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Shares of Associated Banc-Corp (ASB - Free Report) gained 2% in the after-market trading following the release of its third-quarter 2023 results. Earnings of 53 cents per share met the Zacks Consensus Estimate. The bottom line declined 14.5% from the prior-year quarter.
In the reported quarter, the company recorded a decline in net interest income (NII) and non-interest income. Also, expenses increased marginally, which, along with higher provisions, was a negative. However, a sequential rise in loan balances aided the results to some extent.
Net income available to common shareholders was $80.4 million, down 14% year over year. Our projection for the metric was $76.2 million.
Revenues Decline, Expenses Rise Marginally
Net revenues (FTE basis) were $325.6 million, down 4.2% year over year. The top line missed the Zacks Consensus Estimate of $327.8 million.
NII was $254.2 million, down 4% year over year. Our estimate for NII was $258 million.
The net interest margin was 2.71%, down 42 basis points (bps) year over year. We had expected the net interest yield to be 2.73%.
Non-interest income decreased 6% year over year to $66.6 million. The fall was due to a decline in service charges and deposit account fees, net capital markets income, and other income. Moreover, in the reported quarter, the company recorded net investment securities losses against net gains in the prior-year quarter. Our estimate for non-interest income was $61.9 million.
Non-interest expenses increased marginally year over year to $196.2 million. The rise was due to an increase in almost all cost components, except for personnel costs and other costs. Our estimate for non-interest expenses was $191.3 million.
The FTE efficiency ratio was 58.50%, down from 58.79% in the prior-year quarter. A fall in the efficiency ratio indicates an improvement in profitability.
As of Sep 30, 2023, net loans were $29.8 billion, up 1.1% from Jun 30, 2023. Total deposits increased marginally on a sequential basis to $32.1 billion.
Credit Quality Worsens
In the reported quarter, the company recorded a provision for credit losses of $21.9 million, up 29% from the prior-year quarter. Our estimate for the metric was $28.8 million.
As of Sep 30, 2023, total non-performing assets were $177.7 million, up 34% year over year. Total non-accrual loans were $168.6 million, rising 45% year over year.
Capital Ratios Improve, Profitability Ratios Deteriorate
As of Sep 30, 2023, the Tier 1 risk-based capital ratio was 10.12%, up from the 10.03% recorded in the corresponding period of 2022. The common equity Tier 1 capital ratio was 9.55%, up from 9.41%.
At the end of the third quarter, the annualized return on average assets was 0.80%, down from the 1.02% recorded in the prior-year period. Return on average tangible common equity was 11.67%, down from 14.32% in the prior-year quarter.
2023 Outlook
Management expects loan growth of 5-6%, down from the prior mentioned 6-8% rise.
Total average core customer deposits are estimated to decline 3%, with 2% growth expected in the second half.
NII is projected to increase 8-10%, down from the prior stated 10-12% rise. Non-interest income is expected to decline 8-10%.
Non-interest expenses are anticipated to rise 3-4%.
The effective tax rate is expected to be 20-21%.
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
State Street’s (STT - Free Report) third-quarter 2023 adjusted earnings of $1.93 per share surpassed the Zacks Consensus Estimate of $1.77. The bottom line was 6% higher than the prior-year quarter level.
STT’s results were primarily aided by an increase in fee revenues. Also, the company did not record any provisions in the quarter, which was a positive. However, lower net interest revenues and higher expenses hurt the results to some extent.
Hancock Whitney’s (HWC - Free Report) third-quarter 2023 earnings of $1.12 per share outpaced the Zacks Consensus Estimate of $1.02. However, the bottom line reflects a year-over-year decline of 27.7%.
HWC’s results were positively impacted by a marginal rise in non-interest income. The loan balance witnessed a slight sequential rise, which was another positive. However, lower net interest income, higher expenses and significantly higher provisions were major headwinds.
