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Associated Banc-Corp (ASB) Q3 Earnings & Revenues Beat

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Associated Banc-Corp (ASB - Free Report) posted third-quarter 2016 earnings per share of 34 cents, outpacing the Zacks Consensus Estimate of 32 cents. Also, the reported figure was up 9.7% from the prior-year quarter.

Results benefited from an improvement in total revenues. Further, an improvement in capital ratios and profitability ratios added to the positives. Also, the company registered growth in deposits, while the loan balances remained stable. However, expenses moved north and the company recorded a significant rise in credit loss provisions.

Net income available to common shareholders increased 10.6% year over year to $52 million.

 

 

Revenues Improve Despite Higher Costs

Net revenue rose 9.3% year over year to $273.8 million, surpassing the Zacks Consensus Estimate of $267.4 million.

Net interest income was $178.5 million, reflecting an increase of 5% from the year-ago quarter.

Non-interest income totaled $95.2 million, marking a 19% year-over-year increase. Higher insurance commissions, net mortgage banking fees, net capital market fees and bank owned life insurance income were the primary drivers. These were, however, offset by a fall in net asset gains and lower net investment securities gains.

However, net interest margin (NIM) came in at 2.77%, reflecting 5 basis points (bps) decline from the prior-year quarter.

Also, non-interest expense was up 2% from the year-ago period to $175.3 million. The rise was primarily due to higher net foreclosure/OREO expense, FDIC expense and legal and professional fees.

The efficiency ratio (fully tax equivalent basis) declined to 63% from 67.1% in the prior-year quarter. Note that a decline in efficiency ratio indicates improvement in profitability.

Credit Quality Deteriorated

Total nonperforming assets increased approximately 89% year over year to $304.4 million. Also, provision for credit losses increased significantly to $21 million from $8 million in the year-ago quarter.

Further, ratio of net charge-offs to annualized average loans came in at 0.36% in the reported quarter, up from 0.17% in the year-ago quarter. Moreover, total non-accrual loans were $289.9 million, up approximately 97% on a year-over-year basis.

Strong Balance Sheet; Capital Ratios Improve

Net loans as of Sep 30, 2016 were $19.6 billion, almost in line with the previous quarter end. Further, total deposits came in at $21.7 billion, up 6.9% from the previous quarter.

As of Sep 30, 2016, Tier 1 risk-based capital ratio was 10.08%, up from 9.98% as of Sep 30, 2015. Further, total risk-based capital ratio was 12.50%, up from 12.49% at the end of the prior-year quarter.

Profitability Ratios Improve

The return on average assets of 0.74% was up 2 bps year over year.  Also, return on average tangible common equity came in at 10.68%, compared with 10.35% 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 expand inorganically given its strong liquidity levels and stable balance sheet position.

However, we remain concerned about the company’s elevated expenses, limited geographic exposure and increased dependence on commercial loans which are likely to negatively affect financials.

ASSOC BANC CORP Price, Consensus and EPS Surprise
 

At present, Associated Banc-Corp carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks Rank #1 (Strong Buy) stocks here.

Among other Midwest banks, First Interstate Bancsystem Inc. (FIBK - Free Report) and Enterprise Financial Services Corp. (EFSC - Free Report) are expected to release results on Oct 24 while Old National Bancorp. (ONB - Free Report) is expected to report results on Oct 31.

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