GREEN BAY, Wis. -- January 21, 2021 -- Associated Banc-Corp (NYSE: ASB) ("Associated" or "Company") today reported net income available to common equity ("earnings") of $62 million, or $0.40 per common share, for the quarter ended December 31, 2020. These amounts compare to earnings of $40 million, or $0.26 per common share for the quarter ended September 30, 2020. For the year ended December 31, 2020, the Company reported earnings of $288 million, or $1.86 per common share; or $1.19 per common share excluding the gain on sale of Associated Benefits and Risk Consulting¹.  These amounts compare to earnings of $312 million, or $1.91 per common share, for the year ended December 31, 2019.

 

“In the face of an extraordinarily challenging environment,” said President and CEO Philip B. Flynn, “We reimagined and reengineered the way we service our customers while driving higher engagement and satisfaction; we grew loans, customer deposits, and capital to record levels; and we adopted our service models while also streamlining our branch network and back office functions.  Our strategies to grow low-cost deposits and widen commercial loan margins took hold in the fourth quarter. In addition, we exited several lower-margin businesses and geographies. Our agility and approach have positioned us well to participate in the economic recovery we expect to see in 2021.”

 

The Company also announced today that Mr. Flynn has informed its Board of Directors of his plans to retire at the end of 2021. The Board has commenced a search for a permanent successor which will consider our internal as well as external candidates. Mr. Flynn will continue as president and CEO until a successor is in place, at which time he will step down from both roles and from the board of directors. Mr. Flynn will then be available to the new CEO in an advisory capacity. Additional details can be found in the press release available at http://investor.associatedbank.com.

 

2020 SUMMARY (all comparisons to 2019)

• Average loans of $24.5 billion were up 6%, or $1.4 billion
• Average deposits of $26.0 billion were up 5%, or $1.3 billion
• Net interest income of $763 million decreased 9%, or  $73 million
• Net interest margin of 2.53%, declined 33 basis points from 2.86%
• Provision for credit losses was $174 million, compared to $16 million
• Noninterest income of $514 million increased 35%, or $133 million
• Noninterest expense of $776 million decreased 2%, or $18 million
• Tangible book value per share was $16.67, up 9% from $15.28

 

¹This is a non-GAAP financial measure. Management believes these measures are meaningful because they reflect adjustments commonly made by management, investors, regulators, and analysts to evaluate the adequacy of earnings per common share, provide greater understanding of ongoing operations and enhance comparability of results with prior periods.  See pages 10 and 11 of the attached tables for a reconciliation of non-GAAP financial measures to GAAP financial measures.

 

Loans

Full year 2020 average loans of $24.5 billion were up 6%, or $1.4 billion from 2019, driven by Paycheck Protection Program (PPP) and commercial real estate lending. With respect to full year 2020 average balances by loan category compared to 2019:

• Commercial and business lending increased $983 million, or 12%, to $9.4 billion, primarily due to growth in PPP.
• Commercial real estate lending increased $661 million, or 13%, to $5.8 billion, driven primarily by the funding of existing loan commitments throughout the year.
• Consumer lending decreased $230 million, or 2%, to $9.3 billion as residential mortgages refinanced and home equity loans paid down.

 

Fourth quarter 2020 average loans of $24.7 billion were down 1%, or $281 million from the third quarter 2020 and were up 8%, or $1.9 billion from the same period last year.  With respect to fourth quarter average balances by loan category:

• Commercial real estate lending increased $125 million from the third quarter 2020 and $963 million from the same period last year to $6.2 billion. 
• Consumer lending was $9.1 billion, down $79 million from the third quarter 2020 and down $300 million from the same period last year. 
• Commercial and business lending decreased $327 million from third quarter 2020, driven by PPP forgiveness, and increased $1.2 billion compared to the same period last year to $9.4 billion. 

 

We expect full-year commercial loan growth of 2%-4% in 2021, driven by a 4%-6% increase in CRE balances and a 1%-2% increase in C&I outstandings, excluding PPP.

 

Deposits

Full year 2020 average deposits of $26.0 billion increased 5%, or $1.3 billion from 2019.

With respect to full year 2020 average balances by deposit category as compared to 2019:

• Noninterest-bearing demand deposits increased $1.7 billion, or 32% to $6.9 billion.
• Savings increased $867 million, or 36% to $3.3 billion.
• Interest-bearing demand deposits increased $502 million, or 10% to $5.6 billion.
• Network transaction deposits decreased $418 million, or 22% to $1.4 billion.
• Money market deposits decreased $495 million, or 7% to $6.5 billion.
• Time deposits decreased $848 million, or 27% to $2.3 billion.

