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Associated Banc-Corp (ASB - Free Report) reported fourth-quarter 2016 earnings per share of 34 cents, outpacing the Zacks Consensus Estimate of 32 cents. Also, the figure represents an increase of 26% from the prior-year quarter.
Better-than-expected results were primarily driven by an improvement in total revenues. Moreover, the company registered growth in deposits and loan balances. Results also benefited from lower provision for credit losses. Further, an improvement in capital and profitability ratios added to the positives. However, expenses moved north and the company recorded a significant rise in nonperforming assets.
Net income available to common shareholders for the quarter increased 29% year over year to $52.5 million.
The company reported full-year 2016 earnings per share of $1.26, up 6% from the previous year. Moreover, the reported figure surpassed the Zacks Consensus Estimate of $1.23. Also, net income available to common shareholders for 2016 came in at $191.4 million, up 6% year over year.
Higher Revenues Offset Rising Costs
Net revenue for the quarter rose 7% year over year to $272.3 million, surpassing the Zacks Consensus Estimate of $268.8 million.
For 2016, net revenue came in at $1.06 billion, lagging the Zacks Consensus Estimate of $1.07 billion. However, the figure represents an increase of nearly 5% year over year.
Quarterly net interest income was $180.0 million, reflecting an increase of 5% from the year-ago quarter.
Non-interest income for the quarter totaled $92.3 million, marking an 11% year-over-year increase. Higher net mortgage banking fees, net capital market fees, bank-owned life insurance income and brokerage and annuity commissions were the primary drivers. These were, however, partially offset by a fall in net investment securities gains and lower service charges on deposit accounts and other income.
However, net interest margin (NIM) came in at 2.80%, reflecting 2 basis points (bps) decline from the prior-year quarter.
Non-interest expense was $178.9 million, up 2% from the year-ago period. The rise was primarily due to higher FDIC expense, legal and professional fees and personnel expense.
The efficiency ratio (fully tax equivalent basis) declined to 63.90% from 68.76% in the prior-year quarter. Note that a decline in efficiency ratio indicates improvement in profitability.
Credit Quality Deteriorated
Total nonperforming assets increased approximately 52% year over year to $293 million. Further, ratio of net charge-offs to annualized average loans came in at 0.18% in the reported quarter, up from 0.17% in the year-ago quarter. Moreover, total non-accrual loans were $275.3 million, up approximately 54% on a year-over-year basis.
However, provision for credit losses decreased to $15 million from $20 million in the year-ago quarter.
Strong Balance Sheet & Improvement in Capital Ratios
Net loans as of Dec 31, 2016 were $19.8 billion, up nearly 1% from the previous quarter. Further, total deposits came in at $21.9 billion, up marginally from the prior-quarter end.
As of Dec 31, 2016, Tier 1 risk-based capital ratio was 10.27%, up from 10.12% as of Dec 31, 2015. Further, total risk-based capital ratio was 12.68%, up from 12.62% at the end of the prior-year quarter.
Profitability Ratios Improve
The annualized return on average assets at the quarter end was 0.75%, up 13 bps year over year. Also, return on average tangible common equity came in at 10.78%, compared with 8.78% in the year-ago quarter.
2017 Outlook
Management expects annual average loan growth to be in the mid-to-high single-digit range.
Also, based on the assumption of further rate increases, the company expects its NIM trend to be stable or improving.
Further, the company projects its expenses to be 1% higher than the prior year.
Our Viewpoint
Associated Banc-Corp’s branch consolidation efforts and inorganic growth strategy are likely to enhance profitability. Also, its efforts to improve operating efficiency, along with appreciable growth in loans and deposits, have started paying off in the form of an enhanced top line. Further, the company’s capital deployment plans remain impressive.
However, we remain concerned about its elevated expenses, limited geographic exposure and increased dependence on commercial loans which are likely to negatively affect financials.
Associated Banc-Corp Price, Consensus and EPS Surprise
Among other Midwest banks, Enterprise Financial Services Corp. (EFSC - Free Report) is expected to report results on Jan 23, Old National Bancorp. (ONB - Free Report) on Jan 24 and First Interstate Bancsystem Inc. (FIBK - Free Report) is slated to release its numbers on Jan 26.
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Associated Banc-Corp (ASB) Beats Q4 Earnings, Costs Rise
Associated Banc-Corp (ASB - Free Report) reported fourth-quarter 2016 earnings per share of 34 cents, outpacing the Zacks Consensus Estimate of 32 cents. Also, the figure represents an increase of 26% from the prior-year quarter.
