Associated Banc-Corp Reports Full Year 2019 Earnings of $1.91 Per Common Share, or $1.97 Per Common Share Excluding $12 million in Acquisition and Restructuring Related Costs(1)

GREEN BAY, Wis., Jan. 23, 2020 /PRNewswire/ -- Associated Banc-Corp (NYSE: ASB) ("Associated" or "Company") today reported net income available to common equity ("earnings") of $312 million, or $1.91 per common share for the year ended December 31, 2019.  These amounts compare to net income available to common equity of $323 million, or $1.89 per common share for the year ended December 31, 2018.  The Company reported earnings of $0.43 per common share for the quarter ended December 31, 2019, compared to $0.51 per common share for the quarter ended December 31, 2018.

"In 2019, we significantly repositioned the balance sheet as we faced an interest rate environment that was meaningfully different than the one we anticipated at the beginning of the year.  We increased our mix of low-cost core deposits, decreased our reliance on higher-cost funding, and sold lower-yielding securities.  These actions helped us defend our net interest margin," said President and CEO Philip B. Flynn.  "Additionally, we focused our efforts on controlling costs and were able to reduce noninterest expense from the previous year.  We are optimistic that the changes we made in 2019 will continue to benefit Associated in 2020 and beyond."

2019 SUMMARY (all comparisons to the previous year)

• Average loans of $23.1 billion were up 2%, or $0.4 billion
• Average deposits of $24.7 billion were up 3%, or $0.7 billion
• Net interest income of $836 million decreased $44 million, or 5%
• Net interest margin of 2.86% declined 11 basis points from 2.97%
• Provision for credit losses of $16 million compared to zero
• Noninterest income of $381 million increased 7%, or $25 million
• Noninterest expense of $794 million was down 3%, or $28 million
• Income before income taxes of $407 million decreased 2%, or $7 million
• During the year, the Company repurchased over 8 million shares, or $177 million, of common stock
• Total dividends paid per common share were $0.69, up 11%
• Tangible book value per share of $15.28, up 10%
• Return on average common equity Tier 1 of 12.6% decreased 0.6%

2019 FULL YEAR and FOURTH QUARTER FINANCIAL RESULTS

Loans
Full year 2019 average loans of $23.1 billion were up 2%, or $405 million from 2018, driven by commercial and business lending.  With respect to full year 2019 average balances by loan category compared to 2018:

• Commercial and business lending increased $682 million, or 9%, to $8.4 billion, primarily due to solid growth in general commercial and power & utilities lending.
• Consumer lending was essentially flat at $9.5 billion and included the sale of approximately $240 million of prepayment sensitive mortgages in the third quarter of 2019.
• Commercial real estate lending decreased $283 million, or 5%, to $5.2 billion, reflecting elevated paydown activity in late 2018 and the first quarter of 2019.

Fourth quarter 2019 average loans of $22.8 billion were down $21 million from the year ago quarter and declined $469 million from the third quarter.

With respect to fourth quarter 2019 average balances by loan category:

• Commercial and business lending increased $189 million from the year ago quarter but decreased $294 million from the third quarter to $8.2 billion. Power & utilities and mortgage warehouse drove the increase from the year ago quarter while the decrease from the third quarter was due to lower general commercial and REIT lending.
• Consumer lending decreased $195 million from the year ago quarter and was down $213 million from the third quarter to $9.4 billion. The decreases resulted from the sale of $240 million of prepayment sensitive residential mortgages late in the third quarter of 2019.
• Commercial real estate lending decreased $15 million from the year ago quarter to $5.2 billion. However, CRE increased $38 million from the third quarter as strong production continued to outpace paydown activity.

For 2020, the Company expects to achieve 2% to 4% average loan growth.

Investments
Full year 2019 average investment securities of $6.2 billion were reduced $718 million, or 10% from 2018.

Fourth quarter 2019 average investment securities of $5.6 billion were decreased by $1.3 billion, or 19% from the year ago quarter, and decreased by $397 million from the third quarter as the Company continued to use its investment portfolio as a source of funds during the fourth quarter, further repositioning its balance sheet for a declining rate environment.

• Taxable securities decreased $1.5 billion from the year ago quarter and decreased $408 million from the third quarter as lower yielding, primarily mortgage backed securities were sold.
• Tax-exempt securities increased $188 million from the year ago quarter and increased $11 million from the third quarter as the Company shifted its investment portfolio mix toward longer duration higher-yielding municipal securities.

For 2020, the Company expects the ratio of investments to total assets to remain above 17%.

Deposits
Full year 2019 average deposits of $24.7 billion increased 3%, or $664 million from 2018, driven by the Huntington branch acquisition.

With respect to full year 2019 average balances by deposit category as compared to 2018:

• Savings increased $561 million, or 30% to $2.4 billion.
• Interest-bearing demand deposits increased $313 million, or 7% to $5.1 billion.
• Time deposits increased $298 million, or 11% to $3.1 billion.
• Noninterest-bearing demand deposits decreased $18 million to $5.2 billion.
• Network transaction deposits decreased $235 million, or 11% to $1.9 billion.
• Money market deposits decreased $255 million, or 4% to $7.0 billion.

