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Associated Banc-Corp (ASB) Q2 Earnings In Line, Provisions Rise

Zacks Equity Research

Associated Banc-Corp’s ASB second-quarter 2020 adjusted earnings of 26 cents per share came in line with the Zacks Consensus Estimate. The bottom-line figure, nevertheless, slumped 49%, year on year. Earnings excluded gain on sale of Associated Benefits and Risk Consulting in the reported quarter.

Rise in non-interest income, improvement in loan and deposit balances, as well as decreasing operating expenses supported the results. However, lower interest rates and a significant rise in provisions were the undermining factors.

Net income available to common shareholders (on a GAAP basis) was $145 million, up 79% year over year.

Revenues Improve, Expenses Fall

Net revenues were $444.4 million, significantly up 43.6% year over year. Moreover, the revenue figure beat the Zacks Consensus Estimate of $323.8 million.

Net interest income summed $190 million, reflecting a fall of 11.1% from the year-ago quarter. Net interest margin was 2.49%, down 39 basis points (bps).

Non-interest income totaled $254.5 million, up significantly year over year. Increase in gains from asset sales, mortgage banking income and net capital markets fees primarily drove this uptick.

Non-interest expenses decreased 7.3% year over year at $183 million.

Efficiency ratio (on a fully tax-equivalent basis) was 42.46%, down from the prior-year quarter’s 61.13%. Fall in efficiency ratio indicates increase in profitability.

As of Jun 30, 2020, net loans were $24.5 billion, up 1.8% on a sequential basis. Total deposits increased 3.5% from the prior quarter to $26.5 billion.

Credit Quality Deteriorates

The company reported provision for credit losses of $61 million, up substantially from the year-ago quarter’s $8 million. This rise was mainly due to a reserve build done to combat the coronavirus crisis. Also, the ratio of net charge-offs to annual average loans was 0.36% in the second quarter, up 18 bps from the year-ago quarter.

Moreover, as of Jun 30, 200 total non-performing assets were $192.8 million, up 4.2% year over year. Further, total non-accrual loans were $172 million, up 3%.

Capital & Profitability Ratios Improve

As of Jun 30, 2020, Tier 1 risk-based capital ratio was 11.62%, up from the 11.19% witnessed in the corresponding period of 2019. In addition, common equity Tier 1 capital ratio was 10.25% compared with the 10.14% recorded at the end of the prior-year quarter.

Annualized return on average assets was 1.78%, up from the prior-year period’s 1.05%. Moreover, return on average tangible common equity was 25.45% compared with the year-ago quarter’s 13.81%.

2020 Outlook

Management has withdrawn the prior 2020 outlook “due to extraordinary economic uncertainty” and plans to update the same as “conditions become more clear.”

The company expects to maintain a loan-to-deposit ratio of about 90%, excluding the paycheque protection program (PPP). Further, it expects the ratio of investments to total assets (excluding PPP) to be 15%.

Among fee income components, mortgage banking fees are expected to remain solid on increased refinancing activities. Service charges and other fee-based revenues are anticipated to return to normal levels over the remaining quarters of the year.

Operating expenses for the remaining quarters are projected at $175 million.

Effective tax rate will likely be 18% or less.

Our Viewpoint

Associated Banc-Corp is well positioned to benefit from a decent lending scenario and inorganic growth strategy. Nonetheless, lower interest rates and the coronavirus-related economic slowdown are key concerns.

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 #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Banks

Signature Bank SBNY reported second-quarter 2020 earnings per share of $2.21, missing the Zacks Consensus Estimate of $2.27. Also, the bottom line decreased 18.5% from the prior-year quarter’s reported tally.

Zions Bancorporation’s ZION net earnings of 34 cents per share missed the Zacks Consensus Estimate of 37 cents in the June-end quarter. Moreover, the bottom line compared unfavorably with the year-ago quarter’s 99 cents.

BancorpSouth Bank BXS delivered an earnings surprise of a whopping 90.3% in the second quarter on higher interest income. Net operating earnings of 59 cents per share outpaced the Zacks Consensus Estimate of 31 cents. However, the bottom line compared unfavorably with the year-ago quarter’s 61 cents.

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