Markets
ASB

Why Is Associated Banc-Corp (ASB) Up 7.8% Since the Last Earnings Report?

A month has gone by since the last earnings report for Associated Banc-CorpASB . Shares have added about 7.8% in that time frame, outperforming the market.

Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Associated Banc-Corp Beats Q4 Earnings, Costs Rise

Associated Banc-Corp reported fourth-quarter 2016 earnings per share of $0.34, outpacing the Zacks Consensus Estimate of $0.32. Also, the figure represents an increase of 26% from the prior-year quarter.

Better-than-expected results were primarily driven by an improvement in total revenues. Moreover, the company registered growth in deposits and loan balances. Results also benefited from lower provision for credit losses. Further, an improvement in capital and profitability ratios added to the positives. However, expenses moved north and the company recorded a significant rise in non-performing assets.

Net income available to common shareholders for the quarter increased 29% year over year to $52.5 million.

The company reported full-year 2016 earnings per share of $1.26, up 6% from the previous year. Moreover, the reported figure surpassed the Zacks Consensus Estimate of $1.23. Also, net income available to common shareholders for 2016 came in at $191.4 million, up 6% year over year.

Higher Revenues Offset Rising Costs

Net revenue for the quarter rose 7% year over year to $272.3 million, surpassing the Zacks Consensus Estimate of $268.8 million.

For 2016, net revenue came in at $1.06 billion, lagging the Zacks Consensus Estimate of $1.07 billion. However, the figure represents an increase of nearly 5% year over year.

Quarterly net interest income was $180.0 million, reflecting an increase of 5% from the year-ago quarter.

Non-interest income for the quarter totaled $92.3 million, marking an 11% year-over-year increase. Higher net mortgage banking fees, net capital market fees, bank-owned life insurance income and brokerage and annuity commissions were the primary drivers. These were, however, partially offset by a fall in net investment securities gains and lower service charges on deposit accounts and other income.

However, net interest margin (NIM) came in at 2.80%, reflecting 2 basis points (bps) decline from the prior-year quarter.

Non-interest expense was $178.9 million, up 2% from the year-ago period. The rise was primarily due to higher FDIC expense, legal and professional fees and personnel expense.

The efficiency ratio (fully tax equivalent basis) declined to 63.90% from 68.76% in the prior-year quarter. Note that a decline in efficiency ratio indicates improvement in profitability.

Credit Quality Deteriorated

Total non-performing assets increased approximately 52% year over year to $293 million. Further, ratio of net charge-offs to annualized average loans came in at 0.18% in the reported quarter, up from 0.17% in the year-ago quarter. Moreover, total non-accrual loans were $275.3 million, up approximately 54% on a year-over-year basis.

However, provision for credit losses decreased to $15 million from $20 million in the year-ago quarter.

Strong Balance Sheet & Improvement in Capital Ratios

Net loans as of Dec 31, 2016 were $19.8 billion, up nearly 1% from the previous quarter. Further, total deposits came in at $21.9 billion, up marginally from the prior-quarter end.

As of Dec 31, 2016, Tier 1 risk-based capital ratio was 10.27%, up from 10.12% as of Dec 31, 2015. Further, total risk-based capital ratio was 12.68%, up from 12.62% at the end of the prior-year quarter.

Profitability Ratios Improve

The annualized return on average assets at the quarter end was 0.75%, up 13 bps year over year. Also, return on average tangible common equity came in at 10.78%, compared with 8.78% in the year-ago quarter.

2017 Outlook

Management expects annual average loan growth to be in the mid-to-high single-digit range.

The company expects to maintain a loan to deposit ratio of under 100%. Also, it remains committed to fund majority of its loan growth with core deposits.

Due to the expectations of lower mortgage banking income and increased tax credit investment activity, management projects reported non-interest income to decline approximately $20 million year over year.

Loan retention is likely to impact mortgage banking income, which will contribute to lower net gains. Moreover, management does not plan to repeat portfolio sales this year, which had generated $9 million of mortgage gains in 2016.

Also, based on the assumption of two rate increases, the company expects its NIM trend to be stable or improving.

The company expects to generate higher tax credit write-offs, in concert with lower reported tax expense.

Further, the company projects its expenses to be 1% higher than the prior year.

Management targets its common equity Tier 1 ratio to lie within the range of 8-9.5%.

Due to increased tax credit activity, management expects its annual average effective tax rate to lie between 28-30%.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed an upward trend in fresh estimates. There have been three revisions higher for the current quarter.

Associated Banc-Corp Price and Consensus

Associated Banc-Corp Price and Consensus | Associated Banc-Corp Quote

VGM Scores

At this time, Associated Banc-Corp's stock has an average Growth Score of 'C', though it is lagging a lot on the momentum front with an 'F'. However, the stock was allocated a grade of 'B' on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregte VGM Score of'C'. If you aren't focused on one strategy, this score is the one you should be interested in.

Our style scores indicate that the stock is more suitable for value investors than growth investors.

Outlook

Estimates have been trending upward for the stock. The magnitude of these revisions also looks promising. It comes with little surprise that the stock has a Zacks Rank #2 (Buy). We are expecting an above average return from the stock in the next few months.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Associated Banc-Corp (ASB): Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research

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.

In This Story

ASB

Other Topics

Earnings

Latest Markets Videos

    Zacks

    Zacks is the leading investment research firm focusing on stock research, analysis and recommendations. In 1978, our founder discovered the power of earnings estimate revisions to enable profitable investment decisions. Today, that discovery is still the heart of the Zacks Rank. A wealth of resources for individual investors is available at www.zacks.com.

    Learn More