp. Prior to her time with Fort Howard, Ms. Stadler worked as a certified public accountant with Coopers and Lybrand and Deloitte and Touche. David L. Stein - Age: 59 David L.
From 1990 to 1992 she held the position of Senior Tax Analyst with Fort Howard Paper Corp. Prior to her time with Fort Howard, Ms. Stadler worked as a certified public accountant with Coopers and Lybrand and Deloitte and Touche. David L. Stein - Age: 60 David L.
Previously, he held audit management positions with Fiserv, Inc. and public accounting audit roles with Ernst & Young, LLP. Mr. Braeger has more than 20 years of auditing experience, primarily in banking technology and financial services. Bryan J. Carson - Age: 52 Bryan J.
Previously, he held audit management positions with Fiserv, Inc. and public accounting audit roles with Ernst & Young, LLP. Mr. Braeger has more than 20 years of auditing experience, primarily in banking technology and financial services. Bryan J. Carson - Age: 53 Bryan J.
Williams Age: 63 Terry L. Williams has been Executive Vice President, Chief Information Officer of Associated and Associated Bank since January 2023. Prior to joining Associated, he served as Chief Information Officer and Chief Technology Officer for Belcan, LLC from 2016 to 2022.
Williams Age: 64 Terry L. Williams has been Executive Vice President, Chief Information Officer of Associated and Associated Bank since January 2023. Prior to joining Associated, he served as Chief Information Officer and Chief Technology Officer for Belcan, LLC from 2016 to 2022.
Carson has been Executive Vice President, Chief Product and Marketing Officer of Associated and Associated Bank since July 2022. He served as Executive Vice President of Deposit Products, Customer Segmentation, and Branch & ATM Distribution at Huntington Bank since 2018.
Carson has been Executive Vice President, Chief Product and Marketing Officer of Associated and Associated Bank since July 2022. He served as Executive Vice President of Deposit Products, Customer Segmentation, and Branch & ATM Distribution at Huntington Bank from 2018 to 2022.
Ahern joined Associated as a Senior Vice President in 2010 to manage the CRE portfolio underwriting and administrative teams, before moving into the role Corporate Senior Credit Officer in 2018. He has more than 30 years of experience in CRE and corporate credit, including experience with LaSalle Bank and Bank of America. Matthew R. Braeger - Age: 48 Matthew R.
Ahern joined Associated as a Senior Vice President in 2010 to manage the CRE portfolio underwriting and administrative teams, before moving into the role Corporate Senior Credit Officer in 2018. He has more than 30 years of experience in CRE and corporate credit, including experience with LaSalle Bank and Bank of America. 45 Matthew R.
She joined Associated in August 2008 as a member of the finance team and has held multiple leadership roles. Prior to joining Associated, she held a senior finance role at Schneider National, Inc. from January 2002 to August 2008. 40 Randall J. Erickson - Age: 63 Randall J.
She joined Associated in August 2008 as a member of the finance team and has held multiple leadership roles. Prior to joining Associated, she held senior finance roles at Schneider National, Inc. from January 2002 to August 2008. Randall J. Erickson - Age: 64 Randall J.
Schmidt - Age: 60 Paul G. Schmidt has been Executive Vice President, Head of CRE of Associated and Associated Bank since January 2016 and was appointed Head of Facilities and Twin Cities Market President in July 2022. He joined Associated in April 2015 as Executive Vice President of CRE. He was named Deputy Head of CRE in September 2015. Mr.
Schmidt has been Executive Vice President, Head of CRE of Associated and Associated Bank since January 2016 and was appointed Head of Facilities and Twin Cities Market President in July 2022. He joined Associated in April 2015 as Executive Vice President of CRE. He was named Deputy Head of CRE in September 2015. Mr.
Braeger has been Executive Vice President, Chief Audit Executive of Associated and Associated Bank since February 2018. He served as Deputy Chief Audit Executive from October 2017 to February 2018. He joined Associated in April 2013 as Senior Vice President, Business Support Audit Director.
Braeger - Age: 48 Matthew R. Braeger has been Executive Vice President, Chief Audit Executive of Associated and Associated Bank since February 2018. He served as Deputy Chief Audit Executive from October 2017 to February 2018. He joined Associated in April 2013 as Senior Vice President, Business Support Audit Director.
He had been a partner at Godfrey & Kahn S.C. from 1990 to 2002 prior to joining M&I as its general counsel. Mr. Erickson served as a director of Renaissance Learning, Inc., a publicly-held educational software company, from 2009 until it was acquired by Permira Funds in 2011. Nicole M. Kitowski - Age: 47 Nicole M.
He had been a partner at Godfrey & Kahn S.C. from 1990 to 2002 prior to joining M&I as its general counsel. Mr. Erickson served as a director of Renaissance Learning, Inc., a publicly-held educational software company, from 2009 until it was acquired by Permira Funds in 2011. Jayne C. Hladio - Age: 56 Jayne C.
No person other than those listed below has been chosen to become an executive officer of Associated. The information presented below is as of February 13, 2023. Andrew J. Harmening - Age: 53 Andrew J. Harmening has been President, Chief Executive Officer of Associated and Associated Bank and member of the Board of Directors since April 2021.
No person other than those listed below has been chosen to become an executive officer of Associated. The information presented below is as of February 8, 2024. Andrew J. Harmening - Age: 54 Andrew J. Harmening has been President, Chief Executive Officer of Associated and Associated Bank and member of the Board of Directors since April 2021.
Prior to that, he served as Executive Vice President and General Manager Customer-Facing Solutions of Standard Register in 2014 and 2015. 42 PART II
Prior to that, he served as Executive Vice President and General Manager Customer-Facing Solutions of Standard Register from 2014 to 2015. 47 PART II
DeWitt has been Executive Vice President, Chief Human Resources Officer of Associated and Associated Bank since April 2019. Most recently she served as Deputy Chief Human Resources Officer from October 2018 to April 2019 and Senior Vice President, Director of Human Resources from February 2018 to October 2018.
DeWitt has been Executive Vice President, Chief Human Resources Officer of Associated and Associated Bank since April 2019. Ms. DeWitt previously served as Deputy Chief Human Resources Officer from October 2018 to April 2019 and Senior Vice President, Director of Human Resources from February 2018 to October 2018.
Derek S. Meyer - Age: 56 Derek S. Meyer has been Executive Vice President, Chief Financial Officer of Associated and Associated Bank since August 2022. Prior to joining Associated, Derek served as the Executive Vice President, Corporate Treasurer of Huntington Bank from 2019 to June 2022. Mr.
Meyer has been Executive Vice President, Chief Financial Officer of Associated and Associated Bank since August 2022. Prior to joining Associated, Derek served as the Executive Vice President, Corporate Treasurer of Huntington Bank from 2019 to June 2022. Mr. Meyer also served as Executive Vice President, Financial Planning & Analysis Director from February 2015 to 2019.
Meyer also served as Executive Vice President, Financial Planning & Analysis Director from February 2015 to 2019. During his 22 years at Huntington Bank, he held various senior leadership roles and was responsible for crucial finance functions including treasury, financial planning and analysis, stress testing, mergers and acquisition due diligence, regulatory matters, and process and controls implementation. Paul G.
During his 22 years at Huntington Bank, he held various senior leadership roles and was responsible for crucial finance functions including treasury, financial planning and analysis, stress testing, mergers and acquisition due diligence, regulatory matters, and process and controls implementation. Paul G. Schmidt - Age: 61 Paul G.
Kitowski has been Executive Vice President, Chief Risk Officer of Associated and Associated Bank since February 2018. She joined Associated in 1992 and has held leadership roles in Consumer Banking, Operations and Technology, and Corporate Risk, including Deputy Chief Risk Officer from March 2016 to February 2018 and Corporate BSA, AML, OFAC Officer from June 2014 to March 2016.
She joined Associated in 1992 and has held leadership roles in Consumer Banking, Operations and Technology, and Corporate Risk, including Deputy Chief Risk Officer from March 2016 to February 2018 and Corporate BSA, AML, OFAC Officer from June 2014 to March 2016. 46 Derek S. Meyer - Age: 57 Derek S.
Removed
Thayer joined Associated in July 2000 and served as Executive Vice President and Chief Investment Officer for Associated Trust Company, N.A. He served as managing agent for Kellogg Asset Management, LLC from May 2009 to July 2021. He is also chairman of Associated Investment Services, Inc. 41 John A. Utz - Age: 54 John A.
Added
Hladio has been Executive Vice President, President of Private Wealth of Associated and Associated Bank since October 2023. Prior to joining Associated, she served as President of Midland Wealth Management and Midland Trust Co. for U.S. markets from May 2022 to September 2023.
Added
Prior to that, she served as Senior Vice President, National Wealth Management Executive from June 2009 to June 2021 at U.S.
Added
Bank; Senior Vice President, Head of Consumer Banking Regional Executive at Charter One (Citizens) Royal Bank of Scotland from October 2005 to January 2009; and Senior Vice President, Strategic Growth Executive, Retail / Affluent Wealth and Denovo Delivery at Fifth Third Bank from September 1994 to October 2005. Nicole M. Kitowski - Age: 48 Nicole M.
Added
Kitowski has been Executive Vice President, Chief Risk Officer of Associated and Associated Bank since February 2018.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeHistorical stock price performance shown on the graph is not necessarily indicative of the future price performance. 5 Year Trend 2017 2018 2019 2020 2021 2022 Associated Banc-Corp $ 100.0 $ 80.4 $ 92.3 $ 74.4 $ 101.9 $ 107.8 S&P 500 Index $ 100.0 $ 95.8 $ 125.6 $ 148.3 $ 190.5 $ 156.1 S&P 400 Regional Banks Sub-Industry Index $ 100.0 $ 79.1 $ 98.3 $ 89.2 $ 126.1 $ 121.0 KBW Nasdaq Regional Banking Index $ 100.0 $ 82.9 $ 102.5 $ 92.9 $ 126.8 $ 118.1 Source: Bloomberg The Total Shareholder Return Performance Graph shall not be deemed incorporated by reference by any general statement incorporating by reference this Annual Report on Form 10-K into any filing under the Securities Act or under the Exchange Act, except to the extent the Corporation specifically incorporates this information by reference, and shall not otherwise be deemed filed under such Acts.
Biggest changeHistorical stock price performance shown on the graph is not necessarily indicative of the future price performance. 5 Year Trend 2018 2019 2020 2021 2022 2023 Associated Banc-Corp $ 100.0 $ 114.9 $ 92.6 $ 126.8 $ 134.2 $ 129.2 S&P 500 Index $ 100.0 $ 131.2 $ 154.9 $ 199.0 $ 163.1 $ 205.5 S&P 400 Regional Banks Sub-Industry Index $ 100.0 $ 124.4 $ 112.8 $ 159.5 $ 153.0 $ 150.9 KBW Nasdaq Regional Banking Total Return Index $ 100.0 $ 123.8 $ 113.0 $ 154.5 $ 143.7 $ 143.2 Source: Bloomberg The Total Shareholder Return Performance Graph shall not be deemed incorporated by reference by any general statement incorporating by reference this Annual Report on Form 10-K into any filing under the Securities Act or under the Exchange Act, except to the extent the Corporation specifically incorporates this information by reference, and shall not otherwise be deemed filed under such Acts.
The S&P 400 Regional Banks Sub-Industry Index is comprised of stocks on the S&P Total Market Index that are classified in the regional banks sub-industry. The KBW Nasdaq Regional Banking Index is comprised of U.S. companies that do business as regional banks or thrifts.
The S&P 400 Regional Banks Sub-Industry Index is comprised of stocks on the S&P Total Market Index that are classified in the regional banks sub-industry. The KBW Nasdaq Regional Banking Total Return Index is comprised of U.S. companies that do business as regional banks or thrifts.
These purchases do not count against the maximum value of shares remaining available for purchase under the Board of Directors' authorization. (b) At December 31, 2022, there remained $80 million authorized to be repurchased under the Board of Directors' 2021 authorization.
These purchases do not count against the maximum value of shares remaining available for purchase under the Board of Directors' authorization. (b) At December 31, 2023, there remained $80 million authorized to be repurchased under the Board of Directors' 2021 authorization.
For a detailed discussion of the common stock and depositary share purchases during 2022 and 2021, see Part II, Item 8, Note 10 Stockholders' Equity of the notes to consolidated financial statements.