 

Fourth quarter 2020 average deposits of $26.7 billion were down $101 million compared to the third quarter 2020 and were up $2.6 billion, or 11%, from the same period last year. 

With respect to fourth quarter 2020 average balances by deposit category:

• Noninterest-bearing demand deposits increased $265 million from the prior quarter and $2.2 billion from the same period last year to $7.7 billion.
• Savings increased $166 million from the prior quarter and $914 million from the same period last year to $3.6 billion.
• Interest-bearing demand deposits decreased $96 million from the prior quarter and increased $602 million from the same period last year to $5.7 billion.
• Money market deposits increased $75 million from the prior quarter and decreased $55 million from the same period last year to $6.5 billion.
• Time deposits decreased $248 million from the prior quarter and $859 million from the same period last year to $1.9 billion.
• Network transaction deposits decreased $262 million from the prior quarter and $173 million from the same period last year to $1.3 billion.

 

Net Interest Income and Net Interest Margin

Full year 2020 net interest income of $763 million was down 9%, or $73 million from 2019. Net interest margin of

2.53% was down 33 basis points from the prior year. The decreases in net interest income and margin were driven

by record low levels of interest rates and significant increases in liquidity during 2020.

• The average yield on total earning assets decreased 98 basis points from the prior year to 3.01%
• The average cost of interest-bearing liabilities decreased 78 basis points from the prior year to 0.65%.
• The net free funds benefit compressed 13 basis points from the prior year.

 

Fourth quarter 2020 net interest income of $188 million was up 3%, or $6 million from the prior quarter and the net interest margin increased 18 basis points, from the prior quarter to 2.49%.  Compared to the same period last year, net interest income decreased 6%, or $12 million, and the net interest margin decreased 34 basis points.

• The average yield on total earning assets for the fourth quarter of 2020 increased 10 basis points from the prior quarter and decreased 98 basis points from the same period last year to 2.80%.
• The average cost of total interest-bearing liabilities for the fourth quarter of 2020 decreased 9 basis points from the prior quarter and decreased 80 basis points from the same period last year to 0.43%.
• The net free funds benefit for the fourth quarter of 2020 compressed one basis point from the prior quarter and compressed 16 basis points compared to the same period last year.

 

        We would expect the full year’s margin to be between 2.55% and 2.65% in 2021.

 

Noninterest Income

Full year 2020 noninterest income of $514 million increased $133 million from the prior year.

• Net mortgage banking income increased $14 million from the prior year, driven by higher refinance activity.
• Gains on sales of assets increased $153 million from the prior year, due to the sale of Associated Benefits and Risk Consulting (ABRC).  The sale of ABRC also drove the reduction in insurance revenue.
• Service charges and deposit account fees were down $7 million primarily driven by higher deposit account balances and reduced customer activity.

 

Fourth quarter 2020 total noninterest income of $86 million increased $10 million from the prior quarter and decreased $7 million from the same period last year.

With respect to fourth quarter 2020 noninterest income line items:

• Gains on previously disclosed sale of branches were $7 million.
• Mortgage Banking, net was $15 million for the fourth quarter, up $2 million from the previous quarter and up $8 million from the same period last year.
• Service charges and deposit account fees were $15 million for the fourth quarter, up $1 million from the previous quarter and down $1 million from the same period last year. 

 

We expect noninterest income of $280 million to $300 million in 2021.

 

Noninterest Expense

Full year 2020 noninterest expense of $776 million decreased 2%, or $18 million from the prior year. Included in

noninterest expense figures is the loss on prepayments of FHLB advances of $45 million in 2020.

With respect to full year 2020 noninterest expense line items:

• Personnel costs decreased $55 million from the prior year, largely driven by reduced management incentive plan expense.
• Business development and advertising decreased $11 million from the prior year as there was less travel and entertainment expense.
• Acquisition costs decreased $5 million from the prior year due to less acquisition activity.

 

Fourth quarter 2020 total noninterest expense of $173 million decreased $55 million from the prior quarter and decreased $31 million compared to the same period last year. 

With respect to fourth quarter 2020 noninterest expense line items:

• Loss on prepayments of FHLB advances stepped down $45 million from the prior quarter.
• Personnel expense decreased $11 million from the prior quarter and $23 million from the same period last year, primarily driven by lower severance costs related to the restructuring in 3Q 2020 and the sale of ABRC.          
• Other expense decreased $3 million from the prior quarter and $1 million from the same period last year.
• Occupancy expense decreased $2 million from the prior quarter and $1 million from the same period last year.  

