Associated Banc-Corp Reports Full Year 2018 Earnings of $1.89 Per Common Share, Earnings per share up 33% from the prior year

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Jan 24, 2019, 16:15 ET

GREEN BAY, Wis., Jan. 24, 2019 /PRNewswire/ -- Associated Banc-Corp (NYSE: ASB) ("Associated" or "Company") today reported net income available to common equity ("earnings") of $323 million, or $1.89 per common share for the year ended December 31, 2018. Earnings per common share ("EPS") for the year ended December 31, 2018 included $31 million of acquisition related costs. These amounts compare to net income available to common equity of $220 million, or $1.42 per common share for the year ended December 31, 2017. The Company reported earnings of $0.51 per common share for the quarter ended December 31, 2018, compared to $0.31 per common share for the quarter ended December 31, 2017.

"2018 was a year of significant accomplishments for Associated. We completed the Bank Mutual acquisition and ended the year with record levels of checking deposits. We announced the acquisition of the Wisconsin branch operations of The Huntington National Bank, which will further enhance our core franchise, and we look forward to welcoming Huntington's customers to Associated in the second quarter," said President and CEO Philip B. Flynn. "We are pleased with our 2018 results, which were driven by loan growth and higher fee revenues related to our acquisitions. We benefited from efficiency gains and a benign credit environment. For 2019, we expect modest loan growth, higher fee revenues, and continued efficiency gains to drive increasing returns on capital for our shareholders."

2018 HIGHLIGHTS (all comparisons to the previous year)

Average loans of $22.7 billion were up 10%, or $2.1 billion
Average deposits of $24.1 billion were up 10%, or $2.1 billion
Net interest income of $880 million increased $138 million, or 19%
Net interest margin of 2.97% improved 15 basis points from 2.82%
Provision for credit losses was zero, down from $26 million
Noninterest income of $356 million increased 7%, or $23 million
Noninterest expense of $822 million, including $29 million of acquisition related costs, was up 16%, or $113 million
Income before income taxes was up 22%, or $75 million
During the year, the Company repurchased over 9 million shares, or $240 million, of common stock
Total dividends paid per common share were $0.62, up 24%
Return on average common equity Tier 1 increased to 13.2% from 10.4%

2018 FULL YEAR AND FOURTH QUARTER FINANCIAL RESULTS

Loans

Full year 2018 average loans of $22.7 billion were up 10%, or $2.1 billion from 2017, primarily driven by the Bank Mutual acquisition. With respect to full year 2018 average balances by loan category as compared to 2017:

Consumer lending increased $1.2 billion, or 14%, to $9.5 billion.
Commercial and business lending increased $490 million, or 7%, to $7.7 billion.
Commercial real estate lending increased $481 million, or 10%, to $5.4 billion.

Fourth quarter 2018 average loans of $22.8 billion were up $1.9 billion, or 9%, from the year ago quarter but were down $169 million from the third quarter as loan growth in commercial and business lending was outpaced by run off in the commercial real estate portfolio.

With respect to fourth quarter 2018 average balances by loan category:

Commercial and business lending increased $841 million from the year ago quarter and increased $81 million from the third quarter to $8.0 billion. General commercial lending and oil & gas specialized lending drove the increase from the year ago quarter.
Consumer lending increased $764 million from the year ago quarter but was down $39 million from the third quarter to $9.6 billion as seasonality and higher interest rates tempered mortgage activity.
Commercial real estate lending increased $336 million from the year ago quarter but decreased $211 million from the third quarter to $5.2 billion.

For 2019, the Company expects to achieve 3% to 6% average loan growth.

Deposits

Full year 2018 average deposits of $24.1 billion increased 10%, or $2.1 billion from 2017, driven primarily by the addition of Bank Mutual customers and increased focus on and pricing of time deposit offerings.

With respect to full year 2018 average balances by deposit category as compared to 2017:

Money market deposits increased $939 million, or 15% to $7.3 billion.
Time deposits increased $852 million, or 43% to $2.8 billion.
Interest-bearing demand deposits increased $815 million, or 21% to $4.8 billion.
Savings increased $352 million, or 23% to $1.9 billion.
Noninterest-bearing demand deposits increased $241 million, or 5% to $5.2 billion.
Network transaction deposits decreased $1.0 billion, or 33% to $2.1 billion.

Fourth quarter 2018 average deposits of $24.2 billion were up $2.0 billion, or 9% from the year ago quarter, but were down $466 million compared to the third quarter of 2018 due to seasonal outflows from municipal customers. Fourth quarter period end deposits were $24.9 billion, up $66 million from the end of the third quarter.

With respect to fourth quarter 2018 average balances by deposit category:

Time deposits increased $706 million from the year ago quarter and increased $83 million from the third quarter of 2018 to $3.1 billion.
Interest-bearing demand deposits increased $669 million from the year ago quarter, but decreased $151 million from the third quarter of 2018 to $4.8 billion.
Money market deposits increased $569 million from the year ago quarter, but decreased $457 million from the third quarter of 2018 to $7.1 billion.
Savings increased $441 million from the year ago quarter and increased $93 million from the third quarter of 2018 to $2.0 billion.
Noninterest-bearing demand deposits increased $233 million from the year ago quarter and increased $56 million from the third quarter of 2018 to $5.4 billion.
Network transaction deposits decreased $637 million from the year ago quarter and decreased $89 million from the third quarter of 2018 to $1.9 billion.

The loan to deposit ratio was 92% at year end. The Company expects to continue maintain its loan to deposit ratio between 90% and 100% in 2019, with some seasonality.

Net Interest Income and Net Interest Margin

Full year 2018 net interest income of $880 million was up 19%, or $138 million from 2017. Net interest margin of 2.97% was up 15 basis points from the prior year.