For a detailed discussion of the common stock and depositary share purchases during 2023 and 2022, see Part II, Item 8, Note 10 Stockholders' Equity of the notes to consolidated financial statements.
The maximum number of shares that may yet be purchased under this authorization is based on the closing share price on December 31, 2022. 43 Total Shareholder Return Performance Graph Set forth below is a line graph (and the underlying data points) comparing the yearly percentage change in the cumulative total shareholder return (change in year-end stock price plus reinvested dividends) on the Corporation’s common stock with the cumulative total return of the S&P 500 Index, the S&P 400 Regional Banks Sub-Industry Index, and the KBW Nasdaq Regional Banking Index for the period of five fiscal years commencing on January 1, 2018 and ending December 31, 2022.
The maximum number of shares that may yet be purchased under this authorization is based on the closing share price on December 31, 2023. 48 Total Shareholder Return Performance Graph Set forth below is a line graph (and the underlying data points) comparing the yearly percentage change in the cumulative total shareholder return (change in year-end stock price plus reinvested dividends) on the Corporation’s common stock with the cumulative total return of the S&P 500 Index, the S&P 400 Regional Banks Sub-Industry Index, and the KBW Nasdaq Regional Banking Total Return Index for the period of five fiscal years commencing on January 1, 2019 and ending December 31, 2023.
The graph assumes the respective values of the investment in the Corporation’s common stock and each index were $100 on December 31, 2017.
The graph assumes the respective values of the investment in the Corporation’s common stock and each index were $100 on December 31, 2018.
During the fourth quarter of 2022, the Corporation repurchased approximately $221,000 of common stock, all of which were repurchases related to tax withholding on equity compensation with no open market purchases during the quarter. The repurchase details are presented in the table below.
During the fourth quarter of 2023, the Corporation repurchased approximately $86,000 of common stock, all of which were repurchases related to tax withholding on equity compensation, with no open market repurchases during the quarter. The repurchase details are presented in the table below.
The Corporation’s common stock is traded on the NYSE under the symbol ASB. The number of shareholders of record of the Corporation’s common stock, $0.01 par value, as of January 31, 2023, was 7,141. Certain of the Corporation’s shares are held in “nominee” or “street” name and the number of beneficial owners of such shares was 33,052.
The Corporation’s common stock is traded on the NYSE under the symbol ASB. The number of shareholders of record of the Corporation’s common stock, $0.01 par value, as of January 31, 2024, was 6,669. Certain of the Corporation’s shares are held in “nominee” or “street” name and the number of beneficial owners of such shares was 29,828.
Common Stock Purchases Total Number of Shares Purchased (a) Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (b) Period October 1, 2022 - October 31, 2022 1,568 $ 20.80 — — November 1, 2022 - November 30, 2022 7,377 24.14 — — December 1, 2022 - December 31, 2022 473 22.23 — — Total 9,418 $ 23.49 — 3,449,369 (a) During the fourth quarter of 2022, all common shares repurchased were for minimum tax withholding settlements on equity compensation.
Common Stock Purchases Total Number of Shares Purchased (a) Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (b) Period October 1, 2023 - October 31, 2023 — $ — — November 1, 2023 - November 30, 2023 2,704 16.88 — December 1, 2023 - December 31, 2023 1,889 21.28 — Total 4,593 $ 18.69 — 3,723,512 (a) During the fourth quarter of 2023, all common shares repurchased were for minimum tax withholding settlements on equity compensation.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeThe total allowance is available to absorb losses from any segment of the loan portfolio. 57 Table 12 Allowance for Credit Losses on Loans Years Ended December 31, ($ in Thousands) 2022 2021 2020 2019 2018 Allowance for loan losses Balance at beginning of period $ 280,015 $ 383,702 $ 201,371 $ 238,023 $ 265,880 Cumulative effect of ASU 2016-13 adoption (CECL) N/A N/A 112,457 N/A N/A Balance at beginning of period, adjusted 280,015 383,702 313,828 238,023 265,880 Provision for loan losses 34,000 (80,000) 164,457 18,500 2,500 Provision for loan losses recorded at acquisition — — 2,543 — — Gross up of allowance for PCD loans at acquisition — — 3,504 — — Loans charged off Asset-based lending & equipment finance (a) — — (6,650) (8,777) — Commercial and industrial (4,491) (21,564) (73,670) (54,538) (30,837) Commercial real estate — owner occupied — — (419) (222) (1,363) Commercial and business lending (4,491) (21,564) (80,739) (63,537) (32,200) Commercial real estate — investor (50) (14,346) (22,920) — (7,914) Real estate construction (48) (5) (19) (60) (298) Commercial real estate lending (98) (14,351) (22,938) (60) (8,212) Total commercial (4,588) (35,915) (103,677) (63,597) (40,412) Residential mortgage (567) (880) (1,867) (3,322) (1,627) Auto finance (1,041) (22) (7) — (4) Home equity (587) (668) (1,719) (1,846) (3,236) Other consumer (3,363) (3,168) (4,783) (5,548) (5,257) Total consumer (5,558) (4,738) (8,376) (10,716) (10,124) Total loans charged off (10,146) (40,652) (112,053) (74,313) (50,536) Recoveries of loans previously charged off Asset-based lending & equipment finance (a) — 412 561 519 — Commercial and industrial 5,282 8,152 6,444 11,356 13,714 Commercial real estate — owner occupied 13 120 147 2,795 639 Commercial and business lending 5,295 8,684 7,151 14,670 14,353 Commercial real estate — investor 50 3,162 643 31 668 Real estate construction 106 126 49 302 446 Commercial real estate lending 156 3,288 692 333 1,114 Total commercial 5,451 11,972 7,844 15,003 15,467 Residential mortgage 908 841 500 692 1,271 Auto finance 98 31 25 10 10 Home equity 1,385 2,854 1,978 2,599 2,628 Other consumer 1,010 1,267 1,076 858 803 Total consumer 3,401 4,993 3,579 4,158 4,712 Total recoveries 8,852 16,965 11,422 19,161 20,179 Net (charge offs) (1,294) (23,687) (100,631) (55,152) (30,358) Balance at end of period $ 312,720 $ 280,015 $ 383,702 $ 201,371 $ 238,023 Allowance for unfunded commitments Balance at beginning of period $ 39,776 $ 47,776 $ 21,907 $ 24,336 $ 24,400 Cumulative effect of ASU 2016-13 adoption (CECL) N/A N/A 18,690 N/A N/A Balance at beginning of period, adjusted 39,776 47,776 40,597 24,336 24,400 Provision for unfunded commitments (1,000) (8,000) 7,000 (2,500) (2,500) Amount recorded at acquisition — — 179 70 2,436 Balance at end of period $ 38,776 $ 39,776 $ 47,776 $ 21,907 $ 24,336 Allowance for credit losses on loans $ 351,496 $ 319,791 $ 431,478 $ 223,278 $ 262,359 Provision for credit losses on loans 33,000 (88,000) 174,000 16,000 — 58 Table 12 Allowance for Credit Losses on Loans (continued) Years Ended December 31, ($ in Thousands) 2022 2021 2020 2019 2018 Net loan (charge offs) recoveries Asset-based lending & equipment finance (a) $ — $ 412 $ (6,090) $ (8,259) $ — Commercial and industrial 791 (13,412) (67,226) (43,182) (17,124) Commercial real estate — owner occupied 13 120 (272) 2,573 (724) Commercial and business lending 804 (12,880) (73,588) (48,868) (17,848) Commercial real estate — investor — (11,184) (22,277) 31 (7,246) Real estate construction 58 121 31 243 149 Commercial real estate lending 58 (11,063) (22,246) 274 (7,098) Total commercial 862 (23,943) (95,834) (48,594) (24,946) Residential mortgage 341 (38) (1,367) (2,630) (355) Auto finance (943) 9 19 10 6 Home equity 798 2,186 259 753 (608) Other consumer (2,353) (1,901) (3,707) (4,690) (4,455) Total consumer (2,157) 256 (4,797) (6,558) (5,412) Total net (charge offs) $ (1,294) $ (23,687) $ (100,631) $ (55,152) $ (30,358) Ratios Allowance for credit losses on loans to total loans 1.22 % 1.32 % 1.76 % 0.98 % 1.14 % Allowance for credit losses on loans to net charge offs N/M 13.5x 4.3x 4.0x 8.6x Loan Evaluation Method for ACLL Individually evaluated for impairment $ 10,324 $ 15,194 $ 79,831 $ 14,026 $ 11,053 Collectively evaluated for impairment 341,172 304,597 351,646 209,252 251,306 Total ACLL $ 351,496 $ 319,791 $ 431,478 $ 223,278 $ 262,359 Loan Balance Individually evaluated for impairment $ 76,577 $ 115,643 $ 259,497 $ 111,595 $ 138,543 Collectively evaluated for impairment 28,722,992 24,109,306 24,192,227 22,709,845 22,801,887 Total loan balance $ 28,799,569 $ 24,224,949 $ 24,451,724 $ 22,821,440 $ 22,940,429 (a) Periods prior to 2022 do not include equipment finance.
Biggest changeThe total allowance is available to absorb losses from any segment of the loan portfolio. 63 Table 11 Allowance for Credit Losses on Loans Years Ended December 31, ($ in thousands) 2023 2022 2021 2020 2019 Allowance for loan losses Balance at beginning of period $ 312,720 $ 280,015 $ 383,702 $ 201,371 $ 238,023 Cumulative effect of ASU 2016-13 adoption (CECL) N/A N/A N/A 112,457 N/A Balance at beginning of period, adjusted 312,720 280,015 383,702 313,828 238,023 Provision for loan losses 87,000 34,000 (80,000) 164,457 18,500 Provision for loan losses recorded at acquisition — — — 2,543 — Gross up of allowance for PCD loans at acquisition — — — 3,504 — Loans charged off Commercial and industrial (45,687) (4,491) (21,564) (80,320) (63,315) Commercial real estate — owner occupied (25) — — (419) (222) Commercial and business lending (45,713) (4,491) (21,564) (80,739) (63,537) Commercial real estate — investor (252) (50) (14,346) (22,920) — Real estate construction (25) (48) (5) (19) (60) Commercial real estate lending (277) (98) (14,351) (22,938) (60) Total commercial (45,989) (4,588) (35,915) (103,677) (63,597) Residential mortgage (952) (567) (880) (1,867) (3,322) Auto finance (5,950) (1,041) (22) (7) — Home equity (424) (587) (668) (1,719) (1,846) Other consumer (5,453) (3,363) (3,168) (4,783) (5,548) Total consumer (12,779) (5,558) (4,738) (8,376) (10,716) Total loans charged off (58,768) (10,146) (40,652) (112,053) (74,313) Recoveries of loans previously charged off Commercial and industrial 3,015 5,282 8,564 7,004 11,875 Commercial real estate — owner occupied 11 13 120 147 2,795 Commercial and business lending 3,026 5,295 8,684 7,151 14,670 Commercial real estate — investor 3,016 50 3,162 643 31 Real estate construction 80 106 126 49 302 Commercial real estate lending 3,095 156 3,288 692 333 Total commercial 6,121 5,451 11,972 7,844 15,003 Residential mortgage 541 908 841 500 692 Auto finance 1,241 98 31 25 10 Home equity 1,262 1,385 2,854 1,978 2,599 Other consumer 978 1,010 1,267 1,076 858 Total consumer 4,021 3,401 4,993 3,579 4,158 Total recoveries 10,142 8,852 16,965 11,422 19,161 Net (charge offs) (48,626) (1,294) (23,687) (100,631) (55,152) Balance at end of period $ 351,094 $ 312,720 $ 280,015 $ 383,702 $ 201,371 Allowance for unfunded commitments Balance at beginning of period $ 38,776 $ 39,776 $ 47,776 $ 21,907 $ 24,336 Cumulative effect of ASU 2016-13 adoption (CECL) N/A N/A N/A 18,690 N/A Balance at beginning of period, adjusted 38,776 39,776 47,776 40,597 24,336 Provision for unfunded commitments (4,000) (1,000) (8,000) 7,000 (2,500) Amount recorded at acquisition — — — 179 70 Balance at end of period $ 34,776 $ 38,776 $ 39,776 $ 47,776 $ 21,907 Allowance for credit losses on loans $ 385,870 $ 351,496 $ 319,791 $ 431,478 $ 223,278 Provision for credit losses on loans 83,000 33,000 (88,000) 174,000 16,000 64 Table 11 Allowance for Credit Losses on Loans (continued) Years Ended December 31, ($ in thousands) 2023 2022 2021 2020 2019 Net loan (charge offs) recoveries Commercial and industrial $ (42,672) $ 791 $ (13,000) $ (73,316) $ (51,441) Commercial real estate — owner occupied (15) 13 120 (272) 2,573 Commercial and business lending (42,687) 804 (12,880) (73,588) (48,868) Commercial real estate — investor 2,763 — (11,184) (22,277) 31 Real estate construction 55 58 121 31 243 Commercial real estate lending 2,819 58 (11,063) (22,246) 274 Total commercial (39,868) 862 (23,943) (95,834) (48,594) Residential mortgage (411) 341 (38) (1,367) (2,630) Auto finance (4,709) (943) 9 19 10 Home equity 837 798 2,186 259 753 Other consumer (4,475) (2,353) (1,901) (3,707) (4,690) Total consumer (8,758) (2,157) 256 (4,797) (6,558) Total net (charge offs) $ (48,626) $ (1,294) $ (23,687) $ (100,631) $ (55,152) Ratios Allowance for credit losses on loans to total loans 1.32 % 1.22 % 1.32 % 1.76 % 0.98 % Allowance for credit losses on loans to net charge offs 7.9x N/M 13.5x 4.3x 4.0x Loan evaluation method for ACLL Individually evaluated for impairment $ 15,492 $ 10,324 $ 15,194 $ 79,831 $ 14,026 Collectively evaluated for impairment 370,378 341,172 304,597 351,646 209,252 Total ACLL $ 385,870 $ 351,496 $ 319,791 $ 431,478 $ 223,278 Loan balance Individually evaluated for impairment $ 62,712 $ 76,577 $ 115,643 $ 259,497 $ 111,595 Collectively evaluated for impairment 29,153,505 28,722,992 24,109,306 24,192,227 22,709,845 Total loan balance $ 29,216,218 $ 28,799,569 $ 24,224,949 $ 24,451,724 $ 22,821,440 Table 12 Net (Charge Offs) Recoveries (a) Years Ended December 31, (In basis points) 2023 2022 2021 2020 2019 Net loan (charge offs) recoveries Commercial and industrial (44) 1 (16) (86) (69) Commercial real estate — owner occupied — — 1 (3) 28 Commercial and business lending (39) 1 (14) (78) (58) Commercial real estate — investor 5 — (26) (54) — Real estate construction — — 1 — 2 Commercial real estate lending 4 — (18) (38) 1 Total commercial (22) 1 (16) (63) (36) Residential mortgage — — — (2) (3) Auto finance (26) (12) 4 14 37 Home equity 14 13 34 3 9 Other consumer (161) (79) (65) (117) (133) Total consumer (8) (2) — (5) (7) Total net (charge offs) (16) — (10) (41) (24) (a) Ratio of net charge offs to average loans by loan type. 65 Notable Contributions to the Change in the Allowance for Credit Losses on Loans • Total loans increased $417 million, or 1%, from December 31, 2022, driven by increases in auto finance and CRE lending resulting from the Corporation's strategic initiatives, partially offset by a decrease in residential mortgage lending.
