Associated Banc-Corp Reports Third Quarter 2020 Earnings of $0.26 Per Common Share Including Restructuring Charges and Tax Benefits

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Oct 22, 2020, 16:15 ET

GREEN BAY, Wis., Oct. 22, 2020 /PRNewswire/ -- Associated Banc-Corp (NYSE: ASB) ("Associated" or "Company") today reported net income available to common equity ("earnings") of $40 million, or $0.26 per common share, for the quarter ended September 30, 2020. Third quarter earnings, excluding restructuring charges and tax benefits, were $0.24 per common share¹. These amounts compare to net income available to common equity of $80 million, or $0.49 per common share for the quarter ended September 30, 2019.

Year to date earnings were $227 million, or $1.46 per common share, compared to $243 million, or $1.48 per common share, for the same period last year. Excluding restructuring charges, tax benefits from the reorganization of our securities and real estate lending subsidiaries, the gain on sale of Associated Benefits and Risk Consulting (ABRC), and acquisition costs, year to date 2020 earnings per common share were $0.681.

"We took action during the quarter to optimize our operations and improve efficiency," said President and CEO Philip B. Flynn. "We announced the sale or consolidation of 22 branches, along with the streamlining of our back office functions, and the restructuring of several subsidiaries and liabilities. Together we expect these actions will reduce our run-rate expenses by approximately $40 million and improve our net interest income by approximately $20 million on an annualized basis. The current environment has accelerated the on-going shift of customer activity towards online and mobile banking and is driving our need to invest in technology that allows us to be more nimble, more virtual, and more digitally enabled. While the environment has been challenging, our customers are demonstrating resilience, credit trends are moderating, and the actions we have taken position us to better support our core markets going into next year."

THIRD QUARTER 2020 SUMMARY (all comparisons to the second quarter of 2020)

Average loans of $25.0 billion were down 1%, or $228 million
Average deposits of $26.8 billion were up 3%, or $696 million
Net interest income of $182 million decreased, $8 million, or 4%
Provision for credit losses was $43 million, an improvement of $18 million, or 29%
Tangible book value per share was $16.37, up 1%

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 pages 10 and 11 of the attached tables for a reconciliation of non-GAAP financial measures to GAAP financial measures.

Loans

Third quarter 2020 average loans of $25.0 billion were down 1%, or $228 million from the second quarter 2020 and were up 7%, or $1.7 billion from the same period last year. With respect to third quarter average balances by loan category:

Commercial real estate lending increased $312 million from the second quarter 2020 and $875 million from the same period last year to $6.0 billion. The increase was driven by the continued funding of the existing pipeline and slowed loan payoffs.
Consumer lending was $9.2 billion, down $269 million from the second quarter 2020 and down $433 million from the same period last year. This was driven by continued refinancing activity and a $70 million mortgage portfolio sale.
Commercial and business lending decreased $271 million from the second quarter 2020 and increased $1.3 billion compared to the same period last year to $9.8 billion. General commercial line pay downs drove the decrease from last quarter and PPP loans accounted for the majority of the increase from the same period last year.

Deposits

Third quarter 2020 average deposits of $26.8 billion were up $696 million, or 3%, compared to the second quarter

2020 and were up $1.6 billion, or 7%, from the same period last year. With respect to third quarter 2020 average balances by deposit category:

Noninterest-bearing demand deposits increased $486 million from the second quarter and $2.1 billion from the same period last year to $7.4 billion.
Interest-bearing demand deposits increased $390 million from the second quarter and $383 million from the same period last year to $5.8 billion.
Savings increased $203 million from the second quarter and $845 million from the same period last year to $3.5 billion.
Network transaction deposits decreased $17 million from the second quarter and $237 million from the same period last year to $1.5 billion.
Money market deposits decreased $32 million from the second quarter and $468 million from the same period last year to $6.5 billion.
Time deposits decreased $334 million from the second quarter and $972 million from the same period last year to $2.1 billion.