The average yield on total commercial loans increased 97 basis points to 4.73% from the prior year.
The average cost of interest-bearing deposits increased 38 basis points to 0.94% from the prior year.
The net free funds benefit, the benefit of holding noninterest-bearing demand deposits, increased 10 basis points from the prior year.

Fourth quarter 2018 net interest income of $224 million was up 20%, or $37 million, with the net interest margin increasing 23 basis points to 3.02% from the year ago quarter. Fourth quarter 2018 net interest income increased 2%, or $5 million, with the net interest margin increasing 10 basis points from the prior quarter.

The average yield on total commercial loans for the fourth quarter of 2018 increased 118 basis points to 5.07% from the year ago quarter and increased 34 basis points from the prior quarter.
The average cost of total interest-bearing deposits for the fourth quarter of 2018 increased 49 basis points to 1.14% from the year ago quarter and increased 11 basis points from the prior quarter.
The net free funds benefit increased 12 basis points in the fourth quarter of 2018 compared to the year ago quarter and increased 3 basis points from the prior quarter.

The Company expects a stable to improving full-year net interest margin, given continued upward Fed Funds rate activity.

Noninterest Income

Full year 2018 total noninterest income of $356 million increased $23 million reflecting the contributions of acquisitions made in the fourth quarter of 2017 and in 2018.

Brokerage and advisory revenues increased $8 million from the prior year, driven by the Whitnell acquisition and the generally strong equity markets through the first three quarters of 2018.
Insurance commissions increased $8 million from the prior year, driven by the Diversified Insurance Solutions and Anderson Insurance acquisitions.
Card-based and loan fees were up $5 million from the prior year.

Fourth quarter 2018 total noninterest income of $84 million was essentially unchanged from the year ago quarter, but decreased $4 million from the prior quarter.

With respect to fourth quarter 2018 noninterest income line items:

Card-based and loan fees increased $2 million from the year ago quarter and increased $1 million from the prior quarter.
Insurance revenues were up $2 million from the year ago quarter, driven by acquisitions noted above, and were flat compared to the previous quarter.
Capital markets were down $2 million from a very strong fourth quarter of 2017, and were essentially unchanged from the previous quarter.
Asset losses were $2 million greater versus the year ago quarter and were $1 million greater than the prior quarter due to Bank Mutual related items.

The Company expects to earn between $360 million and $375 million of noninterest income in 2019.

Noninterest Expense

Full year 2018 noninterest expense of $822 million increased 16%, or $113 million from the prior year and included $29 million of acquisition related costs.

Personnel costs increased $54 million from the prior year, principally related to operating Bank Mutual as a stand-alone entity from February through conversion in June. Bank Mutual operations were wound down through the third quarter. This also reflected certain severance and other contractual personnel costs.
Technology expense increased $10 million from the prior year, driven by investments made in solutions to enhance operational efficiency and the customer experience.

Fourth quarter 2018 total noninterest expense of $193 million increased 6%, or $11 million from the year ago quarter, but decreased $11 million from the prior quarter. Fourth quarter 2018 noninterest expense included a $1 million recovery of Bank Mutual acquisition related costs.

With respect to fourth quarter 2018 noninterest expense line items:

Personnel expense increased $10 million from the year ago quarter, primarily driven by additional colleagues brought on through acquisitions. Personnel expense decreased $8 million from the third quarter of 2018.
Occupancy expense increased $1 million from the year ago quarter, with most of the increase coming from the additional expense of acquired Bank Mutual facilities. Occupancy expense was essentially unchanged from the prior quarter.
Acquisition related costs decreased $3 million from the prior quarter.

The Company expects its 2019 noninterest expense will be approximately $800 million.

Taxes

Full year 2018 effective tax rate was 19% compared to 32% in 2017. The decrease is primarily due to the Tax Cut and Jobs Act signed into law on December 22, 2017.

The fourth quarter 2018 effective tax rate was 22% compared to 21% in the prior quarter.
For 2019, the Company expects its effective tax rate to be in the range of 21%-23%.

Credit

Full year 2018 provision for credit losses was zero, down from $26 million in the prior year.

The fourth quarter 2018 provision for credit losses was $1 million, up from zero in the year ago quarter and up from negative $5 million in the prior quarter. With respect to fourth quarter 2018 credit quality:

Nonperforming assets of $140 million were down $89 million from the year ago quarter and were down $46 million from the prior quarter.
Nonaccrual loans of $128 million were down $81 million from the year ago quarter and were down $26 million from the prior quarter. The decrease from the prior quarter was primarily driven by payoffs. The nonaccrual loans to total loans ratio was 0.56% in the fourth quarter, compared to 1.00% in the year ago quarter, and 0.67% in the prior quarter.
Net charge offs were essentially zero, down $10 million from the year ago quarter and down $12 million from the prior quarter.
The allowance for loan losses of $238 million was down $28 million from the year ago quarter and was up $2 million from the prior quarter. The allowance for loan losses to total loans ratio was 1.04% in the fourth quarter of 2018, compared to 1.28% in the year ago quarter, and 1.03% in the prior quarter.

The Company expects its 2019 provision for credit losses to adjust with changes to risk grade, other indications of credit quality, and loan volume.

Capital

The Company's capital position remains strong, with a CET1 capital ratio of 10.3% at December 31, 2018. 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 2018, the Company repurchased over 9 million shares, or $240 million, of common stock at an average price of $25.29 per share. This included fourth quarter repurchases of approximately 4 million shares, or $89 million, of common stock at an average price of $23.55 per share.

FOURTH QUARTER 2018 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 24, 2019. 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 2018 earnings call. The fourth quarter 2018 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 $34 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 230 banking locations serving more than 110 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