Associated Banc-Corp 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. Associated Banc-Corp is a Wisconsin bank holding company operating primarily in Wisconsin, Illinois, and Minnesota through Associated Bank and related businesses.
Financial performance and position
| Metric | 2021 | 2020 |
|---|---|---|
| Total revenue | $1.058 billion | $1.277 billion |
| Net interest income | $726 million | $763 million |
| Net interest margin, fully tax-equivalent | 2.39% | 2.53% |
| Net income | $351 million | $307 million |
| Net income available to common shareholders | $334 million | $288 million |
| Diluted earnings per common share | $2.18 | $1.86 |
| Provision for credit losses | $88 million release | $174 million provision |
| Noninterest income | $332 million | $514 million |
| Noninterest expense | $710 million | $776 million |
- Balance sheet at year-end: Assets were $35.1 billion, loans $24.2 billion, deposits $28.5 billion, and total short- and long-term funding $2.2 billion. Deposits rose 7% year over year; loans declined 1%.
- Cash flow: Operating activities provided $530 million; investing activities used $1.584 billion; financing activities provided $1.364 billion. Cash and cash equivalents increased $309 million to $1.026 billion.
- Liquidity and funding: Management reported compliance with internal liquidity objectives and sufficient liquidity under stressed scenarios. The Bank had $3.8 billion available through FHLB collateral capacity and $761 million available for Federal Reserve discount-window borrowing. Uninsured deposits were $14.6 billion.
- Capital: The Corporation’s CET1 ratio was 10.31%, versus 10.45% in 2020; the Bank’s CET1 ratio was 10.75%. The Bank remained well capitalized. Stockholders’ equity was $4.0 billion.
- Asset quality: Nonaccrual loans were $130 million, or 0.54% of loans, down from $211 million, or 0.86%, in 2020. Nonperforming assets were $160 million, down from $225 million. The allowance for credit losses on loans was $320 million, or 1.32% of loans, versus $431 million, or 1.76%, a year earlier.
Changes versus 2020
- Net income available to common shareholders increased 16%, despite lower total revenue. The improvement reflected the credit-loss provision release and lower expenses, partly offset by lower net interest income.
- Net interest income fell 5% and margin declined 14 basis points, primarily due to low interest rates and elevated liquidity. Average loans fell 2%, while average deposits rose 6% and included growth in lower-cost balances.
- Noninterest income fell 35%. The main comparison item was the $163 million gain on the 2020 sale of Associated Benefits and Risk Consulting (ABRC); 2021 insurance commissions also declined following that divestiture. Noninterest expense fell 9%, including because 2020 included a $45 million loss on prepaid FHLB advances.
- Credit quality improved, with lower nonaccrual loans and net charge-offs. The allowance release reflected improved credit quality and a more favorable economic forecast; management cautioned that future provisions will depend on risk grades, economic conditions, loan volumes, and other credit indicators.
- Associated redeemed its Series C and Series D preferred stock for a combined $164 million and redeemed $300 million of Bank senior notes. It repurchased $133 million of common stock in open-market purchases during 2021.
Outlook, commentary, and risks
- 2022 outlook: Management expected net interest income above $800 million, noninterest income above $300 million, and noninterest expense of approximately $725 million to $740 million. It expected auto-finance loan growth above $1.2 billion and commercial loan growth, including asset-based lending and equipment finance, of $750 million to $1.0 billion. No numeric provision forecast was provided.
- Interest-rate exposure: Management described the balance sheet as asset-sensitive in its 12-month earnings analysis, while its longer-term market-value-of-equity analysis showed estimated declines of 1.8% for an instantaneous 100-basis-point rate increase and 3.7% for a 200-basis-point increase. The securities portfolio had an estimated duration of about 5.4 years; the filing estimated a $366 million market-value decrease for a 100-basis-point rate increase.
- Credit concentrations: Commercial loans were 64% of total loans; CRE and construction lending totaled about $7.2 billion, or 30% of loans. The company identified $1.4 billion of loans to selected industries potentially exposed to pandemic-related pressures, including retail and shopping centers, hotels, and restaurants.
- Other risks and contingencies: The filing highlights COVID-19 and economic uncertainty, inflation and interest-rate changes, CRE and borrower credit risks, cybersecurity and third-party operational risks, regulatory and consumer-compliance scrutiny, and the transition away from LIBOR. Overdraft transaction fees were approximately $22 million in 2021 and may face increased regulatory scrutiny.
- Unusual matters: A putative class action alleges fiduciary-duty breaches involving the company’s 401(k) plan; management could not assess the likelihood of a material adverse outcome or estimate potential loss. The company also disclosed inadvertent purging of certain documents associated with active accounts; impact was described as immaterial to date, but potential loss could not be estimated. No material cybersecurity incident was identified in 2021.
- Subsequent developments: Effective January 1, 2022, the company elected fair-value accounting for mortgage servicing rights, with a $2 million cumulative-effect increase to retained earnings. The CFO announced plans to retire later in 2022; a successor search was underway.
Important facts for investors to verify
- Whether the 2022 loan-growth and net-interest-income outlook is achieved, and how rate changes affect margin, securities values, and mortgage servicing rights.
- Whether the credit-loss release is sustainable; monitor CRE, commercial borrower exposures, potential problem loans, charge-offs, and allowance adequacy.
- Deposit stability and funding costs, including the scale of uninsured deposits and access to wholesale liquidity.
- Developments in the 401(k) litigation, consumer-product and overdraft scrutiny, and the purged-document matter, for which loss estimates were not available.
- The effect of the MSR accounting-method change, the CFO transition, and continued capital returns through dividends and repurchases.