The evaluation process combines many factors: management’s ongoing review and grading of the loan portfolio using a dual risk rating system leveraging probability of default and loss given default, consideration of historical loan loss and delinquency experience, trends in past due and nonaccrual loans, risk characteristics of the various classifications of loans, concentrations of loans to specific borrowers or industries, existing economic conditions and forecasts, the fair value of underlying collateral, and other qualitative and quantitative factors which could affect future credit losses.
The evaluation process combines many factors: management’s ongoing review and grading of the loan portfolio using a dual risk rating system leveraging probability of default and loss given default, consideration of historical loan loss and delinquency experience, trends in past due and nonaccrual loans, risk characteristics of the various classifications of loans, concentrations of loans to specific borrowers or industries, existing economic conditions and forecasts, the fair value of underlying collateral, and other qualitative and quantitative factors which 81 could affect future credit losses.
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.
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. 59 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.
It is difficult to estimate how potential changes in any one economic factor or input might affect the overall allowance because a wide variety of factors and inputs are considered in estimating the allowance and changes in those factors and inputs considered may not 75 occur at the same rate and may not be consistent across all product types.
It is difficult to estimate how potential changes in any one economic factor or input might affect the overall allowance because a wide variety of factors and inputs are considered in estimating the allowance and changes in those factors and inputs considered may not occur at the same rate and may not be consistent across all product types.
See Table 1 for additional information on average deposit balances and deposit rates. Other Funding Sources Short-Term Funding: Short-term funding is comprised of short-term FHLB advances (with original contractual maturities less than one year), federal funds purchased, securities sold under agreements to repurchase, and commercial paper.
See Table 1 for additional information on average deposit balances and deposit rates. Other Funding Sources Short-Term Funding: Short-term funding is comprised of short-term FHLB advances (with original contractual maturities less than one year), federal funds purchased, securities sold under agreements to repurchase, and historically, commercial paper.
The net interest margin exceeds the interest rate spread because net free funds, principally noninterest-bearing demand deposits and stockholders’ equity, also support earning assets. To compare tax-exempt asset yields to taxable yields, the yield on tax-exempt loans and investment securities is computed on a fully tax-equivalent basis.
The net interest margin 51 exceeds the interest rate spread because net free funds, principally noninterest-bearing demand deposits and stockholders’ equity, also support earning assets. To compare tax-exempt asset yields to taxable yields, the yield on tax-exempt loans and investment securities is computed on a fully tax-equivalent basis.
Specific balance sheet management strategies are also analyzed to determine their impact on NII and EAR. Key assumptions in the simulation analysis (and in the valuation analysis discussed below) relate to the behavior of interest rates and pricing spreads, the changes in product balances, and the behavior of loan and deposit clients in different rate environments.
Specific balance sheet management strategies are also analyzed to determine their impact on EAR. Key assumptions in the simulation analysis (and in the valuation analysis discussed below) relate to the behavior of interest rates and pricing spreads, the changes in product balances, and the behavior of loan and deposit clients in different rate environments.
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 NII at risk, interest rate sensitive EAR, and MVE at risk.
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.
These agencies may require additions to the ACLL or may require that certain loan balances be charged off or downgraded into criticized loan categories when their credit evaluations differ from those of management, based on their judgments about information available to them at the time of their examinations. 60 Investment Securities Portfolio Management of the investment securities portfolio involves the maximization of income while actively monitoring the portfolio's liquidity, market risk, quality of the investment securities, and its role in balance sheet and capital management.
These agencies may require additions to the ACLL or may require that certain loan balances be charged off or downgraded into criticized loan categories when their credit evaluations differ from those of management, based on their judgments about information available to them at the time of their examinations. 66 Investment Securities Portfolio Management of the investment securities portfolio involves the maximization of income while actively monitoring the portfolio's liquidity, market risk, quality of the investment securities, and its role in balance sheet and capital management.
Whereas, NII and EAR simulation highlights exposures over a relatively short time horizon, valuation analysis incorporates all cash flows over the estimated remaining life of all balance sheet and derivative positions.
Whereas, EAR simulation highlights exposures over a relatively short time horizon, valuation analysis incorporates all cash flows over the estimated remaining life of all balance sheet and derivative positions.
For a discussion of 2021 results compared to 2020, see the Corporation's Annual Report on Form 10-K for the year ended December 31, 2021 . Overview The Corporation is a bank holding company headquartered in Wisconsin, providing a broad array of banking and nonbanking products and services to businesses and consumers primarily within our three-state footprint.
For a discussion of 2022 results compared to 2021, see the Corporation's Annual Report on Form 10-K for the year ended December 31, 2022 . Overview The Corporation is a bank holding company headquartered in Wisconsin, providing a broad array of banking and nonbanking products and services to businesses and consumers primarily within our three-state footprint.
Residential mortgage products generally are underwritten using FHLMC and FNMA secondary marketing guidelines. 53 Home equity: Home equity consists of both home equity lines of credit and closed-end home equity loans.
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.
It should be read in conjunction with the consolidated financial statements and footnotes and the selected financial data presented elsewhere in this report. Within the tables presented, certain columns and rows may not sum due to the use of rounded numbers for disclosure purposes. The detailed financial discussion that follows focuses on 2022 results compared to 2021.
It should be read in conjunction with the consolidated financial statements and footnotes and the selected financial data presented elsewhere in this report. Within the tables presented, certain columns and rows may not sum due to the use of rounded numbers for disclosure purposes. The detailed financial discussion that follows focuses on 2023 results compared to 2022.
The forecast the Corporation used for December 31, 2022 was the Moody's baseline scenario from November 2022, which was reviewed against the December 2022 baseline scenario with no material updates made, over a 2 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.
The forecast the Corporation used for December 31, 2023 was the Moody's baseline scenario from November 2023, which was reviewed against the December 2023 baseline scenario with no material updates made, over a 2 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.
Strong capital ratios, credit quality, and core earnings are also essential to maintaining cost effective access to wholesale funding markets. At December 31, 2022, 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.
Strong capital ratios, credit quality, and core earnings are also essential to maintaining cost effective access to wholesale funding markets. At December 31, 2023, 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.
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 December 31, 2022, no significant concentrations existed in the Corporation’s loan portfolio in excess of 10% of total loan exposure.
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 December 31, 2023, no significant concentrations existed in the Corporation’s loan portfolio in excess of 10% of total loan exposure.
See Note 22 Accumulated Other Comprehensive Income (Loss) of the notes to consolidated financial statements for additional information on the unrealized losses on investment securities transferred from AFS to HTM. The Corporation did not recognize any credit-related write-downs to the allowance for credit losses on investments during 2022, 2021, or 2020.
See Note 22 Accumulated Other Comprehensive Income (Loss) of the notes to consolidated financial statements for additional information on the unrealized losses on investment securities transferred from AFS to HTM. The Corporation did not recognize any credit-related write-downs to the allowance for credit losses on investments during 2023, 2022, or 2021.
Table 1 provides average daily balances of earning assets and interest-bearing liabilities, the associated interest income and expense, and the corresponding interest rates earned and paid, as well as net interest income, interest rate spread, and net interest margin on a fully tax-equivalent basis for the years ended December 31, 2022, 2021, and 2020.
Table 1 provides average daily balances of earning assets and interest-bearing liabilities, the associated interest income and expense, and the corresponding interest rates earned and paid, as well as net interest income, interest rate spread, and net interest margin on a fully tax-equivalent basis for the years ended December 31, 2023, 2022, and 2021.
The forecast the Corporation used for December 31, 2022 was the Moody's baseline scenario from November 2022, which was reviewed against the December 2022 baseline scenario with no material updates made, over a 2 year reasonable and supportable period with straight-line reversion to historical losses over the second year of the period.
The forecast the Corporation used for December 31, 2023 was the Moody's baseline scenario from November 2023, which was reviewed against the December 2023 baseline scenario with no material updates made, over a 2 year reasonable and supportable period with straight-line reversion to historical losses over the second year of the period.
Indirect Auto: The Corporation currently purchases retail auto sales contracts via a network of approved auto dealerships across 13 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.
Indirect Auto: The Corporation currently purchases retail auto sales contracts via a network of approved auto dealerships across 14 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.
See also Note 4 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 12 and Table 13 provide additional information regarding activity in the ACLL.
See also Note 4 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.
Segment Review 2022 Compared to 2021 The Corporate and Commercial Specialty segment consists of lending and deposit solutions to larger businesses, developers, not-for-profits, municipalities, and financial institutions, and the support to deliver, fund, and manage such banking solutions.
Segment Review 2023 Compared to 2022 The Corporate and Commercial Specialty segment consists of lending and deposit solutions to larger businesses, developers, not-for-profits, municipalities, and financial institutions, and the support to deliver, fund, and manage such banking solutions.
The Corporation’s interest rate risk profile is such that, generally, a higher yield curve adds to 68 income while a lower yield curve has a negative impact on earnings. The Corporation's EAR profile is asset sensitive at December 31, 2022. MVE and EAR are complementary interest rate risk metrics and should be viewed together.
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 December 31, 2023. MVE and EAR are complementary interest rate risk metrics and should be viewed together.
See Note 4 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 within the Corporation's branch footprint.
See Note 4 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.
The residential mortgage portfolio is focused primarily in the Corporation's three-state branch footprint, with approximately 87% of the outstanding loan balances in the Corporation's branch footprint at December 31, 2022. 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%.