Fourth quarter 2019 average deposits of $24.1 billion were down $127 million, or 1% from the year ago quarter and were down $1.1 billion compared to the third quarter.  The decrease from the third quarter reflects the Company's balance sheet repositioning strategy of selling lower-yielding securities and reducing certain higher-cost, non-core customer funding from interest-bearing deposits, time deposits, network transaction deposits and money market accounts.

With respect to fourth quarter 2019 average balances by deposit category:

• Savings increased $719 million from the year ago quarter and increased $96 million from the third quarter to $2.7 billion.
• Noninterest-bearing demand deposits increased $104 million from the year ago quarter and increased $146 million from the third quarter to $5.5 billion.
• Interest-bearing demand deposits increased $301 million from the year ago quarter but decreased $315 million from the third quarter to $5.1 billion.
• Time deposits decreased $314 million from the year ago quarter and decreased $361 million from the third quarter to $2.7 billion.
• Network transaction deposits decreased $442 million from the year ago quarter and decreased $326 million from the third quarter to $1.4 billion.
• Money market deposits decreased $495 million from the year ago quarter and decreased $339 million from the third quarter to $6.6 billion.

Net Interest Income and Net Interest Margin
Full year 2019 net interest income of $836 million was down 5%, or $44 million from 2018.  Net interest margin of 2.86% was down 11 basis points from the prior year.  The decreases in net interest income and margin were driven by decreases in LIBOR rates, which impact the Company's commercial loan yield, outpacing reductions in funding costs.

• The average yield on total commercial loans decreased one basis point from the prior year to 4.72%.
• The average cost of interest-bearing liabilities increased 27 basis points from the prior year to 1.43%.
• The net free funds benefit, the net margin increase from noninterest-bearing deposits, increased five basis points from the prior year.

Fourth quarter 2019 net interest income of $200 million was down 11%, or $24 million, and the net interest margin decreased 19 basis points to 2.83% from the year ago quarter.  Fourth quarter 2019 net interest income decreased 3%, or $6 million, but the net interest margin increased two basis points from the prior quarter.  The lower net interest income from the prior quarter was driven by lower earning asset balances as the Company repositioned its balance sheet for a lower rate environment.  The increase in net interest margin reflects the Company's successful efforts to reduce funding costs over the last several quarters.

• The average yield on total earning assets for the fourth quarter of 2019 decreased 33 basis points to 3.78% from the year ago quarter and decreased 16 basis points from the prior quarter.
• The average cost of total interest-bearing liabilities for the fourth quarter of 2019 decreased 16 basis points to 1.23% from the year ago quarter and decreased 21 basis points from the prior quarter.
• The net free funds benefit decreased two basis points in the fourth quarter of 2019 compared to the year ago quarter and decreased three basis points from the prior quarter.

The Company expects 2020 net interest margin to be between 2.80% and 2.85%, assuming a stable interest rate environment.

Noninterest Income
Full year 2019 noninterest income of $381 million increased $25 million from the prior year.

• Net mortgage banking income increased $12 million from the prior year, driven by higher refinance activity in 2019.
• Gains on sales of investment securities increased $8 million from the prior year, reflecting our balance sheet deleveraging strategy

Fourth quarter 2019 total noninterest income of $93 million increased $9 million from the year ago quarter but decreased $8 million from the prior quarter.

With respect to fourth quarter 2019 noninterest income line items:

• Net mortgage banking income was up $3 million from the year ago quarter but was down $4 million from the previous quarter. Mortgage banking income was elevated in the third quarter due to increased gain on sale of mortgages including the sale of approximately $240 million of loans from our portfolio.
• Capital markets income was up $3 million from both the year ago quarter and the previous quarter driven by higher swap income and favorable credit valuation adjustments in the fourth quarter of 2019.
• Asset gains were up $3 million from the year ago quarter and were essentially flat compared to the previous quarter.
• Gains on sales of investment securities were essentially flat compared to the year ago quarter but were down $4 million from the third quarter when we sold securities as part of our deleveraging strategy.

The Company expects to earn between $375 million and $385 million of noninterest income in 2020, excluding investment securities gains and losses.

Noninterest Expense
Full year 2019 noninterest expense of $794 million decreased 3%, or $28 million from the prior year.  Included in noninterest expense figures are acquisition and restructuring related costs of $12 million in 2019 and $31 million in 2018.

With respect to full year 2019 noninterest expense line items:

• Personnel costs increased $4 million from the prior year.
• Technology expense increased $10 million from the prior year, driven by investments in solutions to enhance operational efficiency and the customer experience.
• FDIC assessment decreased $14 million from 2018 with the removal of the FDIC surcharge.

Fourth quarter 2019 total noninterest expense of $204 million increased 5%, or $10 million from the year ago quarter and increased $3 million from the prior quarter.

With respect to fourth quarter 2019 noninterest expense line items:

• Personnel expense increased $4 million from the year ago quarter but decreased $3 million from the prior quarter.
• Technology expense increased $5 million from the year ago quarter and increased $2 million from the prior quarter.
• Occupancy expense increased $3 million from the year ago quarter and increased $2 million from the prior quarter.
• The Company's FDIC assessment decreased $2 million from the year ago quarter with the removal of the FDIC surcharge and was unchanged from the prior quarter.

