Associated Banc-Corp — Q1 2021 Form 10-Q
Business context and reporting period. Unaudited results for the three months ended March 31, 2021, compared primarily with Q1 2020. Associated Banc-Corp is a bank holding company. The filing notes that interim results are not necessarily indicative of full-year results.
Financial performance and position
| Metric | Q1 2021 | Comparable / change |
|---|---|---|
| Net interest income | $175.9 million | Down 13% from $202.9 million |
| Net interest margin, fully tax-equivalent | 2.39% | 2.84% in Q1 2020 |
| Noninterest income | $95.3 million | Down 3% from $98.3 million |
| Total revenue (net interest income plus noninterest income) | $271.2 million | Down 10% from $301.2 million |
| Provision for credit losses | Release of $23.0 million | $53.0 million expense in Q1 2020 |
| Noninterest expense | $175.3 million | Down 9% from $192.2 million |
| Net income | $94.3 million | Up from $45.8 million |
| Net income available to common equity; diluted EPS | $89.1 million; $0.58 | $42.0 million; $0.27 in Q1 2020 |
At March 31, 2021, total assets were $34.6 billion, deposits $27.7 billion, loans $24.2 billion, and stockholders’ equity $4.1 billion. Period-end loans declined 1% from year-end 2020; deposits increased 5%, primarily reflecting stimulus-related customer inflows. Cash and cash equivalents were $1.95 billion, up $1.23 billion during the quarter. Q1 operating cash flow was $157.8 million; financing activities provided $1.09 billion and investing activities used $12.4 million.
Total funding (short- and long-term) was $2.37 billion, including $1.63 billion of FHLB advances. The $300 million bank senior notes due August 2021 are callable in July 2021. The CET1 capital ratio was 10.76%, versus 10.45% at year-end 2020; management said capital ratios exceeded regulatory minimums. The allowance for credit losses on loans was $403.7 million, or 1.67% of loans, including the unfunded-commitment allowance.
Material changes and notable items
- Net interest income and margin fell year over year, mainly due to lower rates and higher liquidity. Interest expense declined substantially, partly offsetting weaker asset yields.
- Mortgage banking income rose to $23.9 million from $6.1 million, including an $10.6 million MSR valuation recovery; Q1 2020 included a $9.1 million MSR impairment. The filing says mortgage banking revenue may remain elevated in Q2.
- Insurance commissions fell to $0.1 million from $22.6 million, primarily reflecting the 2020 sale of Associated Benefits & Risk Consulting. The Q1 2021 sale of Whitnell generated an approximately $2 million pretax gain; a Wisconsin branch sale generated a reported $1.0 million net gain on branch sales.
- The credit-loss release reflected improving credit quality and the economic forecast. Nonaccrual loans decreased to $163.3 million from $210.9 million at year-end 2020; nonperforming assets were $187.9 million, or 0.54% of assets. COVID-19 loan forbearances declined to $37.4 million from $78.6 million.
- Deposits increased amid stimulus inflows, while excess balances contributed to $1.6 billion in interest-bearing deposits at other financial institutions. Average deposits were up 10% year over year; average loans were up 5%, including PPP and CRE growth.
Outlook, risks and contingencies
- Management’s 2021 outlook: commercial loan growth excluding PPP of 2%–4%; net interest margin of 2.45%–2.55%; nominal full-year credit-loss provision; noninterest income of $310–$330 million; noninterest expense of $690–$695 million; and an effective tax rate of 19%–21%, assuming no corporate tax-rate change.
- The company planned to launch indirect auto lending through dealers in fall 2021 and expected 55–60 related FTEs by year-end. Management cited higher mortgage commission and incentive compensation costs in its expense outlook.
- Interest-rate risk is material: management described the balance sheet as asset-sensitive. A gradual 100-basis-point rate increase was estimated to raise 12-month earnings at risk by 6.4%–6.6%, depending on forecast method. No interest-rate limit breaches were reported for the quarter.
- The filing identifies uncertainty around LIBOR transition and consumer-product regulatory scrutiny. It also flags a proposed federal corporate tax-rate increase from 21% to 28% as a potential future earnings risk if enacted.
- Potential commitments include $10.1 billion of commitments to extend credit and $247.5 million of standby letters of credit. The company reported a putative ERISA class action and said it could not assess the probability or estimate potential loss; regulatory matters likewise had no estimable potential loss. Management reported various other ordinary-course claims and intends to defend them.
- After quarter-end, the board declared a $0.18 common dividend and called for redemption of all Series C preferred depositary shares on June 15, 2021, at $25 per share plus declared and unpaid dividends.
Most important facts for investors to verify
- Whether the $23 million credit-loss release and improved asset-quality trends persist, and how the allowance responds to changes in economic forecasts and loan performance.
- Whether margin pressure, excess liquidity and deposit trends develop in line with management’s 2021 outlook.
- How mortgage banking revenue and MSR valuation change as rates and refinancing volumes move, and whether forecast fee income offsets lower net interest income.
- The refinancing or repayment plan for the $300 million senior notes due August 2021, alongside liquidity, capital and preferred-share redemption effects.
- Developments in the ERISA lawsuit, consumer regulatory matters, tax legislation and LIBOR transition; the filing does not provide clear potential-loss estimates for the legal and regulatory matters.