The residential mortgage portfolio is focused primarily in the Corporation's three-state branch footprint, with approximately 88% of the outstanding loan balances in the Corporation's branch footprint at December 31, 2023. 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%.
See Tables 12 and 13 for additional information regarding the activity in the ACLL. Management believes the level of ACLL to be appropriate at December 31, 2022. Consolidated net income and stockholders’ equity could be affected if management’s estimate of the ACLL is subsequently materially different, requiring additional or less provision for credit losses to be recorded.
See Tables 11 and 12 for additional information regarding the activity in the ACLL. Management believes the level of ACLL to be appropriate at December 31, 2023. Consolidated net income and stockholders’ equity could be affected if management’s estimate of the ACLL is subsequently materially different, requiring additional or less provision for credit losses to be recorded.
One of the primary methods that we use to quantify and manage interest rate risk is simulation analysis, which we use to model NII and rate sensitive noninterest items from the Corporation’s balance sheet and derivative positions under various interest rate scenarios.
One of the primary methods that we use to quantify and manage interest rate risk is simulation analysis, which we use to model net interest income and rate sensitive noninterest items from the Corporation’s balance sheet and derivative positions under various interest rate scenarios.
Over time, the Corporation expects roughly 60% of originations to be secured by used vehicles. Other consumer: Other consumer consists of student loans, short-term personal installment loans, and credit cards. The Corporation had $76 million and $101 million of student loans at December 31, 2022 and 2021, respectively, the majority of which are government guaranteed.
Over time, the Corporation expects roughly 60% of originations to be secured by used vehicles. Other consumer: Other consumer consists of student loans, short-term personal installment loans, and credit cards. The Corporation had $63 million and $76 million of student loans at December 31, 2023 and 2022, respectively, the majority of which are government guaranteed.
The assessment of overall capital adequacy depends on a variety of factors, including asset quality, liquidity, stability of earnings, changing competitive forces, economic condition in markets served, and strength of management. At December 31, 2022, the capital ratios of the Corporation and its banking subsidiaries were in excess of regulatory minimum 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 December 31, 2023, the capital ratios of the Corporation and its banking subsidiaries were in excess of regulatory minimum requirements.
NII and EAR sensitivity capture asset and liability re-pricing mismatches for the first year inclusive of forecast balance sheet changes and are considered shorter term measures, while MVE sensitivity captures mismatches within the period end balance sheets through the financial instruments’ respective maturities and is considered a longer term measure.
EAR sensitivity captures asset and liability re-pricing mismatches for the first year inclusive of forecast balance sheet changes and is considered a shorter-term measure, while MVE sensitivity captures mismatches within the period end balance sheets through the financial instruments’ respective maturities and is considered a longer term measure.
(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.
(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 loan segmentation used in calculating the ACLL at December 31, 2022 and December 31, 2021 was generally comparable.
The loan segmentation used in calculating the ACLL at December 31, 2023 and December 31, 2022 was generally comparable.
S. Treasury securities After one but within five years $ 999 $ 936 1.20 % Total U. S.
Treasury securities After one but within five years $ 999 $ 963 1.20 % Total U.S.
See Note 3 Investment Securities of the notes to consolidated financial statements for additional information on the regulatory stock. 63 Table 15 Investment Securities Portfolio Maturity Distribution (a) December 31, 2022 ($ in Thousands) Amortized Cost Fair Value Weighted Average Yield (b) AFS securities U. S.
See Note 3 Investment Securities of the notes to consolidated financial statements for additional information on the regulatory stock. 69 Table 14 Investment Securities Portfolio Maturity Distribution (a) December 31, 2023 ($ in thousands) Amortized Cost Fair Value Weighted Average Yield (b) AFS securities U.S.
Net interest income is affected by the amount and composition of earning assets and interest-bearing liabilities, as well as the sensitivity of the balance sheet to changes in interest rates, including characteristics such as the fixed or variable nature of the financial instruments, contractual maturities, re-pricing frequencies, loan prepayment behavior, and the use of interest rate derivative financial instruments. 46 Interest rate spread and net interest margin are utilized to measure and explain changes in net interest income.
Net interest income is affected by the amount and composition of earning assets and interest-bearing liabilities, as well as the sensitivity of the balance sheet to changes in interest rates, including characteristics such as the fixed or variable nature of the financial instruments, contractual maturities, re-pricing frequencies, loan prepayment behavior, and the use of interest rate derivative financial instruments.
Agency Residential and Agency Commercial Mortgage-Related Securities: Residential and commercial mortgage-related securities include predominantly GNMA, FNMA, and FHLMC MBS and CMOs. The fair value of these mortgage-related securities is subject to inherent risks, such as prepayment risk and interest rate changes.
Agency Residential and Agency Commercial Mortgage-Related Securities: Residential and commercial mortgage-related securities include predominantly GNMA, FNMA, and FHLMC MBS and CMOs. The fair value of these mortgage-related 68 securities is subject to inherent risks, such as prepayment risk and interest rate changes. The Corporation regularly assesses the valuation of these securities.
Table 8 Largest Commercial Real Estate Investor Property Type Exposures December 31, 2022 % of Total Loan Exposure % of Total Commercial Real Estate - Investor Loan Exposure Multi-Family 4 % 33 % Office 3 % 24 % Industrial 3 % 23 % The remaining CRE-investor portfolio is spread over various other property types, none of which exceed 2% of total loan exposure.
Table 8 Largest Commercial Real Estate-Investor Property Type Exposures December 31, 2023 % of Total Loan Exposure % of Total Commercial Real Estate - Investor Loan Exposure Multi-Family 4 % 33 % Industrial 3 % 25 % Office 3 % 21 % The remaining CRE-investor portfolio is spread over various other property types, none of which exceed 2% of total loan exposure.
Potential problem loans are generally defined by management to include loans rated as substandard by management that are collectively evaluated (not nonaccrual loans or accruing TDRs); however, there are circumstances present to create doubt as to the ability of the borrower to comply with present repayment terms.
Potential problem loans are generally defined by management to include loans rated as substandard by management that are collectively evaluated; however, there are circumstances present to create doubt as to the ability of the borrower to comply with present repayment terms.
The adjusted efficiency ratio is noninterest expense, which excludes the provision for unfunded commitments, other intangible amortization, acquisition related costs, and announced initiatives, divided by the sum of fully tax-equivalent net interest income plus noninterest income, excluding investment securities gains (losses), net, acquisition related costs, asset gains, net, and gain on sale of branches, net.
The adjusted efficiency ratio is noninterest expense (which includes the provision for unfunded commitments), excluding other intangible amortization, FDIC special assessment costs, acquisition related costs, and announced initiatives, divided by the sum of fully tax-equivalent net interest income plus noninterest income, excluding investment securities gains (losses), net, disposition related net gains, gain on sale of branches, net, and announced initiatives.
As of December 31, 2022, the Bank had $607 million available for discount window borrowings. • A $200 million Parent Company commercial paper program, of which $21 million was outstanding at December 31, 2022. • Dividends and service fees from subsidiaries, as well as the proceeds from issuance of capital, which are also funding sources for the Parent Company. 67 • 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 ability to take new advances under this program ends in March 2024. • A $200 million Parent Company commercial paper program, of which none was outstanding at December 31, 2023. • 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.
Table 19 Estimated % Change in Rate Sensitive EAR Over 12 Months Dynamic Forecast December 31, 2022 Static Forecast December 31, 2022 Dynamic Forecast December 31, 2021 Static Forecast December 31, 2021 Gradual Rate Change 100 bp increase in interest rates 3.9% 3.4% 5.0% 5.4% 200 bp increase in interest rates 7.8% 6.8% 10.6% 11.7% We also perform valuation analysis, which we use for discerning levels of risk present in the balance sheet and derivative positions that might not be taken into account in the NII simulation analysis.
Table 18 Estimated % Change in Rate Sensitive EAR Over 12 Months Dynamic Forecast December 31, 2023 Static Forecast December 31, 2023 Dynamic Forecast December 31, 2022 Static Forecast December 31, 2022 Gradual Rate Change 100 bp increase in interest rates 1.9% 2.2% 3.9% 3.4% 200 bp increase in interest rates 3.8% 4.3% 7.8% 6.8% 100 bp decrease in interest rates (1.3)% (1.5)% (3.4)% (2.9)% 200 bp decrease in interest rates (2.6)% (3.1)% (6.7)% (5.7)% We also perform valuation analysis, which we use for discerning levels of risk present in the balance sheet and derivative positions that might not be taken into account in the EAR simulation analysis.
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 December 31, 2022, the Bank had $958 million available for future funding.
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 December 31, 2023, the Bank had $6.0 billion available for future funding.
Table 9 Largest Real Estate Construction Property Type Exposures December 31, 2022 % of Total Loan Exposure % of Total Real Estate - Construction Loan Exposure Multi-Family 5 % 40 % Industrial 3 % 25 % The remaining real estate construction portfolio is spread over various other property types, none of which exceed 2% of total loan exposure.
Table 9 Largest Real Estate Construction Property Type Exposures December 31, 2023 % of Total Loan Exposure % of Total Real Estate - Construction Loan Exposure Multi-Family 5 % 45 % Industrial 2 % 24 % The remaining real estate construction portfolio is spread over various other property types, none of which exceed 2% of total loan exposure.
Nonaccrual loans: Nonaccrual loans are considered to be one indicator of potential future loan losses. See management’s accounting policy for nonaccrual loans in Note 1 Summary of Significant Accounting Policies and Note 4 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.
See management’s accounting policy for nonaccrual loans in Note 1 Summary of Significant Accounting Policies and Note 4 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.
Interest rate spread is the difference between the yield on earning assets and the rate paid on interest-bearing liabilities that fund those assets. The net interest margin is expressed as the percentage of net interest income to average earning assets.
Interest rate spread and net interest margin are utilized to measure and explain changes in net interest income. Interest rate spread is the difference between the yield on earning assets and the rate paid on interest-bearing liabilities that fund those assets. The net interest margin is expressed as the percentage of net interest income to average earning assets.
Table 14 Investment Securities Portfolio At December 31, ($ in Thousands) 2022 % of Total 2021 % of Total 2020 % of Total AFS investment securities Amortized cost U.S.
Table 13 Investment Securities Portfolio At December 31, ($ in thousands) 2023 % of Total 2022 % of Total 2021 % of Total AFS investment securities Amortized cost U.S.
The Corporation believes the level of the ACLL is appropriate. See Note 1 Summary of Significant Accounting Policies and Note 4 Loans of the notes to consolidated financial statements as well as the Allowance for Credit Losses on Loans section.
See Note 1 Summary of Significant Accounting Policies and Note 4 Loans of the notes to consolidated financial statements as well as the Allowance for Credit Losses on Loans section.
At December 31, 2022, $20.2 billion, or 70%, of the total loans outstanding and $16.4 billion, or 91%, 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.
At December 31, 2023, $19.5 billion, or 67%, of the total loans outstanding and $16.4 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.
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 much more significant impact.
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 2023.
A positive NII and EAR sensitivity in a rising rate environment indicates that over the forecast horizon of one year, asset-based income will increase more quickly than liability based expense due to the balance sheet composition.
A positive EAR sensitivity in a rising rate environment indicates that over the forecast horizon of one year, asset-based income will increase more quickly than liability based expense due to the balance sheet composition. A negative MVE sensitivity in a rising rate environment indicates that the value of financial assets will decrease more than the value of financial liabilities.
See Table 1 for additional information on average funding and rates. Contractual Obligations, Commitments, Off-Balance Sheet Arrangements, and Contingent Liabilities The following table summarizes significant contractual obligations and other commitments at December 31, 2022, at those amounts contractually due to the recipient, including any unamortized premiums or discounts, hedge basis adjustments, or other similar carrying value adjustments.
Contractual Obligations, Commitments, Off-Balance Sheet Arrangements, and Contingent Liabilities The following table summarizes significant contractual obligations and other commitments at December 31, 2023, at those amounts contractually due to the recipient, including any unamortized premiums or discounts, hedge basis adjustments, or other similar carrying value adjustments.
