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Associated Banc-Corp (ASB) Down 1.1% Despite Q4 Earnings Beat

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Associated Banc-Corp’s (ASB - Free Report) fourth-quarter 2023 adjusted earnings of 53 cents per share beat the Zacks Consensus Estimate by a penny. However, the bottom line compared unfavorably with the prior-year quarter’s earnings of 70 cents.

Results benefited from higher adjusted non-interest income and a rise in the deposit balance. However, a decline in net interest income (NII), an increase in expenses and provisions and a lower loan balance were headwinds. Hence, because of these concerns, investors turned bearish on the stock, which decreased 1.1% since the release of results last week.

Results excluded certain one-time items. After considering those, the net loss available to common shareholders was $93.7 million against the net income of $105.9 million in the year-ago quarter.

For 2023, adjusted earnings per share of $2.27 met the consensus estimate. Net income available to common shareholders was $171.5 million, down 52% year over year.

Adjusted Revenues Decline, Expenses Rise

Adjusted net revenues (FTE basis) were $322.2 million, down 9% year over year. The top line missed the Zacks Consensus Estimate of $326 million.

NII was $253.4 million, down 12%. Our estimate for NII was $260.1 million.

The net interest margin was 2.69%, down 62 basis points (bps) year over year. We had expected the net interest yield to be 2.71%.

The non-interest loss was $131 million in the reported quarter. Excluding the loss on mortgage portfolio sale and investment securities loss, adjusted non-interest income came in at $64.2 million, up from $61.7 million in the prior-year quarter. Our estimate for the non-interest income was $62.1 million.

Non-interest expenses increased 22% to $239.4 million. These included the FDIC special assessment charge of $39 million. Excluding this, adjusted expenses were $209 million. The rise was due to an increase in all cost components except loan and foreclosure costs, occupancy and equipment. Our estimate for non-interest expenses was $203.1 million and did not include the abovementioned non-recurring charge.

The FTE efficiency ratio was 127.5%, up from 54.08% in the prior-year quarter. A rise in the efficiency ratio indicates a deterioration in profitability.

As of Dec 31, 2023, total loans were $29.2 billion, down 3% from the Sep 30, 2023 level. Total deposits increased 4% to $33.6 billion.

Credit Quality Worsens

In the reported quarter, ASB recorded a provision for credit losses of $21 million, up 5% from the prior-year quarter. Our estimate for the metric was $23.1 million.

As of Dec 31, 2023, total non-performing assets were $160.4 million, up 27%. Total non-accrual loans were $149 million, rising 34%.

Net charge-offs were $21 million, up substantially from $2 million in the prior-year quarter.

Capital Ratios Improve

As of Dec 31, 2023, the Tier 1 risk-based capital ratio was 9.99%, up from the 9.95% recorded in the corresponding period of 2022. The common equity Tier 1 capital ratio was 9.39%, up from 9.35%.

2024 Outlook

Management expects loan growth of 4-6%.

Total core customer deposits are estimated to rise 3-5%.

NII is projected to increase 2-4%. After adjusting to exclude the impact of non-recurring items related to the balance sheet repositioning announced in the fourth quarter of 2023, total non-interest income is expected to remain stable or decrease 2%.

After adjusting to exclude the impact of the FDIC special assessment, total non-interest expenses are anticipated to rise 2-3%.

The effective tax rate is expected to be 19-21%.

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. However, elevated expenses and provisions are likely to hurt profits in the near term.

Associated Banc-Corp Price, Consensus and EPS Surprise

Associated Banc-Corp Price, Consensus and EPS Surprise

Associated Banc-Corp price-consensus-eps-surprise-chart | Associated Banc-Corp Quote

ASB 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

East West Bancorp’s (EWBC - Free Report) fourth-quarter 2023 adjusted earnings per share of $2.02 surpassed the Zacks Consensus Estimate of $1.89. However, the bottom line declined 14.8% from the prior-year quarter.

Including FDIC special assessment-related expenses and gain on the sale of available-for-sale debt security, EWBC’s earnings per share were $1.69.

Results were primarily aided by an increase in non-interest income. Also, loan balances increased sequentially in the quarter, which was an upside. However, lower NII and higher expenses and provisions were the undermining factors for EWBC.

Webster Financial’s (WBS - Free Report) fourth-quarter 2023 adjusted earnings per share of $1.46 were in line with Zacks Consensus Estimate. This compares favorably with earnings of $1.38 per share a year ago.

Results benefited from lower provisions and solid loans and deposit balances. However, a fall in both NII and non-interest income, along with elevated expenses, was the major headwind for WBS.


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