Why is Associated Banc-Corp (ASB) Up 11.2% Since Last Earnings Report?

It has been about a month since the last earnings report for Associated Banc-Corp ASB. Shares have added about 11.2% in that time frame.

Will the recent positive trend continue leading up to its next earnings release, or is ASB 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 on Q1 Earnings, Costs Rise

Associated Banc-Corp’s first-quarter 2018 adjusted earnings of 50 cents per share surpassed the Zacks Consensus Estimate of 41 cents. Also, the figure compares favorably with the prior-year quarter’s earnings of 35 cents.

Results benefited primarily from an improvement in revenues and absence of provision for credit losses. The company also witnessed growth in loans and deposits. However, rise in expenses was a headwind.

After considering the acquisition related costs in connection with the Bank Mutual deal, net income available to common shareholders for the quarter was $67.1 million, up from $53.9 million registered in the prior-year quarter.

Revenues Improve, Expenses Increase

Net revenues for the quarter were $300.3 million, up 15% year over year. Also, the figure surpassed the Zacks Consensus Estimate of $292.5 million.

Net interest income was $209.9 million, reflecting an increase of 16% 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 $90.4 million, up 13% year over year. The rise was driven by an increase in almost all income components. Notably, the quarter witnessed net asset losses of $107 million.

Non-interest expenses were $213 million, increasing 23% from the year-ago period. The rise was primarily due to an increase in all components of expenses except net foreclosure/OREO expenses.

Efficiency ratio (fully tax equivalent basis) increased to 69.60% from 64.89% in the prior-year quarter. Rise in efficiency ratio indicates deterioration in profitability.

As of Mar 31, 2018, net loans were $22.6 billion, up 10% sequentially. Total deposits increased 5% from the prior-quarter end to $23.8 billion.

Credit Quality: Mixed Bag

Total non-performing assets declined 15% year over year to $232.6 million. As of Mar 31, 2018, total non-accrual loans were $208.6 million, down 20% year over year. Also, provision for credit losses was nil against $9 million in the prior-year quarter.

However, the ratio of net charge-offs to annualized average loans was 0.17% in the reported quarter, up 6 bps from the year-ago quarter.

Capital & Profitability Ratios Improve

As of Mar 31, 2018, Tier 1 risk-based capital ratio was 11.18%, up from 10.62% as of Mar 31, 2017. Further, total risk-based capital ratio was 13.44%, up from 13.05% at the end of the prior-year quarter.

The annualized return on average assets at the quarter end was 0.88%, up from 0.79% in the year-ago quarter. Also, return on average tangible common equity was 11.99% compared with 11.07% in the year-ago quarter.

Share Repurchase Update

During the reported quarter, Associated Banc-Corp repurchased nearly 1.1 million shares for $26.3 million.

Outlook

Management expects 1-2% quarterly average loan growth for the remainder of 2018, assuming a stable to improving economy and combined Associated Banc-Corp and Bank Mutual loan portfolio. Specifically, commercial real estate, and commercial and industrial loan growth is expected to improve in 2018, driven by strong pipeline.

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.

Given the improvement in fee-based revenues, management projects non-interest income in 2018 to be in the range of $365-375 million.

Based on the assumption of two more rate hikes this year, benefit from Bank Mutual's higher loan yields and following impressive first quarter 2018 NIM level, the company now expects NIM to be in the range of 2.92-2.98% in 2018.

The company projects operating to be nearly $191-197 million in the fourth quarter 2018 (taking in to consideration Bank Mutual and Diversified Insurance Solutions deals). For 2018, operating expenses are expected be $825 million, which includes Diversified Insurance Solutions deal as well as acquisition related costs.

Of the total restructuring expenses of $35-$40 million related to Bank Mutual deal, management incurred $21 million in the first quarter and expects to record $10-$15 million of those in the second-quarter 2018 and $1-$5 million in the third quarter.

Management anticipates the effective tax rate to be in 20-22% range in 2018.

The company continues to expect common equity Tier 1 ratio within a range of 8.0% to 9.5% over the medium term.

Provisions in 2018 are expected to adjust with changes to risk grade, other indications of credit quality and loan volume.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. There have been nine 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, ASB has a subpar Growth Score of D, however its Momentum is doing a lot better with an A. The stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

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

The company's stock is suitable solely for momentum based on our styles scores.

Outlook

Estimates have been trending upward for the stock and the magnitude of these revisions looks promising. It comes with little surprise ASB has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.

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