Why Is Associated Banc-Corp (ASB) Down 6% Since Last Earnings Report?

Zacks Equity Research

A month has gone by since the last earnings report for Associated Banc-Corp (ASB). Shares have lost about 6% 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 its most recent earnings report in order to get a better handle on the important drivers.

Associated Banc-Corp Q4 Earnings Beat Estimates, Revenues Down

Associated Banc-Corp’s fourth-quarter 2019 adjusted earnings of 45 cents per share outpaced the Zacks Consensus Estimate of 41 cents. However, the figure was 12% below the prior-year quarter number. Earnings (in the reported quarter) excluded certain acquisition-related costs.

Rise in non-interest income, no provisions and slight improvement in loan balance acted as tailwinds. However, lower rates, fall in deposit balance and higher operating expenses were the undermining factors.

Net income available to common shareholders (GAAP basis) was $68.3 million, down 20% year over year.

For 2019, adjusted earnings were $1.97 per share, which beat the consensus estimate of $1.91 and increased 4% year over year. Net income available to common shareholders (GAAP basis) was $312 million, down 3%.

Revenues Down, Expenses Rise

Net revenues for the quarter were $293.1 million, down 5% year over year. Also, the figure lagged the Zacks Consensus Estimate of $297.3 million.

For 2019, net revenues declined 2% to $1.21 billion. Also, the top line lagged the Zacks Consensus Estimate of $1.23 billion.

Net interest income was $200.1 million, marking a fall of 11% from the year-ago quarter. NIM was 2.83%, down 19 basis points (bps).

Non-interest income totaled $92.9 million, up 11% year over year. A significant increase in mortgage banking income and net capital markets fees primarily drove the rise.

Non-interest expenses were $203.6 million, up 5% from the year-ago quarter. The increase was largely due to higher technology costs, and loan and foreclosure costs.

Efficiency ratio (fully tax-equivalent basis) was 63.72%, up from 60.93% in the prior-year quarter. Rise in efficiency ratio indicates deterioration in profitability.

As of Dec 31, 2019, net loans were $22.6 billion, up marginally on a sequential basis. Total deposits decreased 3% from the prior quarter to $23.8 billion.

Credit Quality: Mixed Bag

The company reported nil provision for credit losses against provision of $1 million in the prior-year quarter. Further, total non-accrual loans were $118.4 million, down 7%.

However, as of Dec 31, 2019, total non-performing assets were $145.5 million, up 4% year over year. Also, the ratio of net charge-offs to annualized average loans was 0.24% in the fourth quarter, up 11 bps.

Capital & Profitability Ratios Deteriorate

As of Dec 31, 2019, Tier 1 risk-based capital ratio was 11.26%, down from 11.35% as of Dec 31, 2018. In addition, common equity Tier 1 capital ratio was 10.21% compared with 10.27% at the end of the prior-year quarter.

Annualized return on average assets was 0.89%, down from 1.07%. Moreover, return on average tangible common equity was 11.33% compared with 15.08% a year ago.

Share Repurchases

During the quarter, Associated Banc-Corp repurchased nearly 2 million shares for $48 million.

2020 Outlook

Management expects average loan growth to be in the range of 2-4%.

The company expects the ratio of investments to total assets to remain above 17%.

The company expects NIM to be between 2.80% and 2.85% on the assumption of a stable interest rate environment.

Non-interest income is projected to be in the range of $375-$385 million, excluding investment securities gains and losses.

Non-interest expenses are expected to be on the range of $790-$795 million, including acquisition-related costs in connection with the First Staunton deal.

Initial CECL impact is expected to be $70-$80 million after-tax and a corresponding 21-24 bps decrease is anticipated in the tangible common equity tier 1 ratio.

Effective tax rate will be in the range of 19-21%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review.

VGM Scores

At this time, Associated Banc-Corp has a poor Growth Score of F, however its Momentum Score is doing a lot better with an A. However, 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 D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of this revision has been net zero. 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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