Net Interest Income and Net Interest Margin

Third quarter 2020 net interest income of $182 million was down 4%, or $8 million, and the net interest margin decreased 18 basis points, from the second quarter of 2020. Third quarter 2020 net interest income decreased 12%, or $24 million, and the net interest margin decreased 50 basis points from the same period last year, to 2.31%. The decreases in net interest income and net interest margin from the second quarter are due to loans repricing lower after reductions to LIBOR and increasing liquidity during the third quarter.

The average yield on total earning assets for the third quarter of 2020 decreased 24 basis points from the prior quarter and decreased 124 basis points from the same period last year to 2.70%.
The average cost of total interest-bearing liabilities for the third quarter of 2020 decreased 8 basis points from the prior quarter and decreased 92 basis points from the same period last year to 0.52%.
The net free funds benefit for the third quarter of 2020 decreased two basis points from the prior quarter and decreased 18 basis points compared to the same period last year.

Noninterest Income

Third quarter 2020 total noninterest income of $76 million decreased $179 million from the prior quarter and decreased $25 million from the same period last year. The second quarter included $157 million of asset gains driven by the gain on sale of Associated Benefits and Risk Consulting ("ABRC").

With respect to third quarter 2020 noninterest income line items:

Service charges and deposit account fees were $14 million for the third quarter, up $3 million from the previous quarter and down $2 million from the same period last year.
Card-based revenue was $10 million for the third quarter, up $1 million from the previous quarter and flat from the same period last year.
Insurance commissions and fees were down $22 million from the previous quarter and down $21 million from the same period last year due to the sale of ABRC.

Noninterest Expense

Third quarter 2020 total noninterest expense of $228 million increased $44 million from the prior quarter and increased $27 million compared to the same period last year. The third quarter 2020 included $45 million of loss on prepayments of FHLB advances which were not incurred in the prior quarter or the third quarter last year.

With respect to third quarter 2020 noninterest expense line items:

Personnel expense decreased $3 million from the prior quarter and $15 million from the same period last year, driven by lower personnel expense from the sale of ABRC which was partially offset by severance from restructuring in 3Q 2020.
Technology expense decreased $2 million from the prior quarter and $1 million from the same period last year.
Occupancy expense increased $3 million from both the prior quarter and the same period last year. This was driven by $2 million of lease termination expense.
Other expense was up $3 million from the prior quarter and $2 million from the same period last year. This was driven by $5 million of OREO expense primarily due to our restructuring.

Taxes

The third quarter 2020 tax benefit was $58 million compared to $51 million of tax expense in the prior quarter and $21 million of tax expense in the same period last year. The tax benefit recognized in the third quarter was driven by capital losses from the reorganization of our securities and real estate lending subsidiaries.

Credit

The third quarter 2020 provision for credit losses was $43 million, down from $61 million in the prior quarter and up from $2 million in the same period last year.

With respect to third quarter 2020 credit quality:

Potential problem loans of $293 million were down $14 million, or 5%, from the prior quarter and up $160 million, or 120%, from the same period last year.
Nonaccrual loans of $232 million were up $60 million from the prior quarter and up $103 million from the same period last year. The increase from the prior quarter was driven by three commercial real estate deals. The nonaccrual loans to total loans ratio was 0.93% in the third quarter, up from 0.69% in the prior quarter and up from 0.57% in the same period last year.
Net charge offs of $30 million were up $3 million from the prior quarter and up $9 million from the same period last year.
The allowance for credit losses on loans (ACLL) of $442 million was up $13 million from the prior quarter and up $205 million compared to the same period last year. The ACLL to total loans ratio was 1.77% in the second quarter, up from 1.73% in the prior quarter and 1.04% in the same period last year.

Capital

The Company's capital position remains strong, with a CET1 capital ratio of 10.2% at September 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.

THIRD 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, October 22, 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 third quarter 2020 earnings call. The third 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 $35 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