Associated Banc-Corp (ASB) Q1 Earnings In Line, Revenues Up

Associated Banc-Corp’s (NYSE:ASB) first-quarter 2019 adjusted earnings of 50 cents per share came in line with the Zacks Consensus Estimate. The figure compares 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 (NIM) 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.

Share Repurchases

During the reported quarter, Associated Banc-Corp repurchased nearly 1.3 million shares for $30 million.

2019 Outlook

Associated Banc-Corp expects to achieve 3-6% average loan growth. Also, it expects to maintain its loan to deposit ratio under 100%, with some seasonality.

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Further, the company expects a stable to slight lower net interest margin, based on assumption of no Fed rate hike.

It anticipates non-interest income between $360 million and $375 million.

The company projects non-interest expenses to be approximately $800 million. Adjusted efficiency ratio is expected to improve roughly 100 bps.

Further, it forecasts the effective tax rate to be in the range of 21-23%.

Our Take

Associated Banc-Corp is well positioned to benefit from higher interest rates and rise in loan demand. Further, the company’s inorganic growth strategy will support profitability. However, higher expenses are likely to hurt bottom-line growth to some extent. Moreover, the company's increased dependence on commercial loans remains a key near-term concern.