The Company expects its 2020 noninterest expense will be between $790 million and $795 million, including acquisition related costs in connection with the First Staunton transaction.

Taxes
Full year 2019 effective tax rate was 20% compared to 19% in 2018.  The fourth quarter 2019 effective tax rate was 19% compared to 22% in the year ago quarter and 20% in the prior quarter.

The Company expects its 2020 effective tax rate will be in the range of 19%-21%.

Credit
Full year 2019 provision for credit losses was $16 million, up from zero in the prior year.

The fourth quarter 2019 provision for credit losses was zero, down from $1 million in the year ago quarter and down from $2 million in the prior quarter.

With respect to fourth quarter 2019 credit quality:

• Potential problem loans of $157 million were down $93 million, or 37%, from the year ago quarter but up $24 million, or 18%, from the prior quarter.
• Nonaccrual loans of $118 million were down $10 million from the year ago quarter and down $11 million from the prior quarter. The nonaccrual loans to total loans ratio was 0.52% in the fourth quarter, down from 0.56% in the year ago quarter and 0.57% in the prior quarter.
• Net charge offs of $14 million were up $14 million from the year ago quarter but down $6 million from the prior quarter as de-risking of the oil & gas portfolio nears completion.
• The allowance for loan losses of $201 million was down $37 million from the year ago quarter and down $13 million from the prior quarter. The allowance for loan losses to total loans ratio was 0.88% in the third quarter, down from 1.04% in the year ago quarter, and 0.94% in the prior quarter.

As a result of implementing Current Expected Credit Loss accounting standards, the Company expects to incur an after-tax charge of $70 million to $80 million which will decrease the opening equity balance as of January 1, 2020.

Capital
The Company's capital position remains strong, with a CET1 capital ratio of 10.2% at December 31, 2019.  The Company's capital ratios continue to be in excess of the Basel III "well-capitalized" regulatory benchmarks on a fully phased in basis.

During 2019, the Company repurchased over eight million shares, or $177 million, of common stock at an average price of $21.62 per share.  This included fourth quarter repurchases of over two million shares, or $48 million, of common stock at an average price of $21.22 per share.

FOURTH QUARTER 2019 EARNINGS RELEASE CONFERENCE CALL

The Company will host a conference call for investors and analysts at 4:00 p.m. Central Time (CT) today, January 23, 2020.  Interested parties can access the live webcast of the call through the Investor Relations section of the Company's website, http://investor.associatedbank.com. Parties may also dial into the call at 877-407-8037 (domestic) or 201-689-8037 (international) and request the Associated Banc-Corp fourth quarter 2019 earnings call. The fourth quarter 2019 financial tables with an accompanying slide presentation will be available on the Company's website just prior to the call. An audio archive of the webcast will be available on the Company's website approximately fifteen minutes after the call is over.

ABOUT ASSOCIATED BANC-CORP

Associated Banc-Corp (NYSE: ASB) has total assets of $32 billion and is one of the top 50 publicly traded U.S. bank holding companies. Headquartered in Green Bay, Wisconsin, Associated is a leading Midwest banking franchise, offering a full range of financial products and services from more than 240 banking locations serving more than 120 communities throughout Wisconsin, Illinois and Minnesota, and commercial financial services in Indiana, Michigan, Missouri, Ohio and Texas. Associated Bank, N.A. is an Equal Housing Lender, Equal Opportunity Lender and Member FDIC. More information about Associated Banc-Corp is available at www.associatedbank.com.

FORWARD-LOOKING STATEMENTS

Statements made in this document which are not purely historical are forward-looking statements, as defined in the Private Securities Litigation Reform Act of 1995. This includes any statements regarding management's plans, objectives, or goals for future operations, products or services, and forecasts of its revenues, earnings, or other measures of performance.  Such forward-looking statements may be identified by the use of words such as "believe," "expect," "anticipate," "plan," "estimate," "should," "will," "intend," "target," "outlook," or similar expressions.  Forward-looking statements are based on current management expectations and, by their nature, are subject to risks and uncertainties. Actual results may differ materially from those contained in the forward-looking statements.  Factors which may cause actual results to differ materially from those contained in such forward-looking statements include those identified in the Company's most recent Form 10-K and subsequent SEC filings.  Such factors are incorporated herein by reference.

NON-GAAP FINANCIAL MEASURES

This press release and related materials may contain references to measures which are not defined in generally accepted accounting principles ("GAAP"). Information concerning these non-GAAP financial measures can be found in the financial tables.  Management believes these measures are meaningful because they reflect adjustments commonly made by management, investors, regulators, and analysts to evaluate the adequacy of earnings per common share, provide a greater understanding of ongoing operations and enhance comparability of results with prior periods.

Investor Contact:
Robb Timme, Senior Vice President, Director of Investor Relations
920-491-7059

Media Contact:
Jennifer Kaminski, Vice President, Public Relations Senior Manager
920-491-7576

SOURCE Associated Banc-Corp