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Associated Banc-Corp (ASB) Up on Q1 Earnings Beat, NII View Hiked

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Shares of Associated Banc-Corp ASB rallied 3.6% in aftermarket trading in response to better-than-expected first-quarter 2022 results. Earnings of 47 cents per share surpassed the Zacks Consensus Estimate of 37 cents. The bottom line, however, declined 19% from the prior-year quarter.

Results gained from growth in loan balance, higher net interest income, fall in expenses and provision benefits. However, a decline in non-interest income was a major headwind.

Net income available to common shareholders was $71.4 million, down 20% from the year-ago quarter.

Revenues & Expenses Fall

Net revenues came in at $262.2 million, down 3% year over year. The top line also missed the Zacks Consensus Estimate of $268.8 million.

Net interest income (NII) was $187.7 million, up 7%. Net interest margin was 2.42%, up 3 basis points (bps).

Non-interest income plunged 22% to $74.5 million. The decline was mainly due to lower net mortgage banking income, the absence of gains on the sale of branches and net gain on assets.

Non-interest expenses declined 1% to $173.3 million. The decrease was mainly due to lower legal and professional and other expenses.

Efficiency ratio (on a fully tax-equivalent basis) was 63.76%, down from 63.96% in the prior-year quarter. A fall in efficiency ratio indicates an improvement in profitability.

As of Dec 31, 2021, total loans were $24.5 billion, up 1% sequentially. Total deposits were relatively stable at $28.4 billion.

Credit Quality Improves

Provisions for credit losses were a benefit of $4 million compared with $23 million in the prior-year quarter. As of Mar 31, 2022, the ratio of net charge-offs to annual average loans was a recovery of 0.03% against a charge-off of 0.08%.

As of Mar 31, 2022, total non-performing assets were $161.4 million, down 14% year over year. Further, total non-accrual loans came in at $143.2 million, declining 12%.

Capital & Profitability Ratios Deteriorate

As of Mar 31, 2022, Tier 1 risk-based capital ratio was 10.91%, down from the 12.14% recorded in the corresponding period of 2021. Common equity Tier 1 capital ratio was 10.22%, down from 10.76%.

At the end of the first quarter, annualized return on average assets was 0.86%, down from 1.14% recorded in the prior-year period. Return on average tangible common equity was 11%, down from 14.03%.

2022 Outlook

The company now expects short-term interest rates to rise following each of this year's FOMC meetings. On the assumption of a 25 bps or more rate increase following each meeting, management now expects NII to exceed $840 million (up from prior guidance of more than $800 million increase).

Concurrently, the company announced its plan to make changes in the overdraft program, effective from the third quarter of 2022. These changes are projected to lower service charges and deposit account fees by nearly $3 million this year.

Given the expectations of higher rates this year, the company estimates less mortgage banking income and lower service charge revenues for both commercial and consumer customers over the second half of 2022. Total non-interest income is now expected to be between $290 million and $300 million (changed from the prior outlook of non-interest income exceeding $300 million).

Management projects auto finance loan growth of more than $1.2 billion and total commercial loan growth in the range of $750 million to $1 billion.

Non-interest expenses are expected to be in the range of $725-$740 million.

Effective tax rate is expected to be 19-21%, assuming no change in the corporate tax rate.

Common equity tier 1 ratio is expected to be 9.5% or higher, and tangible common equity ratio is estimated at or above 7.5%.

The company expects to adjust provisions to indicate changes to risk grades, economic conditions, loan volumes and other indications of credit quality.

Our Take

Associated Banc-Corp’s business restructuring efforts are likely to keep supporting financials. The company has a solid balance-sheet position, making it well poised for growth.

Associated BancCorp Price, Consensus and EPS Surprise

Associated BancCorp Price, Consensus and EPS Surprise
Associated BancCorp Price, Consensus and EPS Surprise

Associated BancCorp price-consensus-eps-surprise-chart | Associated BancCorp Quote

Associated Banc-Corp currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Banks

Commerce Bancshares Inc.’s CBSH first-quarter 2022 earnings of 97 cents per share easily surpassed the Zacks Consensus Estimate of 89 cents. The bottom line, however, declined 8.5% from the prior-year quarter.

Results benefited from an improvement in net interest income, a slight rise in loan balance and provision benefit. However, an increase in non-interest expenses and lower non-interest income were the major headwinds for CBSH.

Hancock Whitney Corporation’s HWC first-quarter 2022 earnings of $1.40 per share handily outpaced the Zacks Consensus Estimate of $1.32. The bottom line improved 15.7% from the prior-year quarter.

Results benefited from a fall in non-interest expenses, a slight rise in loan balance and provision benefit. However, a decline in net interest income, which reflected relatively lower interest rates and reduced non-interest income, were the undermining factors for HWC.

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