Better-than-expected results were primarily driven by an improvement in total revenues. Moreover, the company registered growth in deposits and loan balances. Results also benefited from lower provision for credit losses. Further, an improvement in capital and profitability ratios added to the positives. However, expenses moved north and the company recorded a significant rise in nonperforming assets.
Net income available to common shareholders for the quarter increased 29% year over year to $52.5 million.
The company reported full-year 2016 earnings per share of $1.26, up 6% from the previous year. Moreover, the reported figure surpassed the Zacks Consensus Estimate of $1.23. Also, net income available to common shareholders for 2016 came in at $191.4 million, up 6% year over year.
Higher Revenues Offset Rising Costs
Net revenue for the quarter rose 7% year over year to $272.3 million, surpassing the Zacks Consensus Estimate of $268.8 million.
For 2016, net revenue came in at $1.06 billion, lagging the Zacks Consensus Estimate of $1.07 billion. However, the figure represents an increase of nearly 5% year over year.
Quarterly net interest income was $180.0 million, reflecting an increase of 5% from the year-ago quarter.
Non-interest income for the quarter totaled $92.3 million, marking an 11% year-over-year increase. Higher net mortgage banking fees, net capital market fees, bank-owned life insurance income and brokerage and annuity commissions were the primary drivers. These were, however, partially offset by a fall in net investment securities gains and lower service charges on deposit accounts and other income.
However, net interest margin (NIM) came in at 2.80%, reflecting 2 basis points (bps) decline from the prior-year quarter.
Non-interest expense was $178.9 million, up 2% from the year-ago period. The rise was primarily due to higher FDIC expense, legal and professional fees and personnel expense.
The efficiency ratio (fully tax equivalent basis) declined to 63.90% from 68.76% in the prior-year quarter. Note that a decline in efficiency ratio indicates improvement in profitability.
Credit Quality Deteriorated
Total nonperforming assets increased approximately 52% year over year to $293 million. Further, ratio of net charge-offs to annualized average loans came in at 0.18% in the reported quarter, up from 0.17% in the year-ago quarter. Moreover, total non-accrual loans were $275.3 million, up approximately 54% on a year-over-year basis.
However, provision for credit losses decreased to $15 million from $20 million in the year-ago quarter.
Strong Balance Sheet & Improvement in Capital Ratios
Net loans as of Dec 31, 2016 were $19.8 billion, up nearly 1% from the previous quarter. Further, total deposits came in at $21.9 billion, up marginally from the prior-quarter end.
As of Dec 31, 2016, Tier 1 risk-based capital ratio was 10.27%, up from 10.12% as of Dec 31, 2015. Further, total risk-based capital ratio was 12.68%, up from 12.62% at the end of the prior-year quarter.
Profitability Ratios Improve
The annualized return on average assets at the quarter end was 0.75%, up 13 bps year over year. Also, return on average tangible common equity came in at 10.78%, compared with 8.78% in the year-ago quarter.
2017 Outlook
Management expects annual average loan growth to be in the mid-to-high single-digit range.
Also, based on the assumption of further rate increases, the company expects its NIM trend to be stable or improving.
Further, the company projects its expenses to be 1% higher than the prior year.
Our Viewpoint
Associated Banc-Corp’s branch consolidation efforts and inorganic growth strategy are likely to enhance profitability. Also, its efforts to improve operating efficiency, along with appreciable growth in loans and deposits, have started paying off in the form of an enhanced top line. Further, the company’s capital deployment plans remain impressive.
However, we remain concerned about its elevated expenses, limited geographic exposure and increased dependence on commercial loans which are likely to negatively affect financials.
Associated Banc-Corp Price, Consensus and EPS Surprise
Associated Banc-Corp Price, Consensus and EPS Surprise | Associated Banc-Corp Quote
At present, Associated Banc-Corp carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Among other Midwest banks, Enterprise Financial Services Corp. (EFSC - Free Report) is expected to report results on Jan 23, Old National Bancorp. (ONB - Free Report) on Jan 24 and First Interstate Bancsystem Inc. (FIBK - Free Report) is slated to release its numbers on Jan 26.
The Best Place to Start Your Stock Search
Today, you are invited to download the full list of 220 Zacks Rank #1 "Strong Buy" stocks – absolutely free of charge. Since 1988, Zacks Rank #1 stocks have nearly tripled the market, with average gains of +26% per year. Plus, you can access the list of portfolio-killing Zacks Rank #5 "Strong Sells" and other private research. See these stocks free >>