Associated Banc-Corp — 2023 Form 10-K Summary
Business context and reporting period
Associated Banc-Corp is a Wisconsin bank holding company operating primarily in Wisconsin, Illinois, and Minnesota through Associated Bank and related subsidiaries. Its businesses include commercial and consumer banking, wealth and fiduciary services, and other financial services. This 10-K covers the fiscal year ended December 31, 2023; it reports annual results, not a standalone fourth-quarter income statement.
Financial performance and condition
- Revenue: Net interest income was $1.040 billion, up 9% from 2022. Total noninterest income was $63 million, down 78%; total revenue was $1.103 billion, down 11%.
- Profit: Net income was $183 million versus $366 million in 2022. Diluted EPS was $1.13 versus $2.34, a 52% decline. The effective tax rate fell to 11.2% from 20.3%.
- Net interest margin: Fully tax-equivalent NIM was 2.81%, down 10 basis points from 2.91%. Higher asset yields and loan growth lifted net interest income, while deposit mix shifted toward higher-cost funding.
- Credit costs and asset quality: Provision for credit losses was $83 million, versus $33 million in 2022. Year-end loans were $29.2 billion, up 1%; the allowance for credit losses on loans was $385.9 million, or 1.32% of loans. Nonaccrual loans rose to $149 million from $111 million; potential problem loans increased to $433 million from $267 million.
- Cash flow: Operating activities provided $443 million; investing activities used $1.436 billion; financing activities provided $1.296 billion. Cash and cash equivalents increased $302 million to $924 million.
- Balance sheet and funding: Total assets were $41.0 billion, up 4%. Deposits were $33.4 billion, up 13%; noninterest-bearing deposits fell $1.6 billion, while brokered CDs increased $3.9 billion. FHLB advances declined $2.4 billion to $1.9 billion. Other long-term funding was $541 million, including subordinated notes.
- Liquidity and capital: Management reported compliance with internal liquidity objectives and $11.1 billion of total available liquidity, including $8.4 billion available within one business day. The estimated uninsured and uncollateralized deposit coverage ratio was 110% using secured funding available within one day. Holding-company CET1 was 9.39%; the Bank’s CET1 was 9.69%. Both were reported above applicable requirements.
- Margins and returns: Return on average assets was 0.45%, down from 1.00%; the fully tax-equivalent efficiency ratio was 67.82%, compared with 58.74%.
Material changes versus 2022
- Higher interest income and average loans supported net interest income growth, but interest expense increased sharply: interest-bearing deposit expense rose to $674 million from $98 million as deposit costs repriced and funding mix changed.
- Fourth-quarter balance-sheet repositioning produced a $136 million loss on sale of $969 million of residential mortgages and a $65 million net loss on sale of $715 million of lower-yielding available-for-sale securities. Proceeds were used to reduce higher-cost funding and reinvest in higher-yielding, lower-risk-weighted securities.
- FDIC assessment expense increased to $67 million from $23 million, including a $31 million special assessment related to 2023 bank failures.
- Net charge-offs increased to $49 million from $1 million, primarily reflecting commercial and industrial charge-offs. Nonaccrual and potential problem loans also increased, although nonaccrual CRE loans were reported at less than 1% of CRE loans.
- Unrealized losses on investment securities remained material: AFS securities had $149 million of net unrealized losses, while HTM securities’ fair value was approximately $480 million below amortized cost. Management attributed unrealized losses primarily to interest rates and said it did not intend, and did not expect to be required, to sell the securities before recovery.
Outlook, commentary, risks, and unusual items
- 2024 outlook: Management expects period-end loan growth of 4%–6%, core customer deposit growth of 3%–5%, net interest income growth of 2%–4%, noninterest income compression of 0%–2%, and noninterest expense growth of 2%–3%. Provision expense will be adjusted for credit quality, economic conditions, loan volumes, and other factors.
- Interest-rate risk: The company described its earnings-at-risk profile as asset-sensitive. Its model showed a 1.9% increase in one-year earnings at risk under a gradual 100-basis-point rate increase, but market value of equity fell 10.1% under an instantaneous 100-basis-point increase; management said the 100- and 200-basis-point upward MVE scenarios exceeded policy limits and were reported to the Board.
- Funding and deposits: Uninsured deposits were $14.8 billion at year-end, or 22.7% of deposits on the stated uninsured-and-uncollateralized basis. The filing highlights the risk of deposit outflows and higher funding costs. Moody’s and S&P downgraded the company’s long-term issuer credit ratings in August 2023.
- Other key risks: Commercial lending represented 62% of loans and CRE loans 29%. Management cites economic and real estate uncertainty, cybersecurity and third-party exposures, regulatory and consumer-compliance costs, and potential pressure on overdraft-related fees. The company collected approximately $14 million in overdraft transaction fees in 2023 and is reviewing certain fee practices.
- Contingencies: The company reported pending legal matters and said current proceedings were not expected to have a material adverse effect on consolidated financial condition, while noting outcomes remain uncertain. A $2.1 million settlement in principle was reached in an arbitration concerning overdraft fees.
- Shareholder returns: The Board declared a regular $0.22-per-share common dividend in January 2024. No open-market common-stock repurchases occurred in the fourth quarter; reported quarterly repurchases were tax-withholding transactions.
Important facts for investors to verify
- How much of the 2023 earnings decline resulted from the mortgage and securities repositioning losses and the FDIC special assessment, and what earnings benefit management expects from the actions.
- Whether the 2024 growth and margin outlook is achievable as deposit costs, deposit mix, and wholesale funding needs evolve.
- Trends in nonaccrual loans, potential problem loans, net charge-offs, and the allowance—especially in commercial and industrial, CRE, and auto finance portfolios.
- The stability and cost of deposits, including brokered CDs, network deposits, uninsured balances, and remaining access to liquidity facilities.
- The effect of unrealized securities losses, interest-rate scenarios that exceeded MVE policy limits, and the August 2023 credit-rating downgrades on capital, funding costs, and liquidity.
- Any developments in FDIC assessments, overdraft-fee reviews or remediation, litigation, and other regulatory matters that could affect future earnings.