A month has gone by since the last earnings report for Associated Banc-Corp ASB. Shares have lost about 11.5% in that time frame, underperforming the market.
Will the recent negative trend continue leading up to the stock's next earnings release, or is it 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 drivers.
Associated Banc-Corp Q2 Earnings In line, Costs Up
Associated Banc-Corp reported second-quarter 2017 earnings per share of $0.36, in line with the Zacks Consensus Estimate. The figure represents an increase of 16.1% from the prior-year quarter.
Results benefited primarily from an improvement in revenues but partially offset by higher expenses. The company also witnessed growth in loans. Moreover, lower provision for credit losses was another positive for the company.
Net income available to common shareholders for the quarter increased 18.6% year over year to $55.6 million.
Revenues & Expenses Increase
Net revenue rose 2.8% year over year to $266.2 million. However, revenues lagged the Zacks Consensus Estimate of $273.3 million.
Net interest income was $183.8 million, reflecting an increase of 4% from the year-ago quarter.
Non-interest income for the quarter totaled $82.4 million, almost stable year over year. A rise in almost all components of fee income was partially offset by a fall in net investment securities gains, service charges on deposit accounts and insurance commissions.
Net interest margin (NIM) came in at 2.83%, reflecting an increase of 2 basis points (bps) from the prior-year quarter.
Non-interest expense was $176.3 million, increasing nearly 1.1% from the year-ago period. The increase was primarily due to higher business development and advertising expense, technology expense, legal and professional fees expense, and personnel expense.
Efficiency ratio (fully tax equivalent basis) declined to 65.21% from 67.77% in the prior-year quarter. Note that a decline in efficiency ratio indicates improvement in profitability.
Credit Quality Improves
Total non-performing assets declined approximately 16.6% year over year to $247.1 million. Further, ratio of net charge-offs to annualized average loans came in at 0.25% in the reported quarter, down from 0.42% in the year-ago quarter.
As of Jun 30, 2017, total non-accrual loans were $231.9 million, down 17.9% year over year.
Also, provision for credit losses decreased to $12 million from $14 million in the year-ago quarter.
Strong Balance Sheet, Capital Ratios Improve
As of Jun 30, 2017, net loans were $20.5 billion, up 3.2% sequentially. However, total deposits decreased marginally from the prior-quarter end to $21.6 billion.
As of Jun 30, 2017, Tier 1 risk-based capital ratio was 10.61%, up from 9.73% as of Jun 30, 2016. Further, total risk-based capital ratio was 13.01%, up from 12.16% at the end of the prior-year quarter.
Profitability Ratios Strengthened
The annualized return on average assets at the quarter end was 0.80%, up 11 basis points year over year. Also, return on average tangible common equity came in at 11.06% compared with 10.04% in the year-ago quarter.
2017 Outlook
Management expects annual average loan growth to be in the mid-to-high single-digit range, assuming a stable to improving economy.
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.
Notably, management anticipates an improvement in net interest income. Also, based on the assumption of more rate increases, the company expects its NIM to improve.
Further, the company projects its expenses to be 1% higher than the prior year.
Management expects its common equity Tier 1 ratio to lie within 8.0–9.5%.
Due to increased tax credit activity, management expects its annual average effective tax rate to lie between 28% and 30%.