Associated Banc-p(ASB) - 2024 Q2 - Quarterly Results

Associated Banc-Corp Second Quarter 2024 Earnings Release The report details Associated Banc-Corp's Q2 2024 financial performance, asset quality, capital position, and strategic outlook Earnings Summary and Highlights The company reported strong Q2 2024 GAAP earnings of $113 million, boosted by a significant one-time tax benefit Quarterly Earnings Comparison | Metric | Q2 2024 (GAAP) | Q2 2024 (Adjusted) | Q1 2024 | Q2 2023 | | :--- | :--- | :--- | :--- | :--- | | Net Income to Common Equity | $113 million | $80 million | $78 million | $84 million | | Diluted EPS | $0.74 | $0.52 | $0.52 | $0.56 | - Management commentary emphasized the success of Phase 1 of their strategic plan, resulting in encouraging trends such as industry-leading customer satisfaction and the strongest consumer checking household growth in over a decade[2] - The company feels well-positioned for the second half of the year due to foundational discipline, market stability, and execution of its strategic plan, despite near-term macro uncertainty[2] Key Financial Metrics (Q2 2024) | Metric | Q2 2024 Value | | :--- | :--- | | Net Interest Income | $257 million | | Net Interest Margin | 2.75% | | Noninterest Income | $65 million | | Noninterest Expense | $196 million | | Provision for Credit Losses | $23 million | | ACLL / Total Loans | 1.32% | Financial Performance Analysis Q2 2024 featured modest loan growth, a slight deposit decrease, stable net interest income, and controlled expenses Loans Average total loans grew by $211 million, driven by commercial and consumer lending, with a revised annual forecast Average Loan Balances | Loan Category (Average Balance) | Q2 2024 | QoQ Change | YoY Change | | :--- | :--- | :--- | :--- | | Commercial & Business | $11.0 billion | +$195 million | +$112 million | | Commercial Real Estate | $7.2 billion | -$140 million | -$46 million | | Consumer Lending | $11.3 billion | +$156 million | +$75 million | | Total Average Loans | $29.6 billion | +$211 million | +$141 million | - The company now expects 2024 total loan growth to be at the lower end of the previously guided 4% to 6% range on a period-end basis[5] Deposits Average deposits decreased by $638 million due to declines in demand and money market accounts, revising guidance lower Average Deposit Balances | Deposit Category (Average Balance) | Q2 2024 | QoQ Change | YoY Change | | :--- | :--- | :--- | :--- | | Noninterest-bearing Demand | $5.7 billion | -$170 million | -$958 million | | Money Market | $6.0 billion | -$122 million | -$749 million | | Total Time Deposits | $6.9 billion | -$271 million | +$1.9 billion | | Total Average Deposits | $32.6 billion | -$638 million | +$1.3 billion | - The company now expects 2024 core customer deposit growth to finish at the lower end of the previously guided 3% to 5% range on a period-end basis[9] Net Interest Income and Net Interest Margin Net interest income remained stable at $257 million, though the net interest margin compressed by 4 basis points to 2.75% Net Interest Income and Margin Summary | Metric | Q2 2024 | QoQ Change | YoY Change | | :--- | :--- | :--- | :--- | | Net Interest Income | $257 million | -$1 million | -$1 million | | Net Interest Margin | 2.75% | -4 bps | -5 bps | - The average cost of total interest-bearing liabilities increased by 5 basis points from the prior quarter to 3.60%, while the average yield on total loans decreased by 1 basis point to 6.21%[10] - Based on current market conditions, the company now expects total net interest income growth of 1% to 3% in 2024[11] Noninterest Income Total noninterest income was flat at $65 million, with revised full-year guidance now between -1% and 1% growth - Key drivers of noninterest income included a $2 million increase in wealth management fees and a $1 million increase in card-based fees compared to the prior year[12][13] - The quarterly decrease was primarily driven by a $4 million gain on the sale of Visa B shares recognized in Q1 2024, which did not recur[13] - Excluding the impact of 2023 sales, the company now expects total noninterest income to finish within a range of negative 1% to 1% growth in 2024[13] Noninterest Expense Noninterest expense decreased 1% sequentially to $196 million due to a lower FDIC assessment, with annual guidance unchanged - FDIC