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Associated Banc-Corp (ASB) Q3 Earnings Meet, Stock Gains
Shares of Associated Banc-Corp (ASB - Free Report) gained 2% in the after-market trading following the release of its third-quarter 2023 results. Earnings of 53 cents per share met the Zacks Consensus Estimate. The bottom line declined 14.5% from the prior-year quarter.
In the reported quarter, the company recorded a decline in net interest income (NII) and non-interest income. Also, expenses increased marginally, which, along with higher provisions, was a negative. However, a sequential rise in loan balances aided the results to some extent.
Net income available to common shareholders was $80.4 million, down 14% year over year. Our projection for the metric was $76.2 million.
Revenues Decline, Expenses Rise Marginally
Net revenues (FTE basis) were $325.6 million, down 4.2% year over year. The top line missed the Zacks Consensus Estimate of $327.8 million.
NII was $254.2 million, down 4% year over year. Our estimate for NII was $258 million.
The net interest margin was 2.71%, down 42 basis points (bps) year over year. We had expected the net interest yield to be 2.73%.
Non-interest income decreased 6% year over year to $66.6 million. The fall was due to a decline in service charges and deposit account fees, net capital markets income, and other income. Moreover, in the reported quarter, the company recorded net investment securities losses against net gains in the prior-year quarter. Our estimate for non-interest income was $61.9 million.
Non-interest expenses increased marginally year over year to $196.2 million. The rise was due to an increase in almost all cost components, except for personnel costs and other costs. Our estimate for non-interest expenses was $191.3 million.
The FTE efficiency ratio was 58.50%, down from 58.79% in the prior-year quarter. A fall in the efficiency ratio indicates an improvement in profitability.
As of Sep 30, 2023, net loans were $29.8 billion, up 1.1% from Jun 30, 2023. Total deposits increased marginally on a sequential basis to $32.1 billion.
Credit Quality Worsens
In the reported quarter, the company recorded a provision for credit losses of $21.9 million, up 29% from the prior-year quarter. Our estimate for the metric was $28.8 million.
As of Sep 30, 2023, total non-performing assets were $177.7 million, up 34% year over year. Total non-accrual loans were $168.6 million, rising 45% year over year.
Capital Ratios Improve, Profitability Ratios Deteriorate
As of Sep 30, 2023, the Tier 1 risk-based capital ratio was 10.12%, up from the 10.03% recorded in the corresponding period of 2022. The common equity Tier 1 capital ratio was 9.55%, up from 9.41%.
At the end of the third quarter, the annualized return on average assets was 0.80%, down from the 1.02% recorded in the prior-year period. Return on average tangible common equity was 11.67%, down from 14.32% in the prior-year quarter.
2023 Outlook
Management expects loan growth of 5-6%, down from the prior mentioned 6-8% rise.
Total average core customer deposits are estimated to decline 3%, with 2% growth expected in the second half.
NII is projected to increase 8-10%, down from the prior stated 10-12% rise. Non-interest income is expected to decline 8-10%.
Non-interest expenses are anticipated to rise 3-4%.
The effective tax rate is expected to be 20-21%.
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-eps-surprise-chart | Associated Banc-Corp Quote
ASB 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
State Street’s (STT - Free Report) third-quarter 2023 adjusted earnings of $1.93 per share surpassed the Zacks Consensus Estimate of $1.77. The bottom line was 6% higher than the prior-year quarter level.
STT’s results were primarily aided by an increase in fee revenues. Also, the company did not record any provisions in the quarter, which was a positive. However, lower net interest revenues and higher expenses hurt the results to some extent.
Hancock Whitney’s (HWC - Free Report) third-quarter 2023 earnings of $1.12 per share outpaced the Zacks Consensus Estimate of $1.02. However, the bottom line reflects a year-over-year decline of 27.7%.
HWC’s results were positively impacted by a marginal rise in non-interest income. The loan balance witnessed a slight sequential rise, which was another positive. However, lower net interest income, higher expenses and significantly higher provisions were major headwinds.