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Associated Banc-Corp (ASB) Up 2.2% Since Last Earnings Report: Can It Continue?
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A month has gone by since the last earnings report for Associated Banc-Corp (ASB - Free Report) . Shares have added about 2.2% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Associated Banc-Corp due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Associated Banc-Corp’s fourth-quarter 2020 earnings of 40 cents per share surpassed the Zacks Consensus Estimate of 31 cents. However, the bottom line declined 7% year over year.
Results for the reported quarter were aided by a decline in expenses. However, lower revenues and higher provision for credit losses were the headwinds. Nevertheless, the balance sheet position remained strong during the quarter.
Net income available to common shareholders was $61.8 million, down 10% year over year.
For 2020, earnings per share of $1.86 beat the Zacks Consensus Estimate of $1.79. However, the figure was down 3% from that reported in 2019. Net income was $288.4 million, down 7% year over year.
Revenues & Expenses Decline
Net revenues for the reported quarter were $273.7 million, down 7% year over year. However, the top line beat the Zacks Consensus Estimate of $270.8 million.
For the year, net revenues were $1.28 billion, up 5% year over year. Also, the top line surpassed the Zacks Consensus Estimate of $1.18 billion.
Quarterly NII was $188 million, down 6% from the year-ago quarter. NIM was 2.49%, down 34 basis points (bps) year over year.
Non-interest income declined 8% year over year to $85.7 million. Decrease in insurance commissions and fees, service charges and deposit account fees, card-based fees, net capital markets related income, and net investment securities gains were the primary reasons behind the fall.
Non-interest expenses declined 15% year over year to $172.9 million. The fall was due to a decline in almost all cost components, except for legal and professional costs, loan and foreclosure costs, and FDIC assessment costs.
Efficiency ratio (on a fully tax-equivalent basis) was 58.02%, down from 67.32% in the prior-year quarter. A fall in efficiency ratio indicates an improvement in profitability.
As of Dec 31, 2020, net loans were $24.1 billion, down 2% from the previous quarter end. Total deposits fell marginally on a sequential basis to $26.5 billion.
Credit Quality Deteriorates
In the fourth quarter, the company recorded provision for credit losses of $17 million against no provisions in the year-ago quarter. As of Dec 31, 2020, the ratio of net charge-offs to annual average loans was 0.41%, up 17 bps from the year-ago quarter.
Moreover, as of Dec 31, 2020, total non-performing assets were $225.1 million, up 55% year over year. Further, total non-accrual loans were $210.9 million, jumping 78%.
Capital Ratios Improve & Profitability Ratios Decline
As of Dec 31, 2020, Tier 1 risk-based capital ratio was 11.81%, up from 11.26% recorded in the corresponding period of 2019. In addition, common equity Tier 1 capital ratio was 10.45% compared with 10.21% as of Dec 31, 2019.
At the end of the fourth quarter, annualized return on average assets was 0.78%, down from 0.89% recorded in the prior-year period. Moreover, return on average tangible common equity was 9.75% compared with the year-ago quarter’s 11.33%.
Business Optimization Initiatives
During third-quarter 2020, Associated Banc-Corp started several initiatives that are expected to improve efficiency and earnings in 2021.
1. Branch optimization: Management plans to divest/consolidate roughly 9% of its branches following the changes in consumer behavior owing the coronavirus pandemic and rise in active mobile users. The company will be closing approximately 15 branches in Wisconsin with around $380 million in total deposits. Most of these branches are within three-mile radius of each other. Also, the company expects to retain nearly 80% of these deposits and will likely incur $4 million in restructuring charges.
Additionally, Associated Banc-Corp announced the sale of five Peoria branches to Morton Community Bank, with $208 million worth of deposits. Further, the bank will be selling two branches in SW Wisconsin to Royal Bank with $56 million in deposits. The company will be receiving a 4% premium on deposits transferred.
These efforts are projected to result in $10 million in annual savings effective 2021 and generate net savings of $5-$7 million at close.
2. Internal efficiency initiatives: The company strategically streamlined corporate, managerial and back office functions, which resulted in reduction in about 200 employees by 2020-end. Through this, management intends to save $30 million in cost effective 2021.
3. FHLB liability restructuring & Business Reorganization: The company repaid $950 million of Federal Home Loan Bank (FHLB) advances and incurred a $45 million prepayment charge in the third quarter of 2020. Further, Associated Banc-Corp reorganized its securities and real estate lending subsidiaries, which generated net income tax benefit of $49 million in the third quarter.
Notably, these initiatives are anticipated to improve NII by nearly $20 million in 2021, and improve NIM by 6-7 bps in 2021 and 2022.
2021 Outlook
NIM is expected to be 2.55-2.65%.
Non-interest income is projected to be $280-$300 million. Mortgage banking revenues are anticipated to moderate, while wealth management fees are expected to decline $6 million due to the sale of Whitnell & Co.
Management expects commercial loan growth of 2-4%, driven by a 4-6% increase in commercial real estate loans, and a 1-2% increase in commercial and industrial loan balances, excluding paycheck protection program (PPP) loans.
Target investments to total assets ratio is expected at 15%.
Expenses are anticipated to be $675 million.
The company expects provisions of less than $70 million.
Common equity tier 1 ratio is expected to be either 9.5% or higher than that and tangible common equity ratio is estimated at or above 7.5%.
Effective tax rate is expected to be 18-21%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates revision. The consensus estimate has shifted 17.26% due to these changes.
VGM Scores
Currently, Associated Banc-Corp has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Associated Banc-Corp has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.
