One month after raising nearly $331 million in a common stock offering, Associated Banc-Corp in Green Bay, Wisconsin, has announced plans to put its new capital to work.
The $42 billion-asset Associated disclosed that it plans to sell a $2 billion block of low-yielding mortgage loans and securities, freeing up balance-sheet space for more valuable assets. "The repositioning further reduces our exposure to low-yielding, longer-duration assets and provides capacity to drive more profitable organic growth," CEO Andy Harmening said Wednesday on a conference call with analysts.
Associated said it has already sold $1.3 billion of investment securities. A follow-on transaction involving $700 million of mortgages is expected to close in January. Associated plans to use proceeds to pay down $600 million of Federal Home Loan Bank advances and to purchase $1.5 billion of securities, which have a weighted-average yield more than double that of those it sold.
Scott Siefers, an analyst who covers Associated for Piper Sandler, called the move a "nice yield pick-up."
The weighted-average yield of the mortgages being sold is 2.99%. Most of the loans represent single-product relationships, the bank said.
"As we continue to execute on our plan going forward, we feel well-positioned to attract and deepen customer relationships, take market share in key commercial markets, and enhance the value of our franchise," Harmening said in a press release.
Associated remains on track to meet its goal of
While the asset sales will result in a $253 million after-tax loss, and push Associated into the red for the fourth quarter, the company is well-positioned for a strong recovery in 2025, Harmening said. Indeed, on a pro forma basis, the repositioning adds about $16 million of quarterly net interest income.
"I've not been more bullish on our bank's situation in the three years that I've been here," Harmening said on the conference call.
Associated is hardly the only bank to implement a balance-sheet repositioning strategy in recent months, as yields have ticked up following the sharp increase in interest rates during 2022 and 2023.
In September, the $1.52 billion-asset Union Bankshares in Morrisville, Vermont, said it sold $38.8 million in low-yielding securities. The deal led to a $1 million after-tax loss, but Union was able to reinvest the proceeds in higher-yielding loans and investments.
The $10.7 billion-asset Columbia Financial in Fair Lawn, New Jersey, said Thursday that it had sold $321 million of securities with a weighted average book yield of 1.53%. Columbia used the proceeds to fund loan growth, purchase higher-yielding securities and pay down higher-cost borrowings.
Columbia reported a pre-tax loss of $38 million, but it said the transaction would be immediately accretive to net interest income. "It accelerates our strategy to realign the Company's balance sheet towards higher-yielding assets and enhances the flexibility of our funding," CEO Thomas Kemly said in a press release.
In a similar transaction in June, the $3.8 billion-asset Bank of Marin Bancorp in Novato, California, sold $293 million of securities with an average yield of 1.94%.