Table 10 provides detailed information regarding NPAs, which include nonaccrual loans, OREO, and other nonperforming assets: Table 10 Nonperforming Assets As of December 31, ($ in Thousands) 2022 2021 2020 2019 2018 Nonperforming assets Commercial and industrial $ 14,329 $ 6,279 $ 61,859 $ 46,312 $ 41,021 Commercial real estate — owner occupied — — 1,058 67 3,957 Commercial and business lending 14,329 6,279 62,917 46,380 44,978 Commercial real estate — investor 29,380 60,677 78,220 4,409 1,952 Real estate construction 105 177 353 493 979 Commercial real estate lending 29,485 60,855 78,573 4,902 2,931 Total commercial 43,814 67,134 141,490 51,282 47,909 Residential mortgage 58,480 55,362 59,337 57,844 67,574 Auto finance 1,490 52 49 — — Home equity 7,487 7,726 9,888 9,104 12,339 Other consumer 197 170 91 152 79 Total consumer 67,654 63,309 69,364 67,099 79,992 Total nonaccrual loans 111,467 130,443 210,854 118,380 127,901 Commercial real estate owned 325 984 2,185 3,530 4,047 Residential real estate owned 2,878 3,666 1,194 5,696 2,963 Bank properties real estate owned (a) 11,580 24,969 10,889 11,874 4,974 OREO 14,784 29,619 14,269 21,101 11,984 Other nonperforming assets (b) 215 — — 6,004 — Total nonperforming assets $ 126,466 $ 160,062 $ 225,123 $ 145,485 $ 139,885 Accruing loans past due 90 days or more Commercial $ 282 $ 151 $ 175 $ 342 $ 311 Consumer 1,446 1,111 1,423 1,917 1,853 Total accruing loans past due 90 days or more $ 1,728 $ 1,263 $ 1,598 $ 2,259 $ 2,165 Restructured loans (accruing) (c) Commercial $ 13,093 $ 22,763 $ 41,119 $ 18,944 $ 28,668 Consumer 19,775 19,768 10,973 7,097 24,595 Total restructured loans (accruing) $ 32,868 $ 42,530 $ 52,092 $ 26,041 $ 53,263 Nonaccrual restructured loans (included in nonaccrual loans) $ 20,127 $ 17,426 $ 20,190 $ 22,494 $ 26,292 Ratios Nonaccrual loans to total loans 0.39 % 0.54 % 0.86 % 0.52 % 0.56 % NPAs to total loans plus OREO and other nonperforming assets 0.44 % 0.66 % 0.92 % 0.64 % 0.61 % NPAs to total assets 0.32 % 0.46 % 0.67 % 0.45 % 0.42 % Allowance for credit losses on loans to nonaccrual loans 315.34 % 245.16 % 204.63 % 188.61 % 205.13 % 55 Table 10 Nonperforming Assets (continued) As of December 31, ($ in Thousands) 2022 2021 2020 2019 2018 Accruing loans 30-89 days past due Commercial and industrial $ 6,283 $ 715 $ 6,119 $ 821 $ 525 Commercial real estate — owner occupied 230 163 373 1,369 2,699 Commercial and business lending 6,512 878 6,492 2,190 3,224 Commercial real estate — investor 1,067 616 12,793 1,812 3,767 Real estate construction 39 1,620 991 97 330 Commercial real estate lending 1,105 2,236 13,784 1,909 4,097 Total commercial 7,618 3,114 20,276 4,099 7,321 Residential mortgage 9,874 6,169 10,385 9,274 9,706 Auto finance 9,408 11 57 — — Home equity 5,607 3,711 4,802 5,647 6,049 Other consumer 1,610 2,307 1,543 2,083 2,269 Total consumer 26,499 12,198 16,786 17,005 18,024 Total accruing loans 30-89 days past due $ 34,117 $ 15,312 $ 37,062 $ 21,104 $ 25,345 Potential problem loans Asset-based lending & equipment finance (d) $ 17,698 $ 17,697 $ — $ — $ — Commercial and industrial 118,851 122,562 139,489 110,308 116,578 Commercial real estate — owner occupied 34,422 26,723 26,179 19,889 55,964 Commercial and business lending 170,971 166,981 165,668 130,197 172,542 Commercial real estate — investor 92,535 106,138 91,396 29,449 67,481 Real estate construction 970 21,408 19,046 — 3,834 Commercial real estate lending 93,505 127,546 110,442 29,449 71,315 Total commercial 264,476 294,527 276,111 159,646 243,856 Residential mortgage 1,978 2,214 3,749 1,451 5,975 Home equity 197 165 2,068 — 103 Total consumer 2,175 2,379 5,817 1,451 6,078 Total potential problem loans $ 266,651 $ 296,905 $ 281,928 $ 161,097 $ 249,935 (a) Primarily closed branches and other bank operated real estate facilities, pending disposition.
Table 10 provides detailed information regarding NPAs, which include nonaccrual loans, OREO, and other nonperforming assets: Table 10 Nonperforming Assets As of December 31, ($ in thousands) 2023 2022 2021 2020 2019 Nonperforming assets Commercial and industrial $ 62,022 $ 14,329 $ 6,279 $ 61,859 $ 46,312 Commercial real estate — owner occupied 1,394 — — 1,058 67 Commercial and business lending 63,416 14,329 6,279 62,917 46,380 Commercial real estate — investor — 29,380 60,677 78,220 4,409 Real estate construction 6 105 177 353 493 Commercial real estate lending 6 29,485 60,855 78,573 4,902 Total commercial 63,422 43,814 67,134 141,490 51,282 Residential mortgage 71,142 58,480 55,362 59,337 57,844 Auto finance 5,797 1,490 52 49 — Home equity 8,508 7,487 7,726 9,888 9,104 Other consumer 128 197 170 91 152 Total consumer 85,574 67,654 63,309 69,364 67,099 Total nonaccrual loans 148,997 111,467 130,443 210,854 118,380 Commercial real estate owned 914 325 984 2,185 3,530 Residential real estate owned 1,290 2,878 3,666 1,194 5,696 Bank properties real estate owned (a) 8,301 11,580 24,969 10,889 11,874 OREO 10,506 14,784 29,619 14,269 21,101 Other nonperforming assets (b) 919 215 — — 6,004 Total nonperforming assets $ 160,421 $ 126,466 $ 160,062 $ 225,123 $ 145,485 Accruing loans past due 90 days or more Commercial $ 19,812 $ 282 $ 151 $ 175 $ 342 Consumer 1,876 1,446 1,111 1,423 1,917 Total accruing loans past due 90 days or more $ 21,689 $ 1,728 $ 1,263 $ 1,598 $ 2,259 Restructured loans (accruing) (c) Commercial $ 306 $ 13,093 $ 22,763 $ 41,119 $ 18,944 Consumer 2,414 19,775 19,768 10,973 7,097 Total restructured loans (accruing) $ 2,719 $ 32,868 $ 42,530 $ 52,092 $ 26,041 Nonaccrual restructured loans (included in nonaccrual loans) (c) $ 805 $ 20,127 $ 17,426 $ 20,190 $ 22,494 Ratios Nonaccrual loans to total loans 0.51 % 0.39 % 0.54 % 0.86 % 0.52 % NPAs to total loans plus OREO and other nonperforming assets 0.55 % 0.44 % 0.66 % 0.92 % 0.64 % NPAs to total assets 0.39 % 0.32 % 0.46 % 0.67 % 0.45 % Allowance for credit losses on loans to nonaccrual loans 258.98 % 315.34 % 245.16 % 204.63 % 188.61 % 61 Table 10 Nonperforming Assets (continued) As of December 31, ($ in thousands) 2023 2022 2021 2020 2019 Accruing loans 30-89 days past due Commercial and industrial $ 5,565 $ 6,283 $ 715 $ 6,119 $ 821 Commercial real estate — owner occupied 358 230 163 373 1,369 Commercial and business lending 5,923 6,512 878 6,492 2,190 Commercial real estate — investor 18,697 1,067 616 12,793 1,812 Real estate construction — 39 1,620 991 97 Commercial real estate lending 18,697 1,105 2,236 13,784 1,909 Total commercial 24,619 7,618 3,114 20,276 4,099 Residential mortgage 13,446 9,874 6,169 10,385 9,274 Auto finance 17,386 9,408 11 57 — Home equity 4,208 5,607 3,711 4,802 5,647 Other consumer 2,166 1,610 2,307 1,543 2,083 Total consumer 37,205 26,499 12,198 16,786 17,005 Total accruing loans 30-89 days past due $ 61,825 $ 34,117 $ 15,312 $ 37,062 $ 21,104 Potential problem loans Commercial and industrial $ 197,202 $ 136,549 $ 140,258 $ 139,489 $ 110,308 Commercial real estate — owner occupied 38,699 34,422 26,723 26,179 19,889 Commercial and business lending 235,900 170,971 166,981 165,668 130,197 Commercial real estate — investor 196,163 92,535 106,138 91,396 29,449 Real estate construction — 970 21,408 19,046 — Commercial real estate lending 196,163 93,505 127,546 110,442 29,449 Total commercial 432,063 264,476 294,527 276,111 159,646 Residential mortgage 784 1,978 2,214 3,749 1,451 Home equity 118 197 165 2,068 — Total consumer 901 2,175 2,379 5,817 1,451 Total potential problem loans $ 432,965 $ 266,651 $ 296,905 $ 281,928 $ 161,097 (a) Primarily closed branches and other bank operated real estate facilities, pending disposition.
(b) Nonaccrual loans and loans held for sale have been included in the average balances. (c) Interest income includes amortization of net deferred loan origination costs and net accreted purchase loan discount. (d) Periods prior to 2022 do not include equipment finance. Net interest income is the primary source of the Corporation’s revenue.
(b) Nonaccrual loans and loans held for sale have been included in the average balances. (c) Interest income includes amortization of net deferred loan origination costs and net accreted purchase loan discount. Net interest income is the primary source of the Corporation’s revenue.
Equity Securities without Readily Determinable Fair Values: The Corporation's portfolio of equity securities without readily determinable fair values primarily consists of Visa Class B restricted shares that the Corporation received in 2008 as part of Visa's initial public offering.
Equity Securities without Readily Determinable Fair Values: The Corporation's portfolio of equity securities without readily determinable fair values primarily consists of Visa Class B restricted shares that the Corporation received in 2008 as part of Visa's initial public offering, along with an investment in a private SBA loan fund.
See also Note 4 Loans of the notes to consolidated financial statements and section Nonperforming Assets for additional disclosures on the changes in asset quality. • Total nonaccrual loans decreased $19 million, or 15%, from December 31, 2021, primarily driven by a decrease in nonaccrual loans within the Corporation's CRE-investor portfolio, partially offset by an increase in nonaccrual loans within the commercial and industrial portfolio.
See also Note 4 Loans of the notes to consolidated financial statements and section Nonperforming Assets for additional disclosures on the changes in asset quality. • Total nonaccrual loans increased $38 million, or 34%, from December 31, 2022, primarily driven by increases in nonaccrual loans within the Corporation's commercial and industrial and residential mortgage portfolios, partially offset by a decrease in nonaccrual loans within the CRE-investor portfolio.
Table 2 presents additional information to facilitate the review and discussion of fully tax-equivalent net interest income, interest rate spread, and net interest margin. Notable Contributions to the Change in 2022 Net Interest Income • Fully tax-equivalent net interest income and net interest income were up $234 million, or 31%, and $231 million, or 32%, respectively, compared to 2021.
Table 2 presents additional information to facilitate the review and discussion of fully tax-equivalent net interest income, interest rate spread, and net interest margin. Notable Contributions to the Change in 2023 Net Interest Income • Fully tax-equivalent net interest income and net interest income were both up $82 million, or 8% and 9%, respectively, compared to 2022.
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.
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.
See also Note 4 Loans of the notes to consolidated financial statements and section Nonperforming Assets for additional disclosures on the changes in asset quality. • For the year ended December 31, 2022, net charge offs decreased $22 million, or 95%, from December 31, 2021, primarily driven by decreased charge off amounts in the Corporation's commercial and industrial and CRE-investor portfolios.
See also Note 4 Loans of the notes to consolidated financial statements and section Nonperforming Assets for additional disclosures on the changes in asset quality. • For the year ended December 31, 2023, net charge offs increased $47 million from December 31, 2022, primarily driven by an increase in charge off amounts in the Corporation's commercial and industrial portfolio.
For the year ended December 31, 2021, net cash provided by operating and financing activities was $530 million and $1.4 billion, respectively, while investing activities used net cash of $1.6 billion, for a net increase in cash and cash equivalents of $309 million since year-end 2020.
For the year ended December 31, 2023, net cash provided by operating and financing activities was $443 million and $1.3 billion, respectively, while investing activities used net cash of $1.4 billion, for a net increase in cash and cash equivalents of $302 million since year-end 2022.
