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Associated Banc-Corp (ASB) Q1 Earnings Beat, Revenues Miss

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Associated Banc-Corp (ASB - Free Report) reported first-quarter 2017 earnings per share of 35 cents, outpacing the Zacks Consensus Estimate of 32 cents. Also, the figure represents an increase of 29.6% from the prior-year quarter.

Better-than-expected results were primarily driven by an improvement in revenues and lower expenses. The company registered marginal improvement in deposits and loan balances. Results also benefited from lower provision for credit losses. Further, improvements in capital and profitability ratios were on the positive side.

Net income available to common shareholders for the quarter increased 33.7% year over year to $53.9 million.

Revenues Increase, Expenses Decline

Net revenue for the quarter rose 7% year over year to $260.1 million. However, revenues lagged the Zacks Consensus Estimate of $266 million.

Quarterly net interest income was $180.3 million, reflecting an increase of 4.8% from the year-ago quarter.

Non-interest income for the quarter totaled $79.8 million, marking a decline of 4% year over year. The fall was mainly due to a decrease in bank-owned life insurance income along with loss on assets and investment securities.

Net interest margin (NIM) came in at 2.84%, reflecting 3 basis points (bps) increase from the prior-year quarter.

Non-interest expense was $173.7 million, down 0.2% from the year-ago period. The fall was primarily due to lower business development and advertising expense, loan expenses, legal and professional fees expense, foreclosure/other real estate owned (OREO) expense and other expense.

Efficiency ratio (fully tax equivalent basis) declined to 64.89% from 67.44% in the prior-year quarter. Note that a decline in efficiency ratio indicates improvement in profitability.

Credit Quality Improves

Total nonperforming assets declined approximately 9.1% year over year to $274.9 million. Further, ratio of net charge-offs to annualized average loans came in at 0.11% in the reported quarter, down from 0.36% in the year-ago quarter.
As of Mar 31, 2017, total non-accrual loans fell 9.2% year over year to approximately $260 million.

However, provision for credit losses decreased to $9 million from $20 million in the year-ago quarter.

Strong Balance Sheet & Improvement in Capital Ratios

As of Mar 31, 2017, net loans were $20.1 billion, up marginally from the previous quarter. Further, total deposits also increased marginally from the prior-quarter end to $21.8 billion.

As of Mar 31, 2017, Tier 1 risk-based capital ratio was 10.63%, up from 9.88% as of Mar 31, 2016. Further, total risk-based capital ratio was 13.05%, up from 12.35% at the end of the prior-year quarter.

Profitability Ratios Display Strength

The annualized return on average assets at the quarter end was 0.79%, up 17 basis points year over year. Also, return on average tangible common equity came in at 11.07% compared with 8.72% in the year-ago quarter.

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. Further, the company’s capital deployment plans remain impressive.

However, we remain concerned about its limited geographic exposure and increased dependence on commercial loans, which are likely to negatively affect financials.

Associated 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 #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 Apr 24, while Old National Bancorp (ONB - Free Report) and First Interstate BancSystem, Inc. (FIBK - Free Report) are slated to release their results on Apr 25.

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