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Associated Banc-Corp Q3 Earnings Beat on Fee Income Growth

Associated Banc-CorpASB delivered a positive earnings surprise in the third quarter of 2015. The company's earnings per share of 31 cents beat the Zacks Consensus Estimate of 30 cents, but remained flat year over year.

Better-than-expected results came on the back of higher revenues, which were driven by a solid rise in core fee-based income, partly offset by lower net interest income. A moderate fall in expenses also acted as a tailwind. Moreover, the quarter witnessed robust growth in deposits and loans, which boosted the overall revenues. However, higher provisions dampened the results.

As per FDIC 2015 U.S. Bank Branch Summary of Deposits Data, Associated Banc-Corp was the "fastest growing bank operating in Wisconsin for the year ended Jun 30", in terms of deposit market share.

Net income available to common shareholders plunged 3.5% year over year to $47.3 million.

Performance in Detail

Net revenue inched up 1.2% year over year to $250.4 million, but lagged the Zacks Consensus Estimate of $252 million.

Net interest income fell 1.2% year over year to $170.6 million. The decline was led by a 45.3% rise in interest expense, partially offset by a 2.1% increase in interest income. Net interest margin ("NIM") inched down 24 basis points (bps) year over year to 2.82%.

Non-interest income totaled $80 million, up 6.7% year over year. The increase was mainly attributable to a rise in core fee-based income (up 16.8%) as well as net investment security gains. Such rise was, however, offset by a fall in net mortgage banking income, bank owned life insurance income, net asset gains, net capital market fees and other income.

Non-interest expense declined 0.2% year over year to $171.4 million. The decrease was led by a fall in all expense categories, except personnel, technology and occupancy expenses, which increased 3.6%, 8.7% and 3.2%, respectively, during the quarter.

The efficiency ratio, on a fully taxable equivalent basis, was 67.09% compared with 69.27% in the prior-year quarter. A decrease in efficiency ratio implies a rise in profitability.

Total loans as of Sep 30, 2015 amounted to $18.5 billion, up 8% year over year. Further, total deposits came in at $20.6 billion, up 13% year over year.

Asset Quality

Associated Banc-Corp's asset quality demonstrated a mixed bag. Non-accrual loans declined 20% year over year to $147 million. Moreover, total nonperforming assets fell 19.8% year over year to $161.2 million.

On the other hand, provision for credit losses increased substantially to $8 million from $1 million recorded in the year-ago quarter; and ratio of net charge-offs to annualized average loans edged up 11 bps year over year to 0.17% in the reported quarter.

Capital and Profitability Ratios

Associated Banc-Corp's capital and profitability ratios represented a mixed picture. As of Sep 30, 2015, Tier 1 risk-based capital ratio came in at 9.98%, down from 10.73% as of Sep 30, 2014.

Tangible common equity ratio came in at 6.97% compared with 7.57% as of Sep 30, 2014. However, total risk-based capital ratio was 12.49%, up from 11.98% at the end of the prior-year quarter.

The return on average assets of 0.72% was down 6 bps year over year. However, book value per common share was recorded at $18.77, up from $18.15 in the prior-year period.

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. We believe that the company will manage 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. Moreover, weak cost control and concentration risks will likely drag the company's financials in the near term.

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

Among other Midwest banks, Enterprise Financial Services Corp. EFSC will announce results for the September-ending quarter on Oct 22; while First Interstate Bancsystem Inc. FIBK and Old National Bancorp ONB are scheduled to report results on Oct 26.

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ASSOC BANC CORP (ASB): Free Stock Analysis Report

OLD NATL BCP (ONB): Free Stock Analysis Report

FIRST INTST MT (FIBK): Free Stock Analysis Report

ENTERPRISE FINL (EFSC): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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