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Associated Banc-Corp (ASB) Q2 Earnings Beat, Costs Down

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Associated Banc-Corp (ASB - Free Report) posted second-quarter 2016 earnings per share of 31 cents, outpacing the Zacks Consensus Estimate by a penny. However, the reported figure came in line with the prior-year quarter.

Results benefited from an improvement in revenues in tandem with declining expenses. A significant rise in provisions and deteriorating profitability ratios were the downside. The company registered growth in loans and deposits, but witnessed a mixed credit quality and capital ratios.

Net income available to common shareholders declined 2% year over year to $47 million.
 

 

 

Higher Revenues and Lower Costs Offset Negatives

Net revenue rose 2.3% year over year to $258.9 million, but missed the Zacks Consensus Estimate of $260 million.

Net interest income was $176.7 million, reflecting an increase of 6% from the year-ago quarter. The rise was led by a 6% gain in interest income, partially offset by a 4% increase in interest expense. Net interest margin (“NIM”) came in at 2.8%, 2 basis points (bps) lower than the prior-year quarter.

Non-interest income totaled $82 million, marking a 5% year-over-year decline. Higher insurance commissions, net investment securities gain, net capital market fees, and service charges on deposit accounts as well as bank-owned life insurance income were the income drivers. These were, however, more than offset by lower net mortgage banking income, trust service fees, card-based and other non-deposit fees, and other income.

Non-interest expense was down 1% from the prior-year quarter to $174.0 million. The fall was due to a decline in all factors except net foreclosure/OREO expense, FDIC expense, and legal and professional fees.

The efficiency ratio (fully tax equivalent basis) improved to 67.8% from 68.5% in the prior-year quarter.

Credit Quality: A Mixed Bag

Total nonperforming assets declined 2% year over year to $296.3 million. However, provision for credit losses increased significantly to $14 million from $5 million in the year-ago quarter.

Further, ratio of net charge-offs to annualized average loans came in at 0.4% in the reported quarter, up from 0.2% in the year-ago quarter. Moreover, total non-accrual loans were $282.6 million, up 76.2% on a year-over-year basis.

Balance Sheet Strengthens; Capital Ratios Reflect a Mixed Picture

Total loans as of Jun 30, 2016 were $19.6 billion, up 8.3% year over year. Further, total deposits came in at $20.3 billion, up 5.3% year over year.

As of Jun 30, 2016, Tier 1 risk-based capital ratio came in at 9.7%, down from 9.9% as of Jun 30, 2015. Further, total risk-based capital ratio was 12.1%, down from 12.4% at the end of the prior-year quarter. Conversely, book value per common share was recorded at $19.2, up from $18.4 in the prior-year period.

Profitability Ratios Deteriorate

The return on average assets of 0.7% was down 5 bps year over year.  Also, return on average tangible common equity ratio came in at 10%, compared with 10.6% in the year-ago quarter.

Our Viewpoint

Associated Banc-Corp’s efforts to improve its operating efficiency, along with appreciable growth in loans and deposits, have started to pay off in the form of an enhanced top line. Also, the company remains well positioned to maintain its growth momentum given the constant change in deposit-mix, supported by rising non-interest-bearing deposit accounts.

However, we remain apprehensive about continued margin compression amid a low interest rate environment.

ASSOC BANC CORP Price, Consensus and EPS Surprise

ASSOC BANC CORP Price, Consensus and EPS Surprise | ASSOC BANC CORP Quote

At present, Associated Banc-Corp carries a Zacks Rank #4 (Sell).

Among other Midwest banks, First Interstate Bancsystem Inc. (FIBK - Free Report) , Enterprise Financial Services Corp. (EFSC - Free Report) and Old National Bancorp. (ONB - Free Report) are expected to report results on Jul 25, Jul 28 and Aug 1, respectively.

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