      We expect 2021 noninterest expense to be approximately $675 million.

 

Taxes

The fourth quarter 2020 tax expense was $17 million compared to $58 million of tax benefit in the prior quarter and  $17 million of tax expense in the same period last year.  The tax benefit recognized in the third quarter was driven by capital losses from the reorganization of our securities and real estate lending subsidiaries.

We expect the annual 2021 tax rate to be between 18% to 21%.

 

Credit

Full year 2020 provision for credit losses was $174 million, up from $16 million in the prior year.

The fourth quarter 2020 provision for credit losses was $17 million, down from $43 million in the prior quarter and up from zero in the same period last year.

With respect to fourth quarter 2020 credit quality:

• Potential problem loans of $282 million were down $11 million, or 4%, from the prior quarter and up $121 million, or 75%, from the same period last year. 
• Nonaccrual loans of $211 million were down $21 million from the prior quarter and up $92 million from the same period last year.  The nonaccrual loans to total loans ratio was 0.86% in the fourth quarter, down from 0.93% in the prior quarter and up from 0.52% in the same period last year. 
• Net charge offs of $28 million were down $2 million from the prior quarter and up $13 million from the same period last year.
• The allowance for credit losses on loans (ACLL) of $431 million was down $11 million from the prior quarter and up $208 million compared to the same period last year. The ACLL to total loans ratio was 1.76% in the fourth quarter, down from 1.77% in the prior quarter and up from 0.98% in the same period last year.

We expect our full year 2021 provision to be no more than $70 million, with some quarterly variability.   

 

Capital

The Company’s capital position remains strong, with a CET1 capital ratio of 10.4% at December 31, 2020.  The Company’s capital ratios continue to be in excess of the Basel III “well-capitalized” regulatory benchmarks on a fully phased in basis.

 

FOURTH QUARTER 2020 EARNINGS RELEASE CONFERENCE CALL

The Company will host a conference call for investors and analysts at 4:00 p.m. Central Time (CT) today, January 21, 2021.  Interested parties can access the live webcast of the call through the Investor Relations section of the Company's website, http://investor.associatedbank.com. Parties may also dial into the call at 877-407-8037 (domestic) or 201-689-8037 (international) and request the Associated Banc-Corp fourth quarter 2020 earnings call. The fourth quarter 2020 financial tables with an accompanying slide presentation will be available on the Company's website just prior to the call. An audio archive of the webcast will be available on the Company's website approximately fifteen minutes after the call is over.

 

ABOUT ASSOCIATED BANC-CORP

Associated Banc-Corp (NYSE: ASB) has total assets of $33 billion and is one of the top 50 publicly traded U.S. bank holding companies. Headquartered in Green Bay, Wisconsin, Associated is a leading Midwest banking franchise, offering a full range of financial products and services from more than 220 banking locations serving more than 120 communities throughout Wisconsin, Illinois and Minnesota, and commercial financial services in Indiana, Michigan, Missouri, Ohio and Texas. Associated Bank, N.A. is an Equal Housing Lender, Equal Opportunity Lender and Member FDIC. More information about Associated Banc-Corp is available at www.associatedbank.com.

FORWARD-LOOKING STATEMENTS

Statements made in this document which are not purely historical are forward-looking statements, as defined in the Private Securities Litigation Reform Act of 1995. This includes any statements regarding management’s plans, objectives, or goals for future operations, products or services, and forecasts of its revenues, earnings, or other measures of performance.  Such forward-looking statements may be identified by the use of words such as “believe,” “expect,” “anticipate,” “plan,” “estimate,” “should,” “will,” “intend,” "target," “outlook,” or similar expressions.  Forward-looking statements are based on current management expectations and, by their nature, are subject to risks and uncertainties. Actual results may differ materially from those contained in the forward-looking statements.  Factors which may cause actual results to differ materially from those contained in such forward-looking statements include those identified in the Company’s most recent Form 10-K and subsequent SEC filings.  Such factors are incorporated herein by reference. 

 

NON-GAAP FINANCIAL MEASURES

This press release and related materials may contain references to measures which are not defined in generally accepted accounting principles (“GAAP”). Information concerning these non-GAAP financial measures can be found in the financial tables.  Management believes these measures are meaningful because they reflect adjustments commonly made by management, investors, regulators, and analysts to evaluate the adequacy of earnings per common share, provide a greater understanding of ongoing operations and enhance comparability of results with prior periods.

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