8-K: Associated Banc-Corp Reports Mixed Full Year 2023 Results Amid Strategic Shift

Associated Banc-Corp reported a full-year 2023 profit of $1.13 per common share, but a significant fourth-quarter loss due to strategic balance sheet repositioning.

Summary

• Associated Banc-Corp announced full-year 2023 earnings of $1.13 per common share, a decrease from $2.34 in 2022.
• The company reported a net loss of $94 million, or $(0.62) per common share, for the fourth quarter of 2023, compared to a profit of $106 million, or $0.70 per common share, in the same quarter of 2022.
• Full year total commercial loans increased by $202 million to $18.2 billion, and consumer loans increased by $214 million to $11.0 billion.
• Total deposits increased by $3.8 billion to $33.4 billion for the full year.
• Net interest income for the full year increased by $82 million to $1.0 billion, while noninterest income decreased by $219 million to $63 million due to one-time items.
• Noninterest expense increased by $67 million to $814 million, including a $31 million FDIC special assessment.
• The company's provision for credit losses was $83 million, compared to $33 million in 2022.
• The fourth quarter loss was primarily driven by a $136 million loss on a mortgage portfolio sale and $65 million in investment securities losses.
• The company expects total loan growth of 4% to 6% and core customer deposit growth of 3% to 5% in 2024.
• Net interest income is projected to grow by 2% to 4% in 2024, and noninterest income is expected to decrease by 0% to 2% after adjusting for one-time items.
• Noninterest expense is expected to grow by 2% to 3% in 2024, excluding the FDIC special assessment.
• The company's CET1 capital ratio was 9.39% at the end of 2023.

Sentiment

Score: 4

Explanation: The document presents mixed results with a significant fourth-quarter loss, but also highlights strategic initiatives and future growth prospects. The negative impact of one-time items and the decrease in earnings per share temper the positive aspects, resulting in a slightly negative sentiment.

Positives

• Total deposits increased by $3.8 billion to $33.4 billion for the full year.
• Net interest income increased by $82 million to $1.0 billion for the full year.
• The company expects total loan growth of 4% to 6% and core customer deposit growth of 3% to 5% in 2024.
• The company has identified and executed $25 million to $30 million in expense reductions for 2024.
• The company's capital position remains strong, with a CET1 capital ratio of 9.39% at December 31, 2023.

Negatives

• Full year 2023 earnings were $1.13 per common share, down from $2.34 in 2022.
• The company experienced a net loss of $94 million in the fourth quarter of 2023, or $(0.62) per common share.
• Noninterest income decreased by $219 million to $63 million due to one-time items.
• Noninterest expense increased by $67 million to $814 million, including a $31 million FDIC special assessment.
• The fourth quarter loss was primarily driven by a $136 million loss on a mortgage portfolio sale and $65 million in investment securities losses.

Risks

• The company's financial results were significantly impacted by one-time items related to balance sheet repositioning.
• The company faces challenges in managing noninterest income and expenses.
• The company's provision for credit losses increased significantly in 2023.
• The company is subject to risks and uncertainties related to forward-looking statements.
• The company's net interest margin decreased by 10 basis points from the prior year.

Future Outlook

The company expects total loan growth of 4% to 6% and core customer deposit growth of 3% to 5% in 2024. Net interest income is projected to grow by 2% to 4% in 2024, and noninterest income is expected to decrease by 0% to 2% after adjusting for one-time items. Noninterest expense is expected to grow by 2% to 3% in 2024, excluding the FDIC special assessment. The annual effective tax rate is expected to be between 19% and 21% in 2024.

Management Comments

• 2023 was an extraordinary year for regional banking, said President and CEO Andy Harmening.
• The industry was tested in several new ways amid an uncertain macro environment.
• We addressed the immediate risks, while our colleagues remained forward looking, taking great care of our customers while continuing to execute our people-led, digitally enabled strategy.
• The results of these efforts were clearly visible in the back half of the year, with diversified loan growth, improving household growth metrics, and 3% core customer deposit growth.
• To capitalize on this momentum, we announced the next phase of our strategic plan during the fourth quarter.
• This plan advances our strategy by accelerating the impacts of our initiatives, and importantly, we've already made significant progress as we enter 2024.

Industry Context

The document highlights the challenges faced by regional banks in 2023 due to an uncertain macro environment. The company's strategic plan and balance sheet repositioning reflect an effort to adapt to these challenges and position itself for future growth. The focus on organic growth, customer relationships, and digital capabilities aligns with broader industry trends.

Comparison to Industry Standards

• The company's net interest margin of 2.81% for the full year and 2.69% for the fourth quarter is within the range of other regional banks, but the decrease of 10 basis points from the prior year indicates some pressure on profitability.
• The company's loan growth of 1% year-over-year is lower than some peers, but the focus on strategic initiatives and organic growth may lead to improved performance in the future.
• The company's deposit growth of 13% year-over-year is strong, indicating a solid customer base and effective deposit gathering strategies.
• The company's noninterest income decrease of 78% year-over-year is significant and is primarily due to one-time items, which is not typical for most banks.
• The company's noninterest expense increase of 9% year-over-year is higher than some peers, but includes a one-time FDIC special assessment.
• The company's CET1 ratio of 9.39% is above the regulatory minimum, indicating a strong capital position.
• The company's tangible book value per share of $18.77 is comparable to other regional banks.

Management Changes

Stakeholder Impact

• Shareholders will be impacted by the decrease in earnings per share and the fourth-quarter loss.
• Employees may be impacted by the workforce reduction of 3%.
• Customers may benefit from the company's focus on improving products and services.
• Creditors may be impacted by the company's balance sheet repositioning and changes in capital ratios.

Next Steps

• The company plans to continue executing its strategic plan.
• The company will focus on organic growth, customer relationships, and digital capabilities.
• The company will reinvest expense savings in people, products, process, and technology.
• The company will continue to monitor and adjust its provision for credit losses.
• The company will provide updates on its progress throughout the year.

Key Dates

Keywords

earnings, loans, deposits, net interest income, noninterest income, noninterest expense, credit losses, capital, balance sheet, mortgage portfolio, FDIC assessment