Income Taxes The Corporation recognized income tax expense of $94 million for 2022, compared to income tax expense of $85 million for 2021. The Corporation's effective tax rate was 20.34% for 2022, compared to an effective tax rate of 19.55% for 2021.
Income Taxes The Corporation recognized income tax expense of $23 million for 2023, compared to income tax expense of $94 million for 2022. The Corporation's effective tax rate was 11.21% for 2023, compared to an effective tax rate of 20.34% for 2022.
(b) The yield on tax-exemp t loans and securities is computed on a fully tax-equivalent basis using a tax rate of 21% and is net of the effects of certain disallowed interest deductions. (c) Periods prior to 2022 do not include equipment finance.
(b) The yield on tax-exemp t loans and securities is computed on a fully tax-equivalent basis using a tax rate of 21% and is net of the effects of certain disallowed interest deductions.
Treasury securities $ 936 — % $ 1,001 — % $ 1,024 — % Obligations of state and political subdivisions (municipal securities) 1,551,647 46 % 1,739,988 74 % 1,575,445 78 % Residential mortgage-related securities FNMA / FHLMC 816,771 24 % 36,139 2 % 57,490 3 % GNMA 49,628 1 % 49,631 2 % 118,813 6 % Private label 303,505 9 % — — % — — % Commercial mortgage-related securities FNMA/FHLMC 615,839 18 % 419,400 18 % 11,211 1 % GNMA 62,691 2 % 102,506 4 % 264,960 13 % Total fair value $ 3,401,018 100 % $ 2,348,664 100 % $ 2,028,943 100 % Net unrealized holding gains (losses) $ (559,433) $ 109,662 $ 149,938 Equity securities Equity securities carrying value and fair value $ 25,216 100 % $ 18,352 100 % $ 15,106 100 % At December 31, 2022, the Corporation’s investment securities portfolio did not contain securities of any single non-government or non-GSE issuer that were payable from and secured by the same source of revenue or taxing authority where the aggregate carrying value of such securities exceeded 5% of stockholders’ equity.
Treasury securities $ 963 — % $ 936 — % $ 1,001 — % Obligations of state and political subdivisions (municipal securities) 1,554,059 46 % 1,551,647 46 % 1,739,988 74 % Residential mortgage-related securities: FNMA/FHLMC 804,393 24 % 816,771 24 % 36,139 2 % GNMA 46,170 1 % 49,628 1 % 49,631 2 % Private-label 289,507 9 % 303,505 9 % — — % Commercial mortgage-related securities: FNMA/FHLMC 632,914 19 % 615,839 18 % 419,400 18 % GNMA 52,619 2 % 62,691 2 % 102,506 4 % Total fair value $ 3,380,624 100 % $ 3,401,018 100 % $ 2,348,664 100 % Net unrealized holding gains (losses) $ (479,610) $ (559,433) $ 109,662 Equity securities Equity securities carrying value and fair value $ 41,651 100 % $ 25,216 100 % $ 18,352 100 % At December 31, 2023, the Corporation’s investment securities portfolio did not contain securities of any single non-government or non-GSE issuer that were payable from and secured by the same source of revenue or taxing authority where the aggregate carrying value of such securities exceeded 5% of stockholders’ equity.
Securities classified as AFS may be sold from time to time in order to help manage interest rate risk, liquidity, credit quality, capital levels, or to take advantage of relative value opportunities in the marketplace.
The Corporation classifies its investment securities as AFS, HTM, or equity securities on the consolidated balance sheets at the time of purchase. Securities classified as AFS may be sold from time to time in order to help manage interest rate risk, liquidity, credit quality, capital levels, or to take advantage of relative value opportunities in the marketplace.
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.
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.
Treasury securities $ 999 — % $ 1,000 — % $ 999 — % Obligations of state and political subdivisions (municipal securities) 1,732,351 44 % 1,628,759 73 % 1,441,900 77 % Residential mortgage-related securities FNMA / FHLMC 961,231 24 % 34,347 2 % 54,599 3 % GNMA 52,979 1 % 48,053 2 % 114,553 6 % Private label 364,728 9 % — — % — — % Commercial mortgage-related securities FNMA/FHLMC 778,796 20 % 425,937 19 % 11,211 1 % GNMA 69,369 2 % 100,907 5 % 255,742 14 % Total amortized cost and carrying value $ 3,960,451 100 % $ 2,239,003 100 % $ 1,879,005 100 % Fair value U.S.
Treasury securities $ 999 — % $ 999 — % $ 1,000 — % Obligations of state and political subdivisions (municipal securities) 1,682,473 44 % 1,732,351 44 % 1,628,759 73 % Residential mortgage-related securities: FNMA/FHLMC 941,973 24 % 961,231 24 % 34,347 2 % GNMA 48,979 1 % 52,979 1 % 48,053 2 % Private-label 345,083 9 % 364,728 9 % — — % Commercial mortgage-related securities: FNMA/FHLMC 780,995 20 % 778,796 20 % 425,937 19 % GNMA 59,733 2 % 69,369 2 % 100,907 5 % Total amortized cost and carrying value $ 3,860,235 100 % $ 3,960,451 100 % $ 2,239,003 100 % Fair value U.S.
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 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.
(b) Yields on tax-exempt securities are computed on a fully tax-equivalent basis using a tax rate of 21% and are net of the effects of certain disallowed interest deductions. 65 Analysis of Deposits and Funding Deposits and Customer Funding The following table summarizes the composition of our deposits and customer funding: Table 16 Period End Deposit and Customer Funding Composition As of December 31, 2022 2021 2020 ($ in Thousands) Amount % of Total Amount % of Total Amount % of Total Noninterest-bearing demand $ 7,760,811 26 % $ 8,504,077 30 % $ 7,661,728 29 % Savings 4,604,848 15 % 4,410,198 15 % 3,650,085 14 % Interest-bearing demand 7,100,727 24 % 7,019,782 25 % 6,090,869 23 % Money market 8,239,610 28 % 7,185,111 25 % 7,322,769 28 % Brokered CDs 541,916 2 % — — % — — % Other time deposits 1,388,242 5 % 1,347,262 5 % 1,757,030 7 % Total deposits 29,636,154 100 % 28,466,430 100 % 26,482,481 100 % Other customer funding (a) 261,767 354,142 245,247 Total deposits and other customer funding $ 29,897,921 $ 28,820,572 $ 26,727,727 Network transaction deposits (b) $ 979,003 $ 766,965 $ 1,197,093 Net deposits and other customer funding (c) $ 28,377,001 $ 28,053,607 $ 25,530,634 (a) Includes repurchase agreements and commercial paper .
(b) Yields on tax-exempt securities are computed on a fully tax-equivalent basis using a tax rate of 21% and are net of the effects of certain disallowed interest deductions. 71 Analysis of Deposits and Funding Deposits and Customer Funding The following table summarizes the composition of our deposits and customer funding: Table 15 Period End Deposit and Customer Funding Composition As of December 31, 2023 2022 2021 ($ in thousands) Amount % of Total Amount % of Total Amount % of Total Noninterest-bearing demand $ 6,119,956 18 % $ 7,760,811 26 % $ 8,504,077 30 % Savings 4,835,701 14 % 4,604,848 16 % 4,410,198 15 % Interest-bearing demand 8,843,967 26 % 7,100,727 24 % 7,019,782 25 % Money market 6,330,453 19 % 8,239,610 28 % 7,185,111 25 % Brokered CDs 4,447,479 13 % 541,916 2 % — — % Other time deposits 2,868,494 9 % 1,388,242 5 % 1,347,262 5 % Total deposits 33,446,049 100 % 29,636,154 100 % 28,466,430 100 % Other customer funding (a) 106,620 261,767 354,142 Total deposits and other customer funding $ 33,552,669 $ 29,897,921 $ 28,820,572 Network transaction deposits (b) $ 1,566,139 $ 979,003 $ 766,965 Net deposits and other customer funding (c) $ 27,539,051 $ 28,377,001 $ 28,053,607 (a) Includes repurchase agreements and commercial paper .
Treasury securities $ 109,378 4 % $ 122,957 3 % $ 26,531 1 % Agency securities 13,532 — % 14,897 — % 25,038 1 % Obligations of state and political subdivisions (municipal securities) 230,714 8 % 400,457 9 % 450,662 15 % Residential mortgage-related securities FNMA / FHLMC 1,604,610 59 % 2,691,879 62 % 1,461,241 47 % GNMA 497,596 18 % 67,780 2 % 235,537 8 % Private-label — — % 329,724 8 % — — % Commercial mortgage-related securities FNMA / FHLMC 17,142 1 % 350,623 8 % 22,904 1 % GNMA 110,462 4 % 166,799 4 % 524,756 17 % Asset backed securities FFELP 151,191 6 % 177,325 4 % 327,189 11 % SBA 4,477 — % 6,580 — % 8,584 — % Other debt securities 2,922 — % 2,994 — % 3,000 — % Total fair value and carrying value $ 2,742,025 100 % $ 4,332,015 100 % $ 3,085,441 100 % Net unrealized holding gains (losses) $ (255,007) $ (6,656) $ 57,043 61 Table 14 Investment Securities Portfolio (continued) At December 31, ($ in Thousands) 2022 % of Total 2021 % of Total 2020 % of Total HTM investment securities Amortized cost U.S.
Treasury securities $ 35,902 1 % $ 109,378 4 % $ 122,957 3 % Agency securities — — % 13,532 — % 14,897 — % Obligations of state and political subdivisions (municipal securities) 91,817 3 % 230,714 8 % 400,457 9 % Residential mortgage-related securities: FNMA/FHLMC 1,120,794 31 % 1,604,610 59 % 2,691,879 62 % GNMA 2,042,675 57 % 497,596 18 % 67,780 2 % Private-label — — % — — % 329,724 8 % Commercial mortgage-related securities: FNMA/FHLMC 16,937 — % 17,142 1 % 350,623 8 % GNMA 154,793 4 % 110,462 4 % 166,799 4 % Asset backed securities: FFELP 133,975 4 % 151,191 6 % 177,325 4 % SBA 1,051 — % 4,477 — % 6,580 — % Other debt securities 2,950 — % 2,922 — % 2,994 — % Total fair value and carrying value $ 3,600,892 100 % $ 2,742,025 100 % $ 4,332,015 100 % Net unrealized holding gains (losses) $ (148,922) $ (255,007) $ (6,656) 67 Table 13 Investment Securities Portfolio (continued) At December 31, ($ in thousands) 2023 % of Total 2022 % of Total 2021 % of Total HTM investment securities Amortized cost U.S.
Table 22 Capital Ratios As of December 31, ($ in Thousands) 2022 2021 2020 Risk-based Capital (a) CET1 $ 3,035,578 $ 2,808,289 $ 2,706,010 Tier 1 capital 3,229,690 3,001,074 3,058,809 Total capital 3,680,227 3,570,026 3,632,807 Total risk-weighted assets 32,472,008 27,242,735 25,903,415 Modified CECL transitional amount 67,276 89,702 117,624 CET1 capital ratio 9.35 % 10.31 % 10.45 % Tier 1 capital ratio 9.95 % 11.02 % 11.81 % Total capital ratio 11.33 % 13.10 % 14.02 % Tier 1 leverage ratio 8.59 % 8.83 % 9.37 % Selected Equity and Performance Ratios Total stockholders’ equity / total assets 10.19 % 11.47 % 12.24 % Dividend payout ratio (b) 34.32 % 34.55 % 38.50 % Return on average assets 1.00 % 1.02 % 0.90 % Noninterest expense / average assets 2.04 % 2.06 % 2.26 % ( a)The Federal Reserve establishes regulatory capital requirements, including well-capitalized standards for the Corporation.
Table 21 Capital Ratios As of December 31, ($ in thousands) 2023 2022 2021 Risk-based capital (a) CET1 $ 3,074,938 $ 3,035,578 $ 2,808,289 Tier 1 capital 3,269,050 3,229,690 3,001,074 Total capital 3,997,205 3,680,227 3,570,026 Total risk-weighted assets 32,732,710 32,469,862 27,242,735 Modified CECL transitional amount 44,851 67,276 89,702 CET1 capital ratio 9.39 % 9.35 % 10.31 % Tier 1 capital ratio 9.99 % 9.95 % 11.02 % Total capital ratio 12.21 % 11.33 % 13.10 % Tier 1 leverage ratio 8.06 % 8.59 % 8.83 % Selected equity and performance ratios Total stockholders’ equity / total assets 10.18 % 10.19 % 11.47 % Dividend payout ratio (b) 74.56 % 34.32 % 34.55 % Return on average assets 0.45 % 1.00 % 1.02 % Noninterest expense / average assets 2.00 % 2.04 % 2.06 % ( a)The Federal Reserve establishes regulatory capital requirements, including well-capitalized standards for the Corporation.
