It has been about a month since the last earnings report for Associated Banc-Corp (ASB). Shares have lost about 5% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Associated Banc-Corp due for a breakout? 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 catalysts.
Associated Banc-Corp Q1 Earnings In Line, Revenues Up
Associated Banc-Corp’s first-quarter 2019 adjusted earnings of 50 cents per share came in line with the Zacks Consensus Estimate. The figure compared favorably with the prior-year quarter’s earnings of 40 cents. Earnings excluded acquisition-related costs in connection to the Bank Mutual deal.
Results benefited primarily from an improvement in revenues and lower expenses. The company witnessed growth in loans and deposits, and stable provisions.
Net income available to common shareholders (GAAP basis) was $82.9 million, up 23%year over year.
Revenues Improve, Expenses Down
Net revenues were $306.7 million, up 2% year over year. However, the figure lagged the Zacks Consensus Estimate of $312.9 million.
Net interest income was $215.5 million, reflecting an increase of 3% from the year-ago quarter.
Net interest margin was 2.90%, down 2 basis points (bps).
Non-interest income totaled $91.2 million, up1% year over year. Higher insurance commissions and fees, bank and corporate owned life insurance, and other income drove the rise.
Non-interest expenses were $191.7 million, down 10% from the year-ago period. The decline was mainly attributable to significant fall in acquisition-related costs and FDIC assessment expenses.
Efficiency ratio (fully tax-equivalent basis) decreased to 61.83% from 69.60% in the prior-year quarter. Fall in efficiency ratio indicates higher profitability.
As of Mar 31, 2019, net loans were $23.1 billion, up 1% on a sequential basis. Total deposits increased 3% from the prior quarter to $25.5 billion.
Credit Quality Improves
As of Mar 31, 2019, total non-performing assets were $167.8 million, down 28% year over year. Further, total non-accrual loans were $155.6 million, down 25% year over year. Moreover, the ratio of net charge-offs to annualized average loans was 0.13% in the reported quarter, down 4 bps.
Further, the company reported provision for credit losses of $6 million, stable year over year.
Strong Capital & Profitability Ratios
As of Mar 31, 2019, Tier 1 risk-based capital ratio was 11.35%, up from 11.19% as of Mar 31, 2018. In addition, common equity Tier 1 capital ratio was 10.29%compared with10.59% at the end of the prior-year quarter.
Annualized return on average assets at the end of the reported quarter was 1.05%, up from 0.88%. Moreover, return on average tangible common equity was 14.52% compared with 11.99% in the year-ago quarter.
During the reported quarter, Associated Banc-Corp repurchased nearly 1.3 million shares for $30 million.
Associated Banc-Corp expects 3-6% average loan growth, mainly driven by increase in commercial and business lending portfolios. Notably, the company expects the CRE loan portfolio to rebound in the second half of 2019.
The company expects to maintain the loan to deposit ratio under 100%, with some seasonality.
Given the expectation of loan growth and reduced upward pressure on funding costs, the company expects its core NII to continue improving.
Further, the company expects a stable to slightly lower NIM based on assumption of no Fed rate hike.
Non-interest income is expected to be in the range of $360-$375 million, with fee-based revenues expected to improve.
In respect of the Huntington branch acquisition, the company expects to incur a one-time charge of nearly $7 million. The majority of it will be incurred in the second quarter while the remaining will be in the third quarter.
The company projects non-interest expenses to be nearly $800 million (including the impact of the acquisition), down from $822 million recorded in 2018. It anticipates adjusted efficiency ratio to improve by 100 bps.
Further, the effective tax rate is expected to be 21-23%.
Provisions 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 a downward trend in fresh estimates.
At this time, Associated Banc-Corp has a poor Growth Score of F, however its Momentum Score is doing a lot better with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Associated Banc-Corp has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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