Associated Banc-Corp

’s

ASB

second-quarter 2022 earnings of 56 cents per share surpassed the Zacks Consensus Estimate of 44 cents. The bottom line, however, was the same as the prior-year quarter.

Results were aided by a rise in revenues and no provisions. The quarter witnessed an increase in loans and deposit balances. However, a rise in expenses hurt results to some extent.

Net income available to common shareholders was $83.9 million, down 3% from the year-ago quarter.

Revenues Improve, Expenses Rise

Net revenues were $291.6 million, up 15% year over year. The top line beat the Zacks Consensus Estimate of $281.7 million.

Net interest income (NII) was $216.1 million, up 20% year over year. The net interest margin was 2.71%, up 34 basis points (bps).

Non-interest income increased 3% year over year to $75.5 million. The rise was driven by an increase in service charges and deposit account fees, card-based fees, other fee-based revenues, net capital markets income, and bank and corporate-owned life insurance fees. In the reported quarter, the company recorded net asset gains against losses recorded in the prior-year quarter.

Non-interest expenses increased 4% year over year to $181.4 million. The rise was due to an increase in personnel costs, technology costs, business development and advertising expenses, FDIC assessment costs and other expenses.

The adjusted efficiency ratio was 60.82%, down from 67.02% in the prior-year quarter. A fall in the efficiency ratio indicates an improvement in profitability.

As of Jun 30, 2022, total loans were $26.5 billion, up from $24.5 billion as of Mar 31, 2022. Total deposits increased marginally from the prior-quarter end to $28.6 billion.

Credit Quality Improves

In the reported quarter, the company did not record any significant amount for provisions for credit losses against a provision benefit of $35 million in the prior-year quarter. As of Jun 30, 2022, the ratio of net charge-offs to annual average loans was a recovery of 0.01% against a charge-off of 0.08%.

As of Jun 30, 2022, total non-performing assets were $126.3 million, down 26% year over year. Total non-accrual loans were $108.3 million, declining 26%.

Capital & Profitability Ratios Deteriorate

As of Jun 30, 2022, Tier 1 risk-based capital ratio was 10.35%, down from the 11.81% recorded in the corresponding period of 2021. Common equity Tier 1 capital ratio was 9.70%, down from 10.70%.

At the end of the second quarter, annualized return on average assets was 0.97%, down from 1.06% recorded in the prior-year period. Return on average tangible common equity was 13.29%, down from 13.44%.

2022 Outlook

The company expects short-term interest rates to rise 75 bps following the FOMC meeting in July and expects a 25-bps increase at each remaining FOMC meeting this year. Based on the assumptions, management expects NII to exceed $890 million (changed from the prior mentioned $855 million increase).

Total non-interest income is expected to be between $290 million and $300 million.

Management projects auto finance loan growth of $1.3 billion (up from the prior stated more than $1.2 billion growth) and total commercial loan growth of $1.7 billion (up from the aforementioned range of $750 million to $1 billion).

Non-interest expenses are expected to be $730-$740 million (changed from the prior stated $725-$740 million).

The effective tax rate is expected to be 21%, assuming no change in the corporate tax rate.

The common equity tier 1 ratio is expected to be 9.25-9.75%, and the tangible common equity ratio is estimated to be 7.25-7.50%.

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. However, elevated expenses will likely hurt profits in the near term.

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

Bank of America

’s

BAC

second-quarter 2022 earnings of 73 cents per share lagged the Zacks Consensus Estimate of 77 cents. The bottom line compared unfavorably with $1.03 per share earned in the prior-year quarter.

As expected, BAC’s investment banking business did not perform well. Also, the asset management business did not offer much support. However, driven by robust loan growth and rising interest rates, the company recorded an improvement in NII. Further, BAC’s trading numbers were good.

BankUnited, Inc.

’s

BKU

second-quarter 2022 earnings per share of 82 cents lagged the Zacks Consensus Estimate of 90 cents. The bottom line also declined 26.1% from the prior-year quarter.

BKU’s results were largely hurt by lower non-interest income, a rise in provisions and higher expenses. Also, deposit balances witnessed a fall on a sequential basis. Moreover, profitability ratios deteriorated. Nevertheless, growth in net interest income was a tailwind for BankUnited.

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