Credit risk is primarily controlled by reviewing the creditworthiness of the borrowers, monitoring payment histories, and taking appropriate collateral and guarantee positions. 54 Nonperforming Assets Management is committed to a proactive nonaccrual and problem loan identification philosophy.
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. 60 Nonperforming Assets Management is committed to a proactive nonaccrual and problem loan identification philosophy.
Treasury securities $ 124,441 4 % $ 124,291 3 % $ 26,436 1 % Agency securities 15,000 1 % 15,000 — % 24,985 1 % Obligations of state and political subdivisions (municipal securities) 235,693 8 % 381,517 9 % 425,057 14 % Residential mortgage-related securities FNMA / FHLMC 1,820,642 61 % 2,709,399 62 % 1,448,806 48 % GNMA 502,537 17 % 66,189 2 % 231,364 8 % Private-label — — % 332,028 8 % — — % Commercial mortgage-related securities FNMA / FHLMC 19,038 1 % 357,240 8 % 19,654 1 % GNMA 115,031 4 % 165,439 4 % 511,429 17 % Asset backed securities FFELP 157,138 5 % 177,974 4 % 329,030 11 % SBA 4,512 — % 6,594 — % 8,637 — % Other debt securities 3,000 — % 3,000 — % 3,000 — % Total amortized cost $ 2,997,032 100 % $ 4,338,671 100 % $ 3,028,399 100 % Fair value U.S.
Treasury securities $ 39,984 1 % $ 124,441 4 % $ 124,291 3 % Agency securities — — % 15,000 1 % 15,000 — % Obligations of state and political subdivisions (municipal securities) 94,008 3 % 235,693 8 % 381,517 9 % Residential mortgage-related securities: FNMA/FHLMC 1,274,052 34 % 1,820,642 61 % 2,709,399 62 % GNMA 2,021,242 54 % 502,537 17 % 66,189 2 % Private-label — — % — — % 332,028 8 % Commercial mortgage-related securities: FNMA/FHLMC 18,691 — % 19,038 1 % 357,240 8 % GNMA 161,928 4 % 115,031 4 % 165,439 4 % Asset backed securities: FFELP 135,832 4 % 157,138 5 % 177,974 4 % SBA 1,077 — % 4,512 — % 6,594 — % Other debt securities 3,000 — % 3,000 — % 3,000 — % Total amortized cost $ 3,749,814 100 % $ 2,997,032 100 % $ 4,338,671 100 % Fair value U.S.
During the third quarter of 2021, the Corporation redeemed all outstanding Series D Preferred Stock, for $99 million. 71 Table 23 Non-GAAP Measures At or for the Year Ended December 31, ($ in Thousands) 2022 2021 2020 2019 2018 Selected equity and performance ratios (a)(b)(c) Tangible common equity / tangible assets 6.97 % 7.86 % 7.94 % 7.71 % 7.04 % Return on average equity 9.21 % 8.60 % 7.78 % 8.44 % 9.03 % Return on average tangible common equity 13.77 % 12.99 % 12.31 % 13.53 % 14.33 % Return on average CET1 12.23 % 12.08 % 11.23 % 12.59 % 13.15 % Return on average tangible assets 1.05 % 1.07 % 0.95 % 1.05 % 1.07 % Average stockholders' equity / average assets 10.84 % 11.84 % 11.51 % 11.72 % 11.19 % Tangible common equity reconciliation (a) Common equity $ 3,821,378 $ 3,831,658 $ 3,737,421 $ 3,665,407 $ 3,524,171 Goodwill and other intangible assets, net (1,154,274) (1,163,085) (1,177,554) (1,264,531) (1,244,859) Tangible common equity $ 2,667,104 $ 2,668,573 $ 2,559,867 $ 2,400,876 $ 2,279,312 Tangible assets reconciliation (a) Total assets $ 39,405,727 $ 35,104,253 $ 33,419,783 $ 32,386,478 $ 33,615,122 Goodwill and other intangible assets, net (1,154,274) (1,163,085) (1,177,554) (1,264,531) (1,244,859) Tangible assets $ 38,251,453 $ 33,941,167 $ 32,242,230 $ 31,121,947 $ 32,370,263 Average tangible common equity and average CET1 reconciliation (a) Common equity $ 3,781,658 $ 3,789,331 $ 3,633,259 $ 3,615,153 $ 3,505,075 Goodwill and other intangible assets, net (1,158,829) (1,168,560) (1,227,561) (1,256,668) (1,209,311) Tangible common equity 2,622,829 2,620,771 2,405,698 2,358,485 2,295,764 Modified CECL transitional amount 67,276 102,307 115,052 N/A N/A Accumulated other comprehensive loss 174,208 1,234 2,643 68,946 117,408 Deferred tax assets, net 34,361 40,011 43,789 46,980 41,747 Average CET1 $ 2,898,675 $ 2,764,323 $ 2,567,182 $ 2,474,411 $ 2,454,919 Average tangible assets reconciliation (a) Total assets $ 36,657,932 $ 34,464,257 $ 34,265,207 $ 33,046,604 $ 33,007,859 Goodwill and other intangible assets, net (1,158,829) (1,168,560) (1,227,561) (1,256,668) (1,209,311) Tangible assets $ 35,499,103 $ 33,295,697 $ 33,037,646 $ 31,789,936 $ 31,798,548 Adjusted net income reconciliation (b) Net income $ 366,122 $ 350,994 $ 306,771 $ 326,790 $ 333,562 Other intangible amortization, net of tax 6,608 6,633 7,644 7,461 6,119 Adjusted net income $ 372,730 $ 357,627 $ 314,415 $ 334,251 $ 339,682 Adjusted net income available to common equity reconciliation (b) Net income available to common equity $ 354,622 $ 333,883 $ 288,413 $ 311,587 $ 322,779 Other intangible amortization, net of tax 6,608 6,633 7,644 7,461 6,119 Adjusted net income available to common equity $ 361,230 $ 340,516 $ 296,057 $ 319,049 $ 328,898 Efficiency ratio reconciliation (d) Federal Reserve efficiency ratio 60.36 % 66.33 % 61.76 % 65.38 % 66.23 % Fully tax-equivalent adjustment (0.92) % (1.04) % (0.77) % (0.85) % (0.71) % Other intangible amortization (0.71) % (0.84) % (0.80) % (0.82) % (0.66) % Fully tax-equivalent efficiency ratio 58.74 % 64.47 % 60.20 % 63.72 % 64.87 % Provision for unfunded commitments adjustment 0.08 % 0.74 % (0.55) % 0.20 % 0.20 % Asset gains, net adjustment 0.06 % 0.67 % 8.20 % 0.14 % — % Acquisitions, branch sales, and initiatives (0.14) % (0.53) % (5.08) % (0.60) % (2.42) % Adjusted efficiency ratio 58.75 % 65.36 % 62.76 % 63.47 % 62.65 % (a) Tangible common equity and tangible assets exclude goodwill and other intangible assets, net.
During the third quarter of 2021, the Corporation redeemed all outstanding Series D Preferred Stock, for $99 million. 77 Table 22 Non-GAAP Measures At or for the Year Ended December 31, ($ in thousands) 2023 2022 2021 2020 2019 Selected equity and performance ratios (a)(b)(c) Tangible common equity / tangible assets 7.11 % 6.97 % 7.86 % 7.94 % 7.71 % Return on average equity 4.45 % 9.21 % 8.60 % 7.78 % 8.44 % Return on average tangible common equity 6.44 % 13.77 % 12.99 % 12.31 % 13.53 % Return on average CET1 5.51 % 12.23 % 12.08 % 11.23 % 12.59 % Return on average tangible assets 0.48 % 1.05 % 1.07 % 0.95 % 1.05 % Average stockholders' equity / average assets 10.11 % 10.84 % 11.84 % 11.51 % 11.72 % Tangible common equity reconciliation (a) Common equity $ 3,979,861 $ 3,821,378 $ 3,831,658 $ 3,737,421 $ 3,665,407 Goodwill and other intangible assets, net (1,145,464) (1,154,274) (1,163,085) (1,177,554) (1,264,531) Tangible common equity $ 2,834,398 $ 2,667,104 $ 2,668,573 $ 2,559,867 $ 2,400,876 Tangible assets reconciliation (a) Total assets $ 41,015,855 $ 39,405,727 $ 35,104,253 $ 33,419,783 $ 32,386,478 Goodwill and other intangible assets, net (1,145,464) (1,154,274) (1,163,085) (1,177,554) (1,264,531) Tangible assets $ 39,870,392 $ 38,251,453 $ 33,941,167 $ 32,242,230 $ 31,121,947 Average tangible common equity and average CET1 reconciliation (a) Common equity $ 3,917,026 $ 3,781,658 $ 3,789,331 $ 3,633,259 $ 3,615,153 Goodwill and other intangible assets, net (1,149,939) (1,158,829) (1,168,560) (1,227,561) (1,256,668) Tangible common equity 2,767,087 2,622,829 2,620,771 2,405,698 2,358,485 Modified CECL transitional amount 44,851 67,276 102,307 115,052 N/A Accumulated other comprehensive loss 274,874 174,208 1,234 2,643 68,946 Deferred tax assets, net 27,532 34,361 40,011 43,789 46,980 Average CET1 $ 3,114,344 $ 2,898,675 $ 2,764,323 $ 2,567,182 $ 2,474,411 Average tangible assets reconciliation (a) Total assets $ 40,648,923 $ 36,657,932 $ 34,464,257 $ 34,265,207 $ 33,046,604 Goodwill and other intangible assets, net (1,149,939) (1,158,829) (1,168,560) (1,227,561) (1,256,668) Tangible assets $ 39,498,984 $ 35,499,103 $ 33,295,697 $ 33,037,646 $ 31,789,936 Adjusted net income reconciliation (b) Net income $ 182,956 $ 366,122 $ 350,994 $ 306,771 $ 326,790 Other intangible amortization, net of tax 6,608 6,608 6,633 7,644 7,461 Adjusted net income $ 189,564 $ 372,730 $ 357,627 $ 314,415 $ 334,251 Adjusted net income available to common equity reconciliation (b) Net income available to common equity $ 171,456 $ 354,622 $ 333,883 $ 288,413 $ 311,587 Other intangible amortization, net of tax 6,608 6,608 6,633 7,644 7,461 Adjusted net income available to common equity $ 178,064 $ 361,230 $ 340,516 $ 296,057 $ 319,049 End of period core customer deposits reconciliation Total deposits $ 33,446,049 $ 29,636,154 $ 28,466,430 $ 26,482,481 $ 23,779,064 Network transaction deposits (1,566,139) (979,003) (766,965) (1,197,093) (1,336,286) Brokered CDs (4,447,479) (541,916) — — (5,964) Core customer deposits $ 27,432,431 $ 28,115,235 $ 27,699,464 $ 25,285,387 $ 22,436,814 Efficiency ratio reconciliation (d) Federal Reserve efficiency ratio 69.70 % 60.36 % 66.33 % 61.76 % 65.38 % Fully tax-equivalent adjustment (1.13) % (0.92) % (1.04) % (0.77) % (0.85) % Other intangible amortization (0.76) % (0.71) % (0.84) % (0.80) % (0.82) % Fully tax-equivalent efficiency ratio 67.82 % 58.74 % 64.47 % 60.20 % 63.72 % FDIC special assessment (2.32) % — % — % — % — % Acquisitions, dispositions, branch sales, and announced initiatives (7.02) % (0.10) % (0.51) % 4.49 % (0.60) % Adjusted efficiency ratio 58.48 % 58.65 % 63.96 % 64.70 % 63.12 % (a) Tangible common equity and tangible assets exclude goodwill and other intangible assets, net.
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.
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. 74 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.
For 2023, the Corporation expects net interest income growth of 15% to 17%. • Provision for credit losses was $33 million in 2022, compared to a release of $88 million in 2021.
For 2024, the Corporation expects net interest income growth of 2% to 4%. • Provision for credit losses was $83 million in 2023, compared to $33 million in 2022.
See section Other Funding Sources and Note 9 Short and Long-Term Funding of the notes to consolidated financial statements for additional details on funding.
