10-K: Associated Banc-Corp Files 2023 Annual Report, Showing Growth Amid Economic Shifts

Associated Banc-Corp's 2023 annual report highlights increased loan and deposit growth, alongside a rise in net interest income, despite challenges from economic conditions and a one-time balance sheet repositioning.

Summary

• Associated Banc-Corp reported a decrease in diluted earnings per common share to $1.13 in 2023, down 52% from the previous year, primarily due to one-time items related to balance sheet repositioning and an FDIC special assessment.
• Average loans for 2023 increased by 13% to $29.5 billion compared to 2022, with growth across all major loan categories.
• Average deposits grew by 9% to $31.3 billion in 2023, driven by increases in time deposits, network transaction deposits, and interest-bearing demand deposits.
• Net interest income rose to $1.0 billion in 2023, a 9% increase from 2022, attributed to the growth of earning assets, although the net interest margin decreased slightly from 2.91% to 2.81%.
• The provision for credit losses was $83 million in 2023, up from $33 million in 2022.
• Noninterest income significantly decreased by 78% to $63 million in 2023, largely due to one-time items related to the balance sheet repositioning.
• Noninterest expense increased by 9% to $814 million in 2023, impacted by a $31 million FDIC special assessment and ongoing investments in technology and personnel.
• The company projects period end loan growth of 4% to 6% and core customer deposit growth of 3% to 5% for 2024.
• Net interest income for 2024 is expected to grow by 2% to 4%, with noninterest income expected to have compression of 0% to 2%, and noninterest expense is projected to grow by 2% to 3%.

Sentiment

Score: 6

Explanation: The sentiment is cautiously optimistic, reflecting growth in key areas like loans and deposits but tempered by declines in earnings per share, significant one-time losses, and increased expenses. The positive outlook for future growth and strong capital ratios are offset by the challenges faced in the current economic environment and the impact of regulatory changes.

Positives

• Average loans grew by 13% in 2023, reaching $29.5 billion, with increases across all major loan categories.
• Average deposits increased by 9% in 2023, totaling $31.3 billion, driven by growth in time deposits, network transaction deposits, and interest-bearing demand deposits.
• Net interest income grew by 9% in 2023, amounting to $1.0 billion.
• The company maintains strong capital ratios, exceeding regulatory minimum requirements.
• Associated Banc-Corp is recognized as the largest bank holding company headquartered in Wisconsin based on total assets.
• The company has a diverse loan portfolio, reducing dependency on any single customer or sector.

Negatives

• Diluted earnings per common share decreased by 52% in 2023 compared to 2022.
• Noninterest income decreased by 78% in 2023, primarily due to one-time items related to balance sheet repositioning.
• Noninterest expense increased by 9% in 2023, driven by a $31 million FDIC special assessment and investments in technology and personnel.
• The net interest margin decreased slightly from 2.91% in 2022 to 2.81% in 2023.
• The provision for credit losses increased from $33 million in 2022 to $83 million in 2023.
• The company experienced a one-time loss of $136 million on the sale of a mortgage portfolio as part of a balance sheet repositioning strategy.
• There was a decrease in noninterest-bearing demand deposits by 19% in 2023.

Risks

• Changes in economic conditions, geopolitical matters, and financial markets could adversely impact the company's business, results of operations, and financial condition.
• The company's allowance for credit losses may be insufficient.
• The company is subject to lending concentration risks, particularly in commercial real estate lending.
• Impairment of access to liquidity could affect the company's ability to meet its obligations.
• The company is subject to interest rate risk, which could impact net interest income and the value of investment securities.
• Operational risks, including cybersecurity threats and reliance on third-party vendors, could disrupt operations and harm the company's reputation.
• The company faces extensive government regulation and supervision, and changes in regulations could increase compliance costs and impact profitability.
• Recent volatility in the banking sector may result in enhanced government regulation and supervision.
• The company will experience increases in FDIC insurance assessments due to recent bank failures.
• Negative publicity or ethical issues could damage the company's reputation and affect customer relationships.

Future Outlook

The company anticipates loan growth of 4% to 6% and core customer deposit growth of 3% to 5% by the end of 2024. Net interest income is projected to increase by 2% to 4%, while noninterest income is expected to experience compression between 0% to 2%. Noninterest expense is forecasted to grow by 2% to 3%. The provision for credit losses will be adjusted according to changes in risk grades, economic conditions, loan volumes, and other credit quality indicators.

Industry Context

Associated Banc-Corp's performance and strategic adjustments reflect broader trends in the banking industry, particularly the challenges and opportunities presented by fluctuating interest rates, economic conditions, and regulatory changes. The company's focus on loan and deposit growth, alongside efforts to manage noninterest expenses and adapt to a changing interest rate environment, mirrors the strategies of many regional banks aiming to navigate the complexities of the current financial landscape.

Comparison to Industry Standards

• Associated Banc-Corp's CET1 capital ratio of 9.39% is compared to the regulatory minimum requirement of 4.5% for CET1 capital to risk-weighted assets ratio.
• The Tier 1 capital ratio of 9.99% is compared to the regulatory minimum of 6.0% Tier 1 capital to risk-weighted assets ratio.
• The total capital ratio of 12.21% is compared to the regulatory minimum of 8.0% total capital to risk-weighted assets ratio.
• The Tier 1 capital leverage ratio of 8.06% is compared to the regulatory minimum of 4.0% Tier 1 capital to adjusted average total assets leverage ratio.
• These comparisons show that Associated Banc-Corp maintains capital ratios well above the regulatory minimums, indicating a strong capital position relative to industry standards.
• The document does not provide specific comparisons to other companies' financial metrics. A direct comparison to similar-sized regional banks would be necessary for a comprehensive assessment against industry standards.

Stakeholder Impact

• Shareholders may experience volatility in the company's stock price due to fluctuations in earnings and market conditions.
• Employees are supported through various development programs and a focus on maintaining a positive work culture, although there is an emphasis on managing personnel costs.
• Customers may benefit from the company's wide array of banking and nonbanking products and services, but could also be affected by changes in service charges and deposit account fees.
• Suppliers and creditors are subject to the company's ability to manage its liquidity and meet its contractual obligations.
• The broader community may be impacted by the company's lending practices and its role in local economic conditions.

Next Steps

• Continue to monitor and adjust the provision for credit losses to reflect changes in risk grades, economic conditions, loan volumes, and other indicators of credit quality.
• Focus on achieving projected loan growth of 4% to 6% and core customer deposit growth of 3% to 5% in 2024.
• Manage noninterest expenses to align with the projected growth of 2% to 3% in 2024.
• Adapt to the evolving regulatory environment, particularly in relation to capital requirements, liquidity risk management, and consumer protection laws.
• Implement strategies to mitigate the impact of interest rate changes on net interest income and the value of investment securities.
• Enhance cybersecurity measures and adapt to new technologies to protect against operational risks and improve efficiency.

Key Dates

Keywords

bank holding company, commercial banking, consumer banking, wealth management, loan portfolio, deposit growth, net interest income, noninterest income, credit risk, liquidity risk, interest rate risk, regulatory compliance, FDIC insurance, capital adequacy, cybersecurity, digital banking, mergers and acquisitions, financial technology, ESG, climate risk, mortgage banking, investment securities, dividend policy