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Associated Banc-Corp (ASB) Earnings Lag, Provisions Up

Associated Banc-Corp ASB reported first-quarter 2016 earnings per share of 27 cents, which lagged the Zacks Consensus Estimate by a penny. Moreover, the bottom line came in 10% below the year-ago figure.


Results exhibited a significant rise in provisions, partly offset by improvement in revenues and almost stable expense line. Growth in loans and deposits remained impressive. However, asset quality displayed weakness.

Net income available to common shareholders declined 11% year over year to $40.3 million.

Performance in Detail

Net revenue rose 3% year over year to $255.2 million, but missed the Zacks Consensus Estimate of $258.1 million.

Net interest income grew 2% year over year to $172.0 million. The rise was led by a 4% increase in interest income, partially offset by a 17% increase in interest expense. Net interest margin (“NIM”) was down 8 basis points (bps) year over year to 2.81%.

Non-interest income totaled $83.2 million, up 4% year over year. The increase was mainly due to higher insurance commissions, net capital market fees as well as bank owned life insurance income. These were, however, partly mitigated by lower net mortgage banking income, trust service fees and other income.

Non-interest expense totaled $174.0 million, almost flat year over year. Higher business development and advertising costs, foreclosure/OREO expense, FDIC expense as well as legal and professional fees were offset by a reduction in occupancy costs, other intangible amortization costs and other expenses.

The efficiency ratio, on a fully taxable equivalent basis, improved to 67.44% from 68.53% in the prior-year quarter. A decrease in efficiency ratio implies a rise in profitability.

Total loans as of Mar 31, 2016 were $19.2 billion, up 7% year over year. Further, total deposits came in at $20.7 billion, up 4% year over year.

Asset Quality

Associated Banc-Corp’s asset quality deteriorated during the quarter. Total nonperforming assets surged 60% year over year to $302.5 million. Also, provision for credit losses increased substantially to $20 million from $4.5 million recorded 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 0.13% in the year-ago quarter. Moreover, non-accrual loans increased 64% on a year-over-year basis to $286.4 million.

Capital and Profitability Ratios

Associated Banc-Corp’s capital and profitability ratios represented a mixed picture.

As of Mar 31, 2016, Tier 1 risk-based capital ratio came in at 9.88%, up from 9.69% as of Mar 31, 2015. Further, total risk-based capital ratio was 12.35%, up from 12.22% at the end of the prior-year quarter. However, tangible common equity ratio came in at 6.89% compared with 7.04% as of Mar 31, 2015.

The return on average assets of 0.62% was down 9 bps year over year. However, book value per common share was recorded at $18.96, up from $18.38 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. Also, the company remains well positioned 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, higher expenses 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, First Interstate Bancsystem Inc. FIBK, Enterprise Financial Services Corp. EFSC and Old National Bancorp. ONB are expected to report results on Apr 25, Apr 28 and May 2, respectively.

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