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Associated Banc-Corp (ASB) Up 2.2% Since Last Earnings Report: Can It Continue?
A month has gone by since the last earnings report for Associated Banc-Corp (ASB - Free Report) . Shares have added about 2.2% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Associated Banc-Corp due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Associated Banc-Corp Q4 Earnings Beat, Revenues Decline Y/Y
Associated Banc-Corp’s fourth-quarter 2020 earnings of 40 cents per share surpassed the Zacks Consensus Estimate of 31 cents. However, the bottom line declined 7% year over year.
Results for the reported quarter were aided by a decline in expenses. However, lower revenues and higher provision for credit losses were the headwinds. Nevertheless, the balance sheet position remained strong during the quarter.
Net income available to common shareholders was $61.8 million, down 10% year over year.
For 2020, earnings per share of $1.86 beat the Zacks Consensus Estimate of $1.79. However, the figure was down 3% from that reported in 2019. Net income was $288.4 million, down 7% year over year.
Revenues & Expenses Decline
Net revenues for the reported quarter were $273.7 million, down 7% year over year. However, the top line beat the Zacks Consensus Estimate of $270.8 million.
For the year, net revenues were $1.28 billion, up 5% year over year. Also, the top line surpassed the Zacks Consensus Estimate of $1.18 billion.
Quarterly NII was $188 million, down 6% from the year-ago quarter. NIM was 2.49%, down 34 basis points (bps) year over year.
Non-interest income declined 8% year over year to $85.7 million. Decrease in insurance commissions and fees, service charges and deposit account fees, card-based fees, net capital markets related income, and net investment securities gains were the primary reasons behind the fall.
Non-interest expenses declined 15% year over year to $172.9 million. The fall was due to a decline in almost all cost components, except for legal and professional costs, loan and foreclosure costs, and FDIC assessment costs.
Efficiency ratio (on a fully tax-equivalent basis) was 58.02%, down from 67.32% in the prior-year quarter. A fall in efficiency ratio indicates an improvement in profitability.
As of Dec 31, 2020, net loans were $24.1 billion, down 2% from the previous quarter end. Total deposits fell marginally on a sequential basis to $26.5 billion.
Credit Quality Deteriorates
In the fourth quarter, the company recorded provision for credit losses of $17 million against no provisions in the year-ago quarter. As of Dec 31, 2020, the ratio of net charge-offs to annual average loans was 0.41%, up 17 bps from the year-ago quarter.
Moreover, as of Dec 31, 2020, total non-performing assets were $225.1 million, up 55% year over year. Further, total non-accrual loans were $210.9 million, jumping 78%.
Capital Ratios Improve & Profitability Ratios Decline
As of Dec 31, 2020, Tier 1 risk-based capital ratio was 11.81%, up from 11.26% recorded in the corresponding period of 2019. In addition, common equity Tier 1 capital ratio was 10.45% compared with 10.21% as of Dec 31, 2019.
At the end of the fourth quarter, annualized return on average assets was 0.78%, down from 0.89% recorded in the prior-year period. Moreover, return on average tangible common equity was 9.75% compared with the year-ago quarter’s 11.33%.
Business Optimization Initiatives
During third-quarter 2020, Associated Banc-Corp started several initiatives that are expected to improve efficiency and earnings in 2021.
1. Branch optimization: Management plans to divest/consolidate roughly 9% of its branches following the changes in consumer behavior owing the coronavirus pandemic and rise in active mobile users. The company will be closing approximately 15 branches in Wisconsin with around $380 million in total deposits. Most of these branches are within three-mile radius of each other. Also, the company expects to retain nearly 80% of these deposits and will likely incur $4 million in restructuring charges.
Additionally, Associated Banc-Corp announced the sale of five Peoria branches to Morton Community Bank, with $208 million worth of deposits. Further, the bank will be selling two branches in SW Wisconsin to Royal Bank with $56 million in deposits. The company will be receiving a 4% premium on deposits transferred.
These efforts are projected to result in $10 million in annual savings effective 2021 and generate net savings of $5-$7 million at close.
2. Internal efficiency initiatives: The company strategically streamlined corporate, managerial and back office functions, which resulted in reduction in about 200 employees by 2020-end. Through this, management intends to save $30 million in cost effective 2021.
3. FHLB liability restructuring & Business Reorganization: The company repaid $950 million of Federal Home Loan Bank (FHLB) advances and incurred a $45 million prepayment charge in the third quarter of 2020. Further, Associated Banc-Corp reorganized its securities and real estate lending subsidiaries, which generated net income tax benefit of $49 million in the third quarter.
Notably, these initiatives are anticipated to improve NII by nearly $20 million in 2021, and improve NIM by 6-7 bps in 2021 and 2022.
2021 Outlook
NIM is expected to be 2.55-2.65%.
Non-interest income is projected to be $280-$300 million. Mortgage banking revenues are anticipated to moderate, while wealth management fees are expected to decline $6 million due to the sale of Whitnell & Co.
Management expects commercial loan growth of 2-4%, driven by a 4-6% increase in commercial real estate loans, and a 1-2% increase in commercial and industrial loan balances, excluding paycheck protection program (PPP) loans.
Target investments to total assets ratio is expected at 15%.
Expenses are anticipated to be $675 million.
The company expects provisions of less than $70 million.
Common equity tier 1 ratio is expected to be either 9.5% or higher than that and tangible common equity ratio is estimated at or above 7.5%.
Effective tax rate is expected to be 18-21%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates revision. The consensus estimate has shifted 17.26% due to these changes.
VGM Scores
Currently, Associated Banc-Corp has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Associated Banc-Corp has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.