Back to top

Image: Bigstock

Associated Banc-Corp (ASB) Q1 Earnings Beat, Provisions Rise

Read MoreHide Full Article

Associated Banc-Corp’s (ASB - Free Report) first-quarter 2020 adjusted earnings of 28 cents per share comfortably outpaced the Zacks Consensus Estimate of a breakeven. However, the figure declined 46% from the prior-year reported number. Earnings in the reported quarter excluded certain acquisition-related costs.

Rise in non-interest income, improvement in loan and deposit balances, as well as relatively stable 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 $42 million, down 49% year over year.

Revenues Down, Expenses Stable

Net revenues were $301.2 million, down 2% year over year. However, the figure beat the Zacks Consensus Estimate of $293.7 million.

Net interest income was $202.9 million, reflecting fall of 6% from the year-ago quarter. Net interest margin was 2.84%, down 6 basis points (bps).

Non-interest income totaled $98.3 million, up 8% year over year. Significant increase in mortgage banking income and net capital markets fees primarily drove the same.

Non-interest expenses remained relatively stable year over year at $192.2 million.

Efficiency ratio (on a fully tax-equivalent basis) was 68.47%, up from 61.83% in the prior-year quarter. Rise in efficiency ratio indicates deterioration in profitability.

As of Mar 31, 2020, net loans were $24 billion, up 6% on a sequential basis. Total deposits increased 8% from the prior quarter to $25.7 billion.

Credit Quality: Mixed Bag

The company reported provision for credit losses of $53 million, up substantially from $6 million in the prior-year quarter. The rise was mainly due to a reserve build, done to combat coronavirus-related woes. Also, the ratio of net charge-offs to annualized average loans was 0.29% in the first quarter, up 16 bps.

However, as of Mar 31, 2020, total non-performing assets were $165.3 million, down 2% year over year. Further, total non-accrual loans were $136.7 million, down 12%.

Capital & Profitability Ratios Deteriorate

As of Mar 31, 2020, Tier 1 risk-based capital ratio was 10.35%, down from 11.36% in the corresponding period of 2019. In addition, common equity Tier 1 capital ratio was 9.36% compared with 10.30% at the end of the prior-year quarter.

Annualized return on average assets was 0.57%, down from 1.05% in the comparable prior-year period. Moreover, return on average tangible common equity was 7.31% compared with 14.52% in the corresponding year-ago period.

Share Repurchase Update

During the first quarter, Associated Banc-Corp repurchased nearly 4 million shares for $71 million. In mid-March, it suspended the share buyback plan “until economic conditions improve and stabilize” to enhance liquidity levels amid coronavirus concerns.

2020 Outlook

Management is withdrawing 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 loan-to-deposit ratio of less than 100%, 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 driven by elevated refinancing activities. Service charges and other fee-based revenues are anticipated to be low due to the company’s “COVID-19 Relief Program”. Muted market conditions for assets under management will likely result in lower wealth management fees.

Operating expenses for the remaining quarters of 2020 are projected to be relatively stable with the first-quarter level.

Effective tax rate will likely be in the range of 18-20%.

Our Take

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

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

Associated Banc-Corp currently has a Zacks Rank #5 (Strong Sell).

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

Performance of Other Banks

Zions Bancorporation’s (ZION - Free Report) first-quarter 2020 net earnings per share of 4 cents missed the Zacks Consensus Estimate of 48 cents. The results included certain non-recurring items.

Washington Federal’s (WAFD - Free Report) second-quarter fiscal 2020 (ended Mar 31) earnings were 49 cents per share, missing the Zacks Consensus Estimate of 55 cents. The figure also declined 22.2% year over year.

Bank of Hawaii Corporation (BOH - Free Report) delivered a positive earnings surprise of 35.9% in first-quarter 2020. Earnings per share of 87 cents surpassed the Zacks Consensus Estimate of 64 cents. However, the bottom line compared unfavorably with $1.43 reported in the prior-year quarter.

More Stock News: This Is Bigger than the iPhone!

It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.

Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020. 

Click here for the 6 trades >>

Published in