GREEN BAY, Wis., Oct. 24, 2019 /PRNewswire/ -- Associated Banc-Corp (NYSE: ASB) ("Associated" or "Company") today reported net income available to common equity ("earnings") of $80 million, or $0.49 per common share for the quarter ended September 30, 2019. These amounts compare to net income available to common equity of $84 million, or $0.48 per common share for the quarter ended September 30, 2018. Earnings for the first nine months of 2019 were $1.48 per common share compared to $1.38 per common share in the same period last year.
"We were pleased with our bottom-line results in the third quarter. We benefited from strong mortgage banking revenue and improving credit quality trends which drove our earnings per share," said President and CEO Philip B. Flynn. "We continued to reposition funding sources and adjust our securities portfolio, resulting in a lower cost of funds, smaller balance sheet, and more capital flexibility. We anticipate additional funding changes as we continue to fine-tune our balance sheet for a lower rate environment."
THIRD QUARTER 2019 SUMMARY (all comparisons to the third quarter of 2018)
- Average loans of $23.3 billion were up 1%, or $278 million
- Average deposits of $25.2 billion were up 2%, or $505 million
- Net interest income of $206 million decreased $13 million, or 6%
- Net interest margin of 2.81% declined 11 basis points from 2.92%
- Provision for credit losses of $2 million compared to negative $5 million
- Noninterest income of $101 million increased 14%, or $13 million
- Noninterest expense of $201 million was down 2%, or $3 million
- Income before income taxes of $104 million decreased 4%, or $4 million
- During the quarter, the Company repurchased nearly 3 million shares, or $60 million, of common stock
- Total dividends paid per common share were $0.17, up 13%
- Return on average common equity Tier 1 decreased to 12.8% from 13.2%
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 which exclude acquisition related costs.
Loans
Third quarter 2019 average loans of $23.3 billion were up $278 million, or 1%, from the year ago quarter, but declined $102 million from the second quarter.
With respect to third quarter 2019 average balances by loan category:
- Commercial and business lending increased $564 million from the year ago quarter but decreased $119 million from the second quarter to $8.5 billion. General commercial lending drove the increase from the year ago quarter while planned de-risking of the oil & gas portfolio contributed to the decrease from the second quarter.
- Consumer lending decreased $22 million from the year ago quarter and decreased $9 million from the second quarter to $9.6 billion.
- Commercial real estate lending decreased $264 million from the year ago quarter to $5.2 billion. However, CRE increased $26 million from the second quarter as strong production continued to outpace paydown activity.
Investments
Third quarter 2019 average investment securities of $6.0 billion were purposefully decreased by $968 million, or 14% from the year ago quarter, and decreased by $516 million from the second quarter as the Company used its investment portfolio as a source of funds during the third quarter, seeking to reposition its balance sheet for a declining rate environment.
- Taxable securities decreased $1.3 billion from the year ago quarter and decreased $491 million from the second quarter as lower yielding, primarily mortgage backed securities were sold.
- Tax-exempt securities increased $291 million from the year ago quarter but decreased $25 million from the second quarter.
Deposits
Third quarter 2019 average deposits of $25.2 billion were up $505 million, or 2% from the year ago quarter and were up $120 million compared to the second quarter. Deposit inflows from the Huntington branch acquisition that closed in June were used to pay down network transaction deposits and other higher-cost funding.
With respect to third quarter 2019 average balances by deposit category:
- Savings increased $716 million from the year ago quarter and increased $299 million from the second quarter to $2.6 billion.
- Interest-bearing demand deposits increased $464 million from the year ago quarter and increased $468 million from the second quarter to $5.5 billion.
- Time deposits increased $129 million from the year ago quarter but decreased $437 million from the second quarter to $3.1 billion.
- Noninterest-bearing demand deposits increased $14 million from the year ago quarter and increased $235 million from the second quarter to $5.3 billion.
- Network transaction deposits decreased $205 million from the year ago quarter and decreased $260 million from the second quarter to $1.8 billion.
- Money market deposits decreased $613 million from the year ago quarter and decreased $185 million from the second quarter to $6.9 billion.
Net Interest Income and Net Interest Margin
Third quarter 2019 net interest income of $206 million was down 6%, or $13 million, and the net interest margin decreased 11 basis points to 2.81% from the year ago quarter. Third quarter 2019 net interest income decreased 3%, or $7 million, and the net interest margin decreased six basis points from the prior quarter. The decreases were driven by compression in LIBOR rates outpacing reductions in funding costs. The net interest margin for the first nine months of 2019 was 2.86%.
