Associated Banc-Corp Reports Second Quarter 2020 Earnings of $0.94 Per Common Share Including the Gain on Sale of Associated Benefits and Risk Consulting

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Jul 23, 2020, 15:51 ET

GREEN BAY, Wis., July 23, 2020 /PRNewswire/ -- Associated Banc-Corp (NYSE: ASB) ("Associated" or "Company") today reported net income available to common equity ("earnings") of $145 million, or $0.94 per common share, for the quarter ended June 30, 2020. Second quarter earnings, excluding the net gain on the sale of Associated Benefits and Risk Consulting ("ABRC"), were $0.26 per common share¹. These amounts compare to net income available to common equity of $42 million, or $0.27 per common share for the quarter ended March 31, 2020. Year to date earnings were $1.20 per common share, or $0.53 per common share¹ excluding the net gain on sale of ABRC, compared to $0.99 per common share in the same period last year.

"We have successfully supported our customers during this turbulent quarter," said President and CEO Philip B. Flynn. "We have provided over $1 billion of PPP funding, deferred and modified loans, waived fees to provide relief, and helped to distribute nearly half a billion of other stimulus support to our customer base. We have been a pillar of strength to our customers and communities through this period of time."

"During this quarter, we closed the strategic sale of ABRC which bolstered our CET1 and tangible capital levels. Further, we issued $100 million of preferred stock which also enhanced our risk weighted and total capital levels. We have also grown checking and savings balances to record levels in the Company's history. Taking these actions together, we have positioned ourselves with ample capital and liquidity to continue to support our customers."

SECOND QUARTER 2020 SUMMARY (all comparisons to the first quarter of 2020)

Average loans of $25.2 billion were up 8%, or $1.9 billion
Average deposits of $26.1 billion were up 8%, or $1.9 billion
Net interest income of $190 million decreased $13 million, or 6%
Net interest margin of 2.49% declined 35 basis points from 2.84%
Provision for credit losses was $61 million up $8 million, or 15%
Noninterest income of $254 million driven by $157 million of net asset gains
Noninterest expense of $183 million decreased $9 million, or 5%
Income before taxes of $200 million increased $144 million
Pre-tax pre-provision income¹of $261 million up $152 million
Tangible book value per share was $16.21, up 11%

¹This is a non-GAAP financial measure. Management believes these measures are meaningful because they reflect adjustments commonly made by management, investors, regulators, and analysts to evaluate the adequacy of earnings per common share, provide greater understanding of ongoing operations and enhance comparability of results with prior periods. See page 10 of the attached tables for a reconciliation of GAAP financial measures to non-GAAP financial measures.

Loans

Second quarter 2020 average loans of $25.2 billion were up 8%, or $1.9 billion from the first quarter 2020 and were up 8%, or $1.8 billion from the same period last year. The increases were largely driven by PPP loans, commercial line draws, and CRE loans. With respect to second quarter average balances by loan category:

Commercial and business lending increased $1.7 billion from the first quarter 2020 and increased $1.4 billion compared to the same period last year to $10.0 billion. The increase was driven by approximately $850 million of PPP loans plus line draws on other commercial loans.
Commercial real estate lending increased $391 million from the first quarter 2020 and $589 million from the same period last year to $5.7 billion. The change was largely due to the funding of existing commitments and slowing payoffs.
Consumer lending was $9.4 billion, down $170 million from the first quarter 2020 and down $173 million from the same period last year. This was predominantly driven by the sale of a $188 million mortgage portfolio during the second quarter 2020.

Deposits

Second quarter 2020 average deposits of $26.1 billion were up $1.9 billion, or 8%, compared to the first quarter 2020 and were up $1.1 billion from the same period last year. The increases in balances are due to customers holding proceeds from PPP loans and other government stimulus programs in their deposit accounts, along with higher savings rates in general.

With respect to second quarter 2020 average balances by deposit category:

Noninterest-bearing demand deposits increased $1.4 billion from the first quarter and $1.8 billion from the same period last year to $6.9 billion.
Savings increased $391 million from the first quarter and $940 million from the same period last year to $3.3 billion.
Interest-bearing demand deposits increased $138 million from the first quarter and $461 million from the same period last year to $5.4 billion.
Network transaction deposits increased $111 million from the first quarter but decreased $480 million from the same period last year to $1.5 billion.
Money market deposits decreased $42 million from the first quarter and decreased $622 million from the same period last year to $6.5 billion.
Time deposits decreased $166 million from the first quarter and decreased $1.1 billion from the same period last year to $2.5 billion.

Net Interest Income and Net Interest Margin

Second quarter 2020 net interest income of $190 million was down 6%, or $13 million, and the net interest margin decreased 35 basis points from the first quarter of 2020. Second quarter 2020 net interest income decreased 11%, or $24 million, and the net interest margin decreased 39 basis points from the same period last year to 2.49%. The decreases in net interest income and net interest margin from the first quarter are due to reductions in the Fed Funds rate and increased liquidity during the second quarter.

The average yield on total earning assets for the second quarter of 2020 decreased 73 basis points from the prior quarter and decreased 116 basis points from the same period last year to 2.94%.
The average cost of total interest-bearing liabilities for the second quarter of 2020 decreased 46 basis points from the prior quarter and decreased 94 basis points from the same period last year to 0.60%.
The net free funds benefit for the second quarter of 2020 decreased eight basis points from the prior quarter and decreased 17 basis points compared to the same period last year.