assessment expense decreased by $7 million from the prior quarter, which was the primary driver of the overall expense reduction[14] - Compared to the prior year, personnel expense increased by $7 million and technology expense increased by $3 million, reflecting strategic investments[14] - After adjusting for FDIC special assessments, the company continues to expect total noninterest expense to grow by 2% to 3% in 2024[15] Taxes The company recognized a $13 million tax benefit, driven by a one-time $33 million deferred tax benefit from portfolio reallocation - A strategic reallocation of the investment securities portfolio resulted in a one-time deferred tax benefit of approximately $33 million during the quarter[16] - Excluding the one-time benefit, the company continues to expect the annual effective tax rate to be between 19% and 21% in 2024[16] Asset Quality and Capital Credit quality remained stable with a consistent provision for credit losses, while the company's capital position remains strong Credit Quality Provision for credit losses was stable at $23 million, while nonaccrual loans decreased to $154 million Key Credit Metrics | Credit Metric | Q2 2024 | Q1 2024 | Q2 2023 | | :--- | :--- | :--- | :--- | | Provision for Credit Losses | $23 million | $24 million | $22 million | | Nonaccrual Loans | $154 million | $178 million | $131 million | | Net Charge Offs | $21 million | $22 million | $11 million | | ACLL / Total Loans | 1.32% | 1.31% | 1.26% | Capital The company maintains a strong capital position, with a Common Equity Tier 1 ratio of 9.68% exceeding regulatory minimums - The CET1 capital ratio was 9.68% at June 30, 2024[19] - The Company's capital ratios are in excess of the Basel III "well-capitalized" regulatory benchmarks[19] Financial Statements and Reconciliations This section provides detailed unaudited financial tables, asset quality metrics, and non-GAAP measure reconciliations Consolidated Financial Statements Total assets were $41.6 billion as of June 30, 2024, with quarterly net income of $116 million Selected Balance Sheet Data | Balance Sheet Item | June 30, 2024 | March 31, 2024 | June 30, 2023 | | :--- | :--- | :--- | :--- | | Total Assets | $41.6 billion | $41.1 billion | $41.2 billion | | Loans, net | $29.3 billion | $29.1 billion | $29.5 billion | | Total Deposits | $32.7 billion | $33.7 billion | $32.0 billion | | Total Stockholders' Equity | $4.2 billion | $4.2 billion | $4.1 billion | Selected Income Statement Data | Income Statement Item | Q2 2024 | Q1 2024 | Q2 2023 | | :--- | :--- | :--- | :--- | | Net Interest Income | $256.6 million | $257.9 million | $257.9 million | | Noninterest Income | $65.2 million | $65.0 million | $65.5 million | | Net Income | $115.6 million | $81.2 million | $87.2 million | | Diluted EPS | $0.74 | $0.52 | $0.56 | Asset Quality Details Net charge-offs were $21.2 million, while nonaccrual loans decreased by 13% quarter-over-quarter to $154.4 million Net Charge-Offs by Category (Q2 2024) | Net Charge-Offs by Category | Q2 2024 ($ thousands) | | :--- | :--- | | Commercial and Business Lending | (13,674) | | Commercial Real Estate Lending | (4,541) | | Total Consumer | (2,947) | | Total Net Charge-Offs | (21,163) | Nonaccrual Loans by Category (June 30, 2024) | Nonaccrual Loans by Category | June 30, 2024 ($ thousands) | QoQ Change | | :--- | :--- | :--- | | Commercial and Business Lending | 23,041 | -69% | | Commercial Real Estate Lending | 48,265 | +158% | | Total Consumer | 83,117 | -3% | | Total Nonaccrual Loans | 154,423 | -13% | Non-GAAP Reconciliations This section reconciles GAAP net income to adjusted earnings and provides calculations for other non-GAAP metrics Reconciliation of Net Income | Reconciliation ($ in millions) | Q2 2024 | Q2 2024 per share | | :--- | :--- | :--- | | GAAP Net Income | $116 | $0.74 | | Tax Benefit (one-time item) | ($33) | ($0.22) | | Net Income, excluding one-time item | $83 | $0.52 | Reconciliation of Core Customer Deposits | Deposit Reconciliation ($ in millions) | June 30, 2024 | | :--- | :--- | | Total Deposits | $32,691 | | Less: Network Transaction Deposits | ($1,503) | | Less: Brokered CDs | ($4,062) | | Core Customer Deposits | $27,127 | - The return on average tangible common equity, a non-GAAP measure, was 16.25% for Q2 2024, compared to 11.31% in Q1 2024 and 12.38% in Q2 2023[38]