Associated Banc-Corp (ASB) Q3 Earnings Beat, Provisions Up

Associated Banc-Corp’s ASB third-quarter 2020 adjusted earnings of 24 cents per share topped the Zacks Consensus Estimate of 19 cents. The bottom line, nevertheless, slumped 51% year over year.

Improvement in loan and deposit balances, and lower adjusted operating expenses supported the results. However, lower interest rates, decline in fee income and a significant rise in provisions were the headwinds.

Results excluded restructuring charges pertaining to optimization of operations and improving efficiency, and tax benefits. After considering these, net income available to common shareholders was $40 million, down 50% year over year.

Revenues & Adjusted Expenses Fall

Net revenues were $257.7 million, down 16% year over year. Moreover, the top line missed the Zacks Consensus Estimate of $262.4 million.  

Net interest income summed $182.2 million, down 12% from the year-ago quarter. Net interest margin (NIM) was 2.31%, down 50 basis points (bps).

Non-interest income declined 25% to $75.5 million. Decrease in insurance commissions and fees, and service charges and deposit account fees, along with net asset losses were the primary reasons for the fall.

Non-interest expenses increased 13% year over year to $227.6 million. This included costs related to restructuring initiatives undertaken during the quarter. Excluding these, expenses declined 16% to $167 million.

Efficiency ratio (on a fully tax-equivalent basis) was 83.25%, up from 64.78% in the prior-year quarter. A rise in efficiency ratio indicates deterioration in profitability.

As of Sep 30, 2020, both net loans and total deposits grew marginally on a sequential basis to $24.6 billion and $26.7 billion, respectively.

Credit Quality Deteriorates

Provision for credit losses were $43 million, up substantially from $2 million in the year-ago quarter. 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 0.40% in the third quarter, up 26 bps from the year-ago quarter.

Moreover, as of Sep 30, 2020, total non-performing assets were $251.5 million, up 63% year over year. Further, total non-accrual loans were $231.6 million, jumping 80%.

Capital Ratios Improve & Profitability Ratios Down

As of Sep 30, 2020, Tier 1 risk-based capital ratio was 11.57%, up from the 11.26% recorded in the corresponding period of 2019. In addition, common equity Tier 1 capital ratio was 10.22% compared with 10.21% as of Sep 30, 2019.

Annualized return on average assets was 0.51%, down from the prior-year period’s 1.00%. Moreover, return on average tangible common equity was 6.36% compared with the year-ago quarter’s 13.27%.


Management expects NIM in the fourth quarter 2020 to be approximately 2.50%. Further, fee revenues are likely to continue growing through the end of 2020.

Expenses are expected to be $175 million (including $3 million related to restructuring charges) in the fourth quarter 2020 and $685 million for 2021.

Effective tax rate is expected to be in low to mid-single digit for 2020.

Our Take

Associated Banc-Corp is well positioned to benefit from a decent lending scenario and inorganic growth strategy. Further, branch consolidation and other restructuring efforts are likely to support financials in the quarters ahead.

However, lower interest rates and the coronavirus-related economic slowdown are key near-term concerns. These are likely to hurt profitability to some extent.

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

Hancock Whitney Corporation’s HWC third-quarter 2020 earnings per share of 90 cents handily surpassed the Zacks Consensus Estimate of 68 cents. However, the figure compared unfavorably with the prior-year quarter’s adjusted number of $1.03.

Commerce Bancshares Inc.’s CBSH third-quarter 2020 earnings per share of $1.11 surpassed the Zacks Consensus Estimate of 70 cents. Also, the bottom line came in 19.4% higher than the prior-year quarter reported figure.

Zions Bancorporation’s ZION third-quarter 2020 net earnings per share of $1.01 surpassed the Zacks Consensus Estimate of 86 cents. However, the bottom line compares unfavorably with the year-ago quarter’s $1.17.

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