Noninterest Income

Second quarter of 2020 total noninterest income of $254 million increased $156 million from the prior quarter and increased $159 million from the same period last year.

With respect to second quarter 2020 noninterest income line items:

Net mortgage banking income was $12 million for the second quarter, up $6 million from the previous quarter and up $3 million from the same period last year. Gross mortgage banking income was $20 million, partially offset by $8 million of mortgage servicing rights impairment.
Capital markets income was down $1 million from the previous quarter and up $2 million from the same period last year.
Asset gains (losses), net were $157 million for the second quarter. This included the $163 million net gain on sale of ABRC offset by other asset write-downs of $6 million.

Noninterest Expense

Second quarter 2020 total noninterest expense of $183 million decreased $9 million from the prior quarter and decreased $14 million compared to the same period last year.

With respect to second quarter 2020 noninterest expense line items:

Personnel expense decreased $3 million from the prior quarter and $12 million from the same period last year.
Technology expense was flat from the prior quarter but increased $1 million from the same period last year.
Occupancy expense decreased $2 million from the prior quarter but was up $1 million from the same period last year.
Business development and advertising expense was down $2 million from the prior quarter and was down $3 million from the same period last year.

Taxes

The second quarter 2020 effective tax rate was 26% compared to 18% in both the prior quarter and the same period last year. The higher effective tax rate for the second quarter was driven by the one-time gain on the sale of ABRC.

Credit

The second quarter 2020 provision for credit losses was $61 million, up from $53 million in the prior quarter and up from $8 million in the same period last year, driven by increased charge offs and further reserve builds.

With respect to second quarter 2020 credit quality:

Potential problem loans of $307 million were up $73 million, or 31%, from the prior quarter and up $141 million, or 85%, from the same period last year. The increase was driven by general C&I loans and CRE loans in COVID-19 affected industries.
Nonaccrual loans of $172 million were up $35 million from the prior quarter and up $5 million from the same period last year. The nonaccrual loans to total loans ratio was 0.69% in the second quarter, up from 0.56% in the prior quarter and down from 0.72% in the same period last year.
Net charge offs of $26 million were up $9 million from the prior quarter and up $13 million from the same period last year.
The allowance for credit losses on loans (ACLL) of $429 million was up $35 million from the prior quarter and up $173 million compared to the same period last year. The ACLL to total loans ratio was 1.73% in the second quarter, up from 1.62% in the prior quarter and 1.10% in the same period last year.

Capital

The Company's capital position remains strong, with a CET1 capital ratio of 10.3% at June 30, 2020. The Company's capital ratios continue to be in excess of the Basel III "well-capitalized" regulatory benchmarks on a fully phased in basis.

SECOND QUARTER 2020 EARNINGS RELEASE CONFERENCE CALL

The Company will host a conference call for investors and analysts at 4:00 p.m. Central Time (CT) today, July 23, 2020. Interested parties can access the live webcast of the call through the Investor Relations section of the Company's website, http://investor.associatedbank.com. Parties may also dial into the call at 877-407-8037 (domestic) or 201-689-8037 (international) and request the Associated Banc-Corp second quarter 2020 earnings call. The second quarter 2020 financial tables with an accompanying slide presentation will be available on the Company's website just prior to the call. An audio archive of the webcast will be available on the Company's website approximately fifteen minutes after the call is over.

ABOUT ASSOCIATED BANC-CORP

Associated Banc-Corp (NYSE: ASB) has total assets of $36 billion and is one of the top 50 publicly traded U.S. bank holding companies. Headquartered in Green Bay, Wisconsin, Associated is a leading Midwest banking franchise, offering a full range of financial products and services from more than 240 banking locations serving more than 120 communities throughout Wisconsin, Illinois and Minnesota, and commercial financial services in Indiana, Michigan, Missouri, Ohio and Texas. Associated Bank, N.A. is an Equal Housing Lender, Equal Opportunity Lender and Member FDIC. More information about Associated Banc-Corp is available at www.associatedbank.com.

FORWARD-LOOKING STATEMENTS

Statements made in this document which are not purely historical are forward-looking statements, as defined in the Private Securities Litigation Reform Act of 1995. This includes any statements regarding management's plans, objectives, or goals for future operations, products or services, and forecasts of its revenues, earnings, or other measures of performance. Such forward-looking statements may be identified by the use of words such as "believe," "expect," "anticipate," "plan," "estimate," "should," "will," "intend," "target," "outlook," or similar expressions. Forward- looking statements are based on current management expectations and, by their nature, are subject to risks and uncertainties. Actual results may differ materially from those contained in the forward-looking statements. Factors which may cause actual results to differ materially from those contained in such forward-looking statements include those identified in the Company's most recent Form 10-K and subsequent SEC filings. Such factors are incorporated herein by reference.

NON-GAAP FINANCIAL MEASURES
This press release and related materials may contain references to measures which are not defined in generally accepted accounting principles ("GAAP"). Information concerning these non-GAAP financial measures can be found in the financial tables. Management believes these measures are meaningful because they reflect adjustments commonly made by management, investors, regulators, and analysts to evaluate the adequacy of earnings per common share, provide a greater understanding of ongoing operations and enhance comparability of results with prior periods.

Investor Contact:
Brian Mathena, Senior Vice President, Director of Investor Relations
920-491-7059

Media Contact:
Jennifer Kaminski, Vice President, Public Relations Senior Manager
920-491-7576

SOURCE Associated Banc-Corp