Associated Banc-Corp — Q1 2024 Form 10-Q
Business context and reporting period. Associated Banc-Corp is a Wisconsin-based bank holding company. This unaudited quarterly filing covers the three months ended March 31, 2024; year-over-year comparisons are with Q1 2023 unless stated otherwise. Balance-sheet comparisons are generally with December 31, 2023.
Financial performance and position
| Metric | Q1 2024 / March 31, 2024 | Comparison |
|---|---|---|
| Total revenue | $322.8 million | Down 4% from $336.1 million in Q1 2023 |
| Net interest income | $257.9 million; net interest margin 2.79% | Down 6% from $274.0 million; margin down from 3.07% |
| Net income | $81.2 million; diluted EPS $0.52 | Down from $103.4 million and $0.66 diluted EPS |
| Net income available to common equity | $78.3 million | Down from $100.5 million |
| Provision for credit losses | $24.0 million | Up from $18.0 million |
| Noninterest income | $65.0 million | Up 5% from $62.1 million |
| Noninterest expense | $197.7 million | Up 5% from $187.4 million; includes higher FDIC assessment expense |
| Total assets | $41.1 billion | Up $121 million from year-end 2023 |
| Total loans | $29.5 billion | Up $278 million from year-end 2023 |
| Total deposits | $33.7 billion | Up $267 million from year-end 2023; up 11% year over year |
| Cash and cash equivalents | $851.6 million | Down $72.2 million from year-end 2023 |
| Allowance for credit losses on loans | $387.8 million, or 1.31% of loans | $385.9 million, or 1.32%, at year-end 2023 |
| Regulatory capital | CET1 9.43%; total capital 12.08% | Both above regulatory minimums, according to the filing |
- Cash flow: Operating activities provided $154.5 million; investing activities used $275.3 million; financing activities provided $48.6 million. Cash and cash equivalents fell $72.2 million during the quarter.
- Funding and liquidity: Short-term funding was $765.7 million, including $500 million of Bank Term Funding Program funding. FHLB advances were $1.33 billion, down from $1.94 billion at year-end. The company reported $12.0 billion of total available liquidity and $8.9 billion available within one business day; the latter equaled 115% coverage of estimated uninsured and uncollateralized deposits.
- Profitability: Return on average assets was 0.80%. The fully tax-equivalent efficiency ratio was 59.63%, compared with 54.64% a year earlier.
Material changes and notable items
- Interest expense rose substantially year over year, especially on deposits. The average cost of interest-bearing liabilities increased faster than the yield on earning assets, reducing net interest income and margin.
- Average loans increased 2% year over year, led by auto finance and real estate construction; average deposits rose 11%, with growth primarily in brokered CDs and other time deposits. Noninterest-bearing demand deposits declined.
- Noninterest income included a $4 million gain from selling the remaining Visa Class B shares. Wealth management fees also increased.
- FDIC assessment expense rose to $13.9 million from $6.9 million, primarily reflecting the FDIC special assessment related to losses associated with Silicon Valley Bank and Signature Bank.
- The prior-year comparison excludes the unusual Q4 2023 balance-sheet repositioning, which contributed to a $90.8 million net loss that quarter. Q1 2024 results rebounded sequentially in part because those repositioning effects did not recur.
- Other comprehensive loss was $38.8 million in Q1, including losses on available-for-sale securities and cash flow hedges. At March 31, gross unrealized losses were $185.0 million on AFS securities and $581.9 million on HTM securities. Management attributed unrealized losses primarily to interest rates and market conditions and said it did not intend, or expect to be required, to sell the securities before recovery of amortized cost.
Outlook, risks, and contingencies
- Outlook: Management expects a full-year effective tax rate of 19%–21%, assuming no change in the statutory corporate tax rate. The supplied filing text does not provide a broader earnings, revenue, or net interest margin forecast.
- Credit quality: Nonaccrual loans increased to $178.3 million from $149.0 million at year-end 2023; the nonaccrual-loan ratio rose to 0.60% from 0.51%. Total nonperforming assets were $188.0 million, or 0.46% of assets. Net charge-offs were $22.1 million, up from $3.3 million in Q1 2023, driven mainly by commercial and industrial charge-offs. Management considered the allowance appropriate at quarter-end.
- Commercial real estate exposure: Investor CRE loans were $5.04 billion, including office exposure equal to 3% of total loan exposure and 21% of investor CRE exposure. The filing reports no individual loan concentration exceeding 10% of total loan exposure.
- Interest-rate sensitivity: Management characterized the earnings-at-risk profile as asset-sensitive. A gradual 200-basis-point rate increase was estimated to raise 12-month earnings at risk by 3.2% in the dynamic forecast; a 200-basis-point decrease was estimated to reduce it by 1.9%. A separate instantaneous 200-basis-point increase implied a 19.0% decrease in market value of equity, outside the company’s policy limit and reported to the Board.
- Regulatory and legal matters: The company is reviewing overdraft practices in light of regulatory scrutiny of certain fees. A settlement of up to $2.1 million, including attorneys’ fees, related to an arbitration request concerning APSN and representment fees was concluded in February 2024. Potential broader customer remediation or regulatory action could not be assessed or estimated in the filing.
- Other contingencies: The company reported routine pending and threatened legal matters and stated that current proceedings were not expected to materially adversely affect consolidated financial condition, while noting outcomes remain uncertain. The mortgage repurchase reserve was approximately $704,000.
- Capital returns: The company repurchased $23 million of common stock during Q1, including open-market purchases and tax-withholding repurchases. On April 30, the Board declared a $0.22-per-share common dividend for payment in June 2024.
Important facts for investors to verify
- Whether deposit pricing and funding mix stabilize enough to support net interest income and margin, particularly given growth in higher-cost time deposits and brokered funding.
- Subsequent trends in nonaccrual loans, commercial and industrial charge-offs, CRE delinquencies, and the adequacy of the credit-loss allowance.
- Liquidity and funding developments, including use and repayment terms of the $500 million BTFP borrowing, uninsured-deposit levels, and available contingent funding.
- How interest-rate movements affect securities marks, accumulated other comprehensive loss, earnings sensitivity, and the market-value-of-equity policy-limit exposure.
- Any developments in overdraft-fee reviews, potential customer remediation, legal proceedings, and mortgage repurchase or recourse claims.
- Whether the stated 19%–21% full-year tax-rate expectation and the common dividend remain consistent with subsequent results and capital conditions.