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Associated Banc-Corp (ASB) Beats on Q3 Earnings, Costs Rise

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Associated Banc-Corp’s (ASB - Free Report) third-quarter 2018 adjusted earnings of 49 cents per share were in-line with the Zacks Consensus Estimate. Further, the figure compares favorably with the prior-year quarter’s earnings of 41 cents. The reported quarter’s earnings excluded acquisition-related costs in connection with the Bank Mutual deal.

Including acquisition-related costs, earnings for the third quarter were 48 cents per share.

Results benefited primarily from an improvement in revenues. Moreover, negative provision for credit losses during the reported quarter was a tailwind. The company also witnessed growth in deposits. However, rise in expenses hurt results to some extent.

Net income available to common shareholders (GAAP basis) for the quarter under review was $83.5 million, up from $62.7 million registered in the prior-year quarter.

Revenues Improve, Expenses Rise

Net revenues were $307.7 million, up 11% year over year. However, the figure lagged the Zacks Consensus Estimate of $321.0 million.

Net interest income was $219.4 million, reflecting an increase of 15% from the year-ago quarter. Net interest margin (NIM) was 2.92%, up 8 basis points (bps) from the prior-year quarter.

Non-interest income totaled $88.3 million, up 3% year over year. The rise was driven by an increase in almost all income components except for bank and corporate owned life insurance, and net mortgage banking income.

Non-interest expenses were $204.4 million, increasing 15% from the year-ago period. The rise was primarily due to an increase in all components of expenses except for legal and professional costs, and FDIC assessment expenses.

Efficiency ratio (fully tax-equivalent basis) increased to 64.66% from 62.55% in the prior-year quarter. Rise in efficiency ratio indicates lower profitability.

As of Sep 30, 2018, net loans were $22.6 billion, down marginally on a sequential basis. Total deposits increased nearly 4% from the end of the prior quarter to $24.8 billion.

Credit Quality Improves

As of Sep 30, 2018, total non-performing assets were $186.1 million, down 18% year over year. Further, total non-accrual loans were $154.1 million, down 27% year over year. Moreover, during the quarter, the company reported negative provision for credit losses of $5 million against provision for credit losses of $5 million in the prior-year quarter.

However, the ratio of net charge-offs to annualized average loans was 0.21% in the reported quarter, up 1 bps from the year-ago quarter.

Capital & Profitability Ratios Improve

As of Sep 30, 2018, Tier 1 risk-based capital ratio was 11.42%, up from 10.64% as of Sep 30, 2017. Further, total risk-based capital ratio was 13.56%, up from 13.04% at the end of the prior-year quarter.

The annualized return on average assets at the end of the reported quarter was 1.02%, up from 0.86% in the year-ago quarter. Moreover, return on average tangible common equity was 14.14% compared with 12.20% in the year-ago quarter.

Our Take

Associated Banc-Corp is well poised to benefit from higher interest rates and rise in loan demand. However, given the company’s inorganic growth efforts and continued investment in franchise, expenses are likely to remain elevated in the quarters ahead, thereby hurting profitability to some extent. Moreover, its increased dependence on commercial loans remains a key near-term concern.

Associated Banc-Corp Price, Consensus and EPS Surprise
 

Associated Banc-Corp Price, Consensus and EPS Surprise | Associated Banc-Corp Quote

Associated Banc-Corp currently has a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Among other banks, Huntington Bancshares Incorporated (HBAN - Free Report) is scheduled to report results on Oct 23, while BankUnited, Inc. (BKU - Free Report) and Prosperity Bancshares Inc. (PB - Free Report) are slated to report results on Oct 24.

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