- The average yield on total commercial loans for the third quarter of 2019 decreased seven basis points to 4.66% from the year ago quarter, and decreased 28 basis points from the prior quarter.
- The average cost of total interest-bearing deposits for the third quarter of 2019 increased 20 basis points to 1.23% from the year ago quarter but decreased 12 basis points from the prior quarter.
- The net free funds benefit, which is the net margin increase from noninterest-bearing deposits, increased four basis points in the third quarter of 2019 compared to the year ago quarter but was unchanged from the prior quarter.
Noninterest Income
Third quarter 2019 total noninterest income of $101 million increased $13 million from the year ago quarter and increased $5 million from the prior quarter.
With respect to third quarter 2019 noninterest income line items:
- Net mortgage banking income was up $7 million from the year ago quarter and was up $1 million from the previous quarter, driven by increased settlements including the sale of approximately $240 million of loans from our portfolio.
- Gains on sales of investment securities were up $4 million from the year ago quarter and up $3 million from the second quarter, reflecting our deleveraging strategy.
- Insurance commissions and fees were down $1 million from the year ago quarter and were down $2 million from the previous quarter due to seasonally lower contingency fees in the third quarter.
Noninterest Expense
Third quarter 2019 total noninterest expense of $201 million decreased 2%, or $3 million from the year ago quarter, but increased $3 million from the prior quarter. The year ago quarter included $2 million of acquisition related costs while the current quarter and prior quarter included $2 million and $4 million of acquisition related costs, respectively.
With respect to third quarter 2019 noninterest expense line items:
- Personnel expense decreased $1 million from the year ago quarter, but was essentially unchanged from the prior quarter despite the addition of personnel from the Huntington branch acquisition.
- Occupancy expense increased $1 million from the year ago quarter and the prior quarter due primarily to the acquisition of Huntington branches.
- Technology expense increased $3 million from the year ago quarter, but was relatively unchanged from the prior quarter as the company continued to make investments to enhance its online and mobile product offerings.
- The Company's FDIC assessment decreased $4 million from the year ago quarter with the removal of the FDIC surcharge and decreased from the prior quarter.
Taxes
The third quarter 2019 effective tax rate was 20% compared to 21% in the year ago quarter and 18% in the prior quarter. The lower effective tax rate in the previous quarter was due to a one-time tax benefit as the Company contributed appreciated stock to its charitable trust.
Credit
The third quarter 2019 provision for credit losses was $2 million, up from negative $5 million in the year ago quarter but down from $8 million in the prior quarter.
With respect to third quarter 2019 credit quality:
- Potential problem loans of $133 million were down $103 million, or 44%, from the year ago quarter and down $33 million, or 20%, from the prior quarter.
- Nonaccrual loans of $129 million were down $25 million from the year ago quarter and down $38 million from the prior quarter. The nonaccrual loans to total loans ratio was 0.57% in the third quarter, compared to 0.67% in the year ago quarter and 0.72% in the prior quarter.
- Other real estate owned (OREO) of $20 million was down $6 million from the year ago quarter, which was elevated due to pending Bank Mutual branch dispositions, and up $1 million from the prior quarter.
- Net charge offs of $20 million were up $8 million from the year ago quarter and up $7 million from the prior quarter reflecting continued de-risking of the oil & gas portfolio.
- The allowance for loan losses of $214 million was down $22 million from the year ago quarter and was down $19 million from the prior quarter. The allowance for loan losses to total loans ratio was 0.94% in the third quarter, down from 1.03% in the year ago quarter, and 1.00% in the prior quarter.
Capital
The Company's capital position remains strong, with a CET1 capital ratio of 10.2% at September 30, 2019. The Company's capital ratios continue to be in excess of the Basel III "well-capitalized" regulatory benchmarks on a fully phased in basis.
During the quarter, the Company repurchased nearly 3 million shares, or $60 million, of common stock at an average price of $20.75 per share.
THIRD QUARTER 2019 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 24, 2019. 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 2019 earnings call. The third quarter 2019 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 $33 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:
Robb Timme, Senior Vice President, Director of Investor Relations
920-491-7059
Media Contact:
Jennifer Kaminski, Vice President, Public Relations Senior Manager
920-491-7576
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