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Associated Banc-Corp (ASB) Q2 Earnings In line, Costs Up
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Associated Banc-Corp (ASB - Free Report) reported second-quarter 2017 earnings per share of 36 cents, in line with the Zacks Consensus Estimate. The figure represents an increase of 16.1% from the prior-year quarter.
Results benefited primarily from an improvement in revenues but partially offset by higher expenses. The company also witnessed growth in loans. Moreover, lower provision for credit losses was another positive for the company.
Net income available to common shareholders for the quarter increased 18.6% year over year to $55.6 million.
Revenues & Expenses Increase
Net revenue rose 2.8% year over year to $266.2 million. However, revenues lagged the Zacks Consensus Estimate of $273.3 million.
Net interest income was $183.8 million, reflecting an increase of 4% from the year-ago quarter.
Non-interest income for the quarter totaled $82.4 million, almost stable year over year. A rise in almost all components of fee income was partially offset by a fall in net investment securities gains, service charges on deposit accounts and insurance commissions.
Net interest margin (NIM) came in at 2.83%, reflecting an increase of 2 basis points (bps) from the prior-year quarter.
Non-interest expense was $176.3 million, increasing nearly 1.1% from the year-ago period. The increase was primarily due to higher business development and advertising expense, technology expense, legal and professional fees expense, and personnel expense.
Efficiency ratio (fully tax equivalent basis) declined to 65.21% from 67.77% in the prior-year quarter. Note that a decline in efficiency ratio indicates improvement in profitability.
Credit Quality Improves
Total non-performing assets declined approximately 16.6% year over year to $247.1 million. Further, ratio of net charge-offs to annualized average loans came in at 0.25% in the reported quarter, down from 0.42% in the year-ago quarter.
As of Jun 30, 2017, total non-accrual loans were $231.9 million, down 17.9% year over year.
Also, provision for credit losses decreased to $12 million from $14 million in the year-ago quarter.
Strong Balance Sheet, Capital Ratios Improve
As of Jun 30, 2017, net loans were $20.5 billion, up 3.2% sequentially. However, total deposits decreased marginally from the prior-quarter end to $21.6 billion.
As of Jun 30, 2017, Tier 1 risk-based capital ratio was 10.61%, up from 9.73% as of Jun 30, 2016. Further, total risk-based capital ratio was 13.01%, up from 12.16% at the end of the prior-year quarter.
Profitability Ratios Strengthened
The annualized return on average assets at the quarter end was 0.80%, up 11 basis points year over year. Also, return on average tangible common equity came in at 11.06% compared with 10.04% in the year-ago quarter.
Other Developments
Concurrently, Associated Banc-Corp entered into an all-stock deal for $482 million, to acquire Bank Mutual Corporation and its subsidiary. The transaction is expected to close in first-quarter 2018, subject to customary closing conditions.
Per the terms of the agreement, shareholders of Bank Mutual Corporation will receive 0.422 Associated Banc-Corp’s shares for each of their own shares held. Also, Associated Banc-Corp expects the transaction to be accretive to its EPS in 2019, excluding one-time charges.
Our Viewpoint
Associated Banc-Corp’s branch consolidation efforts and inorganic growth strategy are likely to enhance profitability. Also, the company is expected to witness continued organic growth due to improvement in loan and deposit balances along with gradually improving interest rate scenario.
However, we remain concerned about its limited geographic exposure and increased dependence on commercial loans, which are likely to have a negative effect on financials.
Associated Banc-Corp Price, Consensus and EPS Surprise
Among other Midwest banks, Enterprise Financial Services Corp (EFSC - Free Report) is expected to release its quarterly earnings on Jul 24, while Old National Bancorp (ONB - Free Report) is set to release results on Jul 25.