See Note 9 Short and Long-Term Funding of the notes to consolidated financial statements for additional information on short-term and long-term funding. See Table 1 for additional information on average funding and rates.
The sensitivity of MVE to changes in the level of interest rates is a measure of the longer-term re-pricing risk and options risk embedded in the balance sheet. Unlike the NII simulation, MVE uses instantaneous changes in rates.
The sensitivity of MVE to changes in the level of interest rates is a measure of the longer-term re-pricing risk and options risk embedded in the balance sheet. Unlike the EAR simulation, MVE uses instantaneous changes in rates. Additionally, MVE values only the current balance sheet and does not incorporate the growth assumptions that are used in the EAR simulation.
GSE or other federally related entity, and have an implied guarantee from the U.S. government. FFELP Asset Backed Securities: FFELP asset backed securities are collateralized with government guaranteed student loans. SBA Asset Backed Securities: SBA asset backed securities are securities whose underlying assets are loans from the SBA. These loans are backed by the U.S. government.
FFELP Asset Backed Securities: FFELP asset backed securities are collateralized with government guaranteed student loans. SBA Asset Backed Securities: SBA asset backed securities are securities whose underlying assets are loans from the SBA. These loans are backed by the U.S. government.
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 ERC.
The targeted long-term guidelines were unchanged during 2023 and 2022. 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 ERC. These guidelines and limits are designed to create balance and diversification within the loan portfolios.
For 2023, the Corporation expects noninterest expense growth of 4% to 6%. 45 Income Statement Analysis Net Interest Income Table 1 Net Interest Income Analysis Years Ended December 31, 2022 2021 2020 ($ in Thousands) Average Balance Interest Income / Expense Average Yield / Rate Average Balance Interest Income / Expense Average Yield / Rate Average Balance Interest Income / Expense Average Yield / Rate Assets Earning assets Loans (a)(b)(c) Asset-based lending & equipment finance (d) $ 297,308 $ 13,559 4.56 % $ 120,903 $ 3,704 3.06 % $ 177,710 $ 6,039 3.40 % Commercial and business lending (excl ABL and equipment finance) 9,554,995 370,597 3.88 % 8,983,580 246,381 2.73 % 9,232,444 274,566 2.97 % Commercial real estate lending 6,595,635 281,485 4.27 % 6,156,214 178,354 2.90 % 5,811,498 192,545 3.31 % Total commercial 16,447,938 665,640 4.05 % 15,260,697 428,439 2.81 % 15,221,651 473,150 3.11 % Residential mortgage 8,052,277 245,975 3.05 % 7,847,564 221,099 2.82 % 8,190,190 254,814 3.11 % Auto finance 805,179 30,749 3.82 % 19,815 871 4.39 % 13,585 573 4.22 % Other retail 894,948 52,266 5.84 % 929,905 44,852 4.82 % 1,112,221 58,082 5.22 % Total loans 26,200,341 994,630 3.80 % 24,057,980 695,260 2.89 % 24,537,648 786,619 3.21 % Investment securities Taxable 4,362,394 75,444 1.73 % 3,369,612 37,916 1.13 % 3,282,274 59,806 1.82 % Tax-exempt (a) 2,419,262 82,771 3.42 % 2,036,030 73,975 3.63 % 1,930,853 72,901 3.78 % Other short-term investments 570,887 11,475 2.01 % 1,644,995 7,833 0.48 % 1,067,788 9,473 0.89 % Investments and other 7,352,542 169,690 2.31 % 7,050,637 119,724 1.70 % 6,280,915 142,179 2.26 % Total earning assets $ 33,552,884 $ 1,164,320 3.47 % $ 31,108,616 $ 814,984 2.62 % $ 30,818,563 $ 928,799 3.01 % Other assets, net 3,105,049 3,355,640 3,446,644 Total assets $ 36,657,932 $ 34,464,257 $ 34,265,207 Liabilities and stockholders' equity Interest-bearing liabilities Interest-bearing deposits Savings $ 4,652,774 $ 5,033 0.11 % $ 4,138,732 $ 1,435 0.03 % $ 3,306,385 $ 2,966 0.09 % Interest-bearing demand 6,638,592 35,169 0.53 % 6,113,660 4,610 0.08 % 5,583,144 12,496 0.22 % Money market 7,164,518 36,370 0.51 % 6,940,513 4,028 0.06 % 6,509,924 15,273 0.23 % Network transaction deposits 821,804 14,721 1.79 % 929,544 1,120 0.12 % 1,442,951 6,219 0.43 % Time deposits 1,315,793 7,016 0.53 % 1,495,060 7,429 0.50 % 2,281,040 30,685 1.35 % Total interest-bearing deposits 20,593,482 98,309 0.48 % 19,617,508 18,622 0.09 % 19,123,444 67,639 0.35 % Federal funds purchased and securities sold under agreements to repurchase 388,701 3,480 0.90 % 207,132 143 0.07 % 175,713 485 0.28 % Commercial paper 20,540 2 0.01 % 49,546 22 0.04 % 38,583 41 0.11 % PPPLF — — — % — — — % 565,371 1,984 0.35 % Other short-term funding — — — % — — — % 4,226 11 0.25 % FHLB advances 2,784,403 75,487 2.71 % 1,623,508 36,493 2.25 % 2,535,731 57,359 2.26 % Long-term funding 249,478 10,653 4.27 % 407,912 17,053 4.18 % 549,143 22,365 4.07 % Total short and long-term funding 3,443,123 89,621 2.60 % 2,288,098 53,712 2.35 % 3,868,767 82,245 2.13 % Total interest-bearing liabilities $ 24,036,605 $ 187,931 0.78 % $ 21,905,605 $ 72,334 0.33 % $ 22,992,211 $ 149,883 0.65 % Noninterest-bearing demand deposits 8,163,703 8,075,906 6,884,241 Other liabilities 482,538 403,296 444,183 Stockholders’ equity 3,975,086 4,079,449 3,944,572 Total liabilities and stockholders’ equity $ 36,657,932 $ 34,464,257 $ 34,265,207 Interest rate spread 2.69 % 2.29 % 2.36 % Net free funds 0.22 % 0.10 % 0.17 % Fully tax-equivalent net interest income and net interest margin $ 976,389 2.91 % $ 742,650 2.39 % $ 778,915 2.53 % Fully tax-equivalent adjustment 19,068 16,796 15,959 Net interest income $ 957,321 $ 725,855 $ 762,957 (a) The yield on tax-exempt loans and securities is computed on a fully tax-equivalent basis using a tax rate of 21% and is net of the effects of certain disallowed interest deductions.
For 2024, the Corporation expects noninterest expense growth of 2% to 3%. 50 Income Statement Analysis Net Interest Income Table 1 Net Interest Income Analysis Years Ended December 31, 2023 2022 2021 ($ in thousands) Average Balance Interest Income / Expense Average Yield / Rate Average Balance Interest Income / Expense Average Yield / Rate Average Balance Interest Income / Expense Average Yield / Rate Assets Earning assets Loans (a)(b)(c) Commercial and business lending $ 10,831,275 $ 740,017 6.83 % $ 9,852,303 $ 384,155 3.90 % $ 9,104,483 $ 250,085 2.75 % Commercial real estate lending 7,314,651 520,028 7.11 % 6,595,635 281,485 4.27 % 6,156,214 178,354 2.90 % Total commercial 18,145,926 1,260,045 6.94 % 16,447,938 665,640 4.05 % 15,260,697 428,439 2.81 % Residential mortgage 8,696,706 293,446 3.37 % 8,052,277 245,975 3.05 % 7,847,564 221,099 2.82 % Auto finance 1,793,959 89,454 4.99 % 805,179 30,749 3.82 % 19,815 871 4.39 % Other retail 897,702 80,189 8.93 % 894,948 52,266 5.84 % 929,905 44,852 4.82 % Total loans 29,534,293 1,723,134 5.83 % 26,200,341 994,630 3.80 % 24,057,980 695,260 2.89 % Investment securities Taxable 5,243,805 146,006 2.78 % 4,362,394 75,444 1.73 % 3,369,612 37,916 1.13 % Tax-exempt (a) 2,288,328 79,673 3.48 % 2,419,262 82,771 3.42 % 2,036,030 73,975 3.63 % Other short-term investments 564,284 28,408 5.03 % 570,887 11,475 2.01 % 1,644,995 7,833 0.48 % Investments and other 8,096,417 254,087 3.14 % 7,352,542 169,690 2.31 % 7,050,637 119,724 1.70 % Total earning assets $ 37,630,710 $ 1,977,221 5.25 % $ 33,552,884 $ 1,164,320 3.47 % $ 31,108,616 $ 814,984 2.62 % Other assets, net 3,018,214 3,105,049 3,355,640 Total assets $ 40,648,923 $ 36,657,932 $ 34,464,257 Liabilities and stockholders' equity Interest-bearing liabilities Interest-bearing deposits Savings $ 4,773,366 $ 63,945 1.34 % $ 4,652,774 $ 5,033 0.11 % $ 4,138,732 $ 1,435 0.03 % Interest-bearing demand 6,904,514 154,136 2.23 % 6,638,592 35,169 0.53 % 6,113,660 4,610 0.08 % Money market 6,668,930 177,311 2.66 % 7,164,518 36,370 0.51 % 6,940,513 4,028 0.06 % Network transaction deposits 1,469,616 75,294 5.12 % 821,804 14,721 1.79 % 929,544 1,120 0.12 % Time deposits 4,905,748 202,939 4.14 % 1,315,793 7,016 0.53 % 1,495,060 7,429 0.50 % Total interest-bearing deposits 24,722,174 673,624 2.72 % 20,593,482 98,309 0.48 % 19,617,508 18,622 0.09 % Federal funds purchased and securities sold under agreements to repurchase 345,519 12,238 3.54 % 388,701 3,480 0.90 % 207,132 143 0.07 % Commercial paper 8,582 1 0.01 % 20,540 2 0.01 % 49,546 22 0.04 % FHLB advances 3,741,790 196,535 5.25 % 2,784,403 75,487 2.71 % 1,623,508 36,493 2.25 % Long-term funding 504,438 36,080 7.15 % 249,478 10,653 4.27 % 407,912 17,053 4.18 % Total short and long-term funding 4,600,329 244,855 5.32 % 3,443,123 89,621 2.60 % 2,288,098 53,712 2.35 % Total interest-bearing liabilities $ 29,322,503 $ 918,479 3.13 % $ 24,036,605 $ 187,931 0.78 % $ 21,905,605 $ 72,334 0.33 % Noninterest-bearing demand deposits 6,620,965 8,163,703 8,075,906 Other liabilities 594,318 482,538 403,296 Stockholders’ equity 4,111,138 3,975,086 4,079,449 Total liabilities and stockholders’ equity $ 40,648,923 $ 36,657,932 $ 34,464,257 Interest rate spread 2.12 % 2.69 % 2.29 % Net free funds 0.69 % 0.22 % 0.10 % Fully tax-equivalent net interest income and net interest margin $ 1,058,742 2.81 % $ 976,389 2.91 % $ 742,650 2.39 % Fully tax-equivalent adjustment 19,168 19,068 16,796 Net interest income $ 1,039,573 $ 957,321 $ 725,855 (a) The yield on tax-exempt loans and securities is computed on a fully tax-equivalent basis using a tax rate of 21% and is net of the effects of certain disallowed interest deductions.
Table 20 Market Value of Equity Sensitivity December 31, 2022 December 31, 2021 Instantaneous Rate Change 100 bp increase in interest rates (4.2) % (1.8) % 200 bp increase in interest rates (8.2) % (3.7) % 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). 69 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.
Table 19 Market Value of Equity Sensitivity December 31, 2023 December 31, 2022 Instantaneous Rate Change 100 bp increase in interest rates (10.1) % (4.2) % 200 bp increase in interest rates (20.1) % (8.2) % 100 bp decrease in interest rates 9.7 % 4.3 % 200 bp decrease in interest rates 18.5 % 8.0 % 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).

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeITEM 7A. Quantitative and Qualitative Disclosures About Market Risk Information required by this item is set forth in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, under the captions Quantitative and Qualitative Disclosures about Market Risk and Interest Rate Risk. 76
Biggest changeITEM 7A. Quantitative and Qualitative Disclosures About Market Risk Information required by this item is set forth in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, under the captions Quantitative and Qualitative Disclosures about Market Risk and Interest Rate Risk. 82

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