Associated Banc-Corp — 2020 Form 10-K Summary
Business context and reporting period
Associated Banc-Corp is a Wisconsin-based bank holding company serving consumers and businesses primarily in Wisconsin, Illinois, and Minnesota. Its fiscal year ended December 31, 2020. The filing reports a year materially affected by the COVID-19 pandemic, lower interest rates, government support programs, and changes to the company’s businesses.
Financial performance and condition
| Metric | 2020 | 2019 |
|---|---|---|
| Total revenue (net interest income plus noninterest income) | $1.277 billion | $1.216 billion |
| Net interest income | $763 million | $836 million |
| Net interest margin | 2.53% | 2.86% |
| Provision for credit losses | $174 million | $16 million |
| Net income | $307 million | $327 million |
| Net income available to common equity | $288 million | $312 million |
| Diluted earnings per common share | $1.86 | $1.91 |
| Operating cash flow | $550 million | $574 million |
| Cash, cash equivalents, and restricted cash at year-end | $716 million | $589 million |
At year-end, assets were $33.4 billion, loans $24.5 billion, deposits $26.5 billion, and total stockholders’ equity $4.1 billion. Total funding, including short- and long-term funding and FHLB advances, was $2.4 billion, down from $4.2 billion in 2019. The company reported a 10.45% CET1 capital ratio; the Bank was categorized as well capitalized. Management said liquidity objectives were met and identified $5.7 billion of available FHLB advances and $762 million of discount-window borrowing capacity.
Material changes versus 2019
- Revenue increased 5%, largely because of a $163 million pretax gain on the sale of Associated Benefits & Risk Consulting (ABRC); insurance commissions and fees fell $44 million following the sale.
- Net interest income fell 9% and net interest margin declined 33 basis points, primarily due to lower market rates. Lower funding costs partly offset reduced asset yields.
- Credit costs rose sharply: the provision was $174 million, net charge-offs were $101 million, and the allowance for credit losses on loans and unfunded commitments was $431 million at year-end, versus $223 million a year earlier. The filing attributes the deterioration and reserve build in part to COVID-19 and adoption of the expected-credit-loss standard.
- Noninterest expense declined 2% to $776 million. Lower personnel costs were partly offset by a $45 million loss on prepayment of FHLB advances.
- Loans grew 7% and deposits grew 11%. Loan growth included $768 million of outstanding PPP loans and CRE growth; deposit growth reflected stimulus-related customer balances and the First Staunton acquisition.
- Nonperforming assets increased to $225 million from $145 million; nonaccrual loans rose to $211 million from $118 million. The nonaccrual-loan ratio increased to 0.86% from 0.52%.
Outlook, management commentary, and risks
Management’s 2021 outlook called for average commercial loan growth, excluding PPP, of 2%–4%; net interest margin of 2.55%–2.65%; provision for credit losses of $70 million or less; noninterest income of $280–$300 million; and noninterest expense of approximately $675 million. These are forward-looking expectations, not guarantees.
Key uncertainties include the pandemic’s effects on borrowers and collateral values, the adequacy of credit-loss reserves, exposure to commercial real estate and stressed industries, low interest rates and margin pressure, and the timing of PPP loan forgiveness. At year-end, commercial loans to identified higher-risk industries totaled $2.0 billion, including retail and shopping centers, oil and gas, hotels, and restaurants. The oil-and-gas allowance ratio was 18.1%, compared with 2.7% in 2019. Management noted that COVID-related borrower deferrals had declined to $79 million at December 31, 2020 from $1.6 billion at June 30.
Unusual items include the ABRC sale and related tax restructuring, which reduced the effective tax rate to 6.18% from 19.61%; adoption of the expected-credit-loss standard, which reduced opening common equity by $98 million after tax; and the $45 million FHLB prepayment loss. The filing also disclosed a putative class action filed in January 2021 concerning the company’s 401(k) plan; management said it could not assess the probability or estimate potential loss. After year-end, the company announced a planned Whitnell sale, the CEO’s intention to retire at year-end 2021, and resumption of common share repurchases.
Important facts for investors to verify
- Whether credit quality, delinquency trends, and reserve levels evolve as the pandemic and borrower relief programs unwind.
- Whether the stated 2021 outlook is achieved, particularly the credit provision, margin, revenue, and expense assumptions.
- The pace of PPP forgiveness and the amount and yield of PPP loans remaining on the balance sheet.
- Whether asset-quality risks in CRE, retail, hospitality, restaurants, and oil and gas require additional provisions or charge-offs.
- The treatment and potential financial impact of the 401(k) lawsuit and other regulatory or legal matters.
- How post-year-end Whitnell and branch transactions, CEO succession, and resumed repurchases affect earnings, capital, and shareholder returns.