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Associated Banc-Corp (ASB) Q2 Earnings In line, Costs Up
Associated Banc-Corp (ASB - Free Report) reported second-quarter 2017 earnings per share of 36 cents, in line with the Zacks Consensus Estimate. The figure represents an increase of 16.1% from the prior-year quarter.
Results benefited primarily from an improvement in revenues but partially offset by higher expenses. The company also witnessed growth in loans. Moreover, lower provision for credit losses was another positive for the company.
Net income available to common shareholders for the quarter increased 18.6% year over year to $55.6 million.
Revenues & Expenses Increase
Net revenue rose 2.8% year over year to $266.2 million. However, revenues lagged the Zacks Consensus Estimate of $273.3 million.
Net interest income was $183.8 million, reflecting an increase of 4% from the year-ago quarter.
Non-interest income for the quarter totaled $82.4 million, almost stable year over year. A rise in almost all components of fee income was partially offset by a fall in net investment securities gains, service charges on deposit accounts and insurance commissions.
Net interest margin (NIM) came in at 2.83%, reflecting an increase of 2 basis points (bps) from the prior-year quarter.
Non-interest expense was $176.3 million, increasing nearly 1.1% from the year-ago period. The increase was primarily due to higher business development and advertising expense, technology expense, legal and professional fees expense, and personnel expense.
Efficiency ratio (fully tax equivalent basis) declined to 65.21% from 67.77% in the prior-year quarter. Note that a decline in efficiency ratio indicates improvement in profitability.
Credit Quality Improves
Total non-performing assets declined approximately 16.6% year over year to $247.1 million. Further, ratio of net charge-offs to annualized average loans came in at 0.25% in the reported quarter, down from 0.42% in the year-ago quarter.
As of Jun 30, 2017, total non-accrual loans were $231.9 million, down 17.9% year over year.
Also, provision for credit losses decreased to $12 million from $14 million in the year-ago quarter.
Strong Balance Sheet, Capital Ratios Improve
As of Jun 30, 2017, net loans were $20.5 billion, up 3.2% sequentially. However, total deposits decreased marginally from the prior-quarter end to $21.6 billion.
As of Jun 30, 2017, Tier 1 risk-based capital ratio was 10.61%, up from 9.73% as of Jun 30, 2016. Further, total risk-based capital ratio was 13.01%, up from 12.16% at the end of the prior-year quarter.
Profitability Ratios Strengthened
The annualized return on average assets at the quarter end was 0.80%, up 11 basis points year over year. Also, return on average tangible common equity came in at 11.06% compared with 10.04% in the year-ago quarter.
Other Developments
Concurrently, Associated Banc-Corp entered into an all-stock deal for $482 million, to acquire Bank Mutual Corporation and its subsidiary. The transaction is expected to close in first-quarter 2018, subject to customary closing conditions.
Per the terms of the agreement, shareholders of Bank Mutual Corporation will receive 0.422 Associated Banc-Corp’s shares for each of their own shares held. Also, Associated Banc-Corp expects the transaction to be accretive to its EPS in 2019, excluding one-time charges.
Our Viewpoint
Associated Banc-Corp’s branch consolidation efforts and inorganic growth strategy are likely to enhance profitability. Also, the company is expected to witness continued organic growth due to improvement in loan and deposit balances along with gradually improving interest rate scenario.
However, we remain concerned about its limited geographic exposure and increased dependence on commercial loans, which are likely to have a negative effect on 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 #3 (Hold). 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 release its quarterly earnings on Jul 24, while Old National Bancorp (ONB - Free Report) is set to release results on Jul 25.
Will You Make a Fortune on the Shift to Electric Cars?
Here's another stock idea to consider. Much like petroleum 150 years ago, lithium power may soon shake the world, creating millionaires and reshaping geo-politics. Soon electric vehicles (EVs) may be cheaper than gas guzzlers. Some are already reaching 265 miles on a single charge.
With battery prices plummeting and charging stations set to multiply, one company stands out as the #1 stock to buy according to Zacks research.
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