Associated Banc-Corp
NYSE:ASB
| US |
|
Johnson & Johnson
NYSE:JNJ
|
Pharmaceuticals
|
| US |
|
Estee Lauder Companies Inc
NYSE:EL
|
Consumer products
|
| US |
|
Exxon Mobil Corp
NYSE:XOM
|
Energy
|
| US |
|
Church & Dwight Co Inc
NYSE:CHD
|
Consumer products
|
| US |
|
Pfizer Inc
NYSE:PFE
|
Pharmaceuticals
|
| US |
|
American Express Co
NYSE:AXP
|
Financial Services
|
| US |
|
Nike Inc
NYSE:NKE
|
Textiles, Apparel & Luxury Goods
|
| US |
|
Visa Inc
NYSE:V
|
Technology
|
| CN |
|
Alibaba Group Holding Ltd
NYSE:BABA
|
Retail
|
| US |
|
3M Co
NYSE:MMM
|
Industrial Conglomerates
|
| US |
|
JPMorgan Chase & Co
NYSE:JPM
|
Banking
|
| US |
|
Coca-Cola Co
NYSE:KO
|
Beverages
|
| US |
|
Target Corp
NYSE:TGT
|
Retail
|
| US |
|
Walt Disney Co
NYSE:DIS
|
Media
|
| US |
|
Mueller Industries Inc
NYSE:MLI
|
Machinery
|
| US |
|
PayPal Holdings Inc
NASDAQ:PYPL
|
Technology
|
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
17.51
28.14
|
| Price Target |
|
We'll email you a reminder when the closing price reaches USD.
Choose the stock you wish to monitor with a price alert.
|
|
Johnson & Johnson
NYSE:JNJ
|
US |
|
|
Estee Lauder Companies Inc
NYSE:EL
|
US |
|
|
Exxon Mobil Corp
NYSE:XOM
|
US |
|
|
Church & Dwight Co Inc
NYSE:CHD
|
US |
|
|
Pfizer Inc
NYSE:PFE
|
US |
|
|
American Express Co
NYSE:AXP
|
US |
|
|
Nike Inc
NYSE:NKE
|
US |
|
|
Visa Inc
NYSE:V
|
US |
|
|
Alibaba Group Holding Ltd
NYSE:BABA
|
CN |
|
|
3M Co
NYSE:MMM
|
US |
|
|
JPMorgan Chase & Co
NYSE:JPM
|
US |
|
|
Coca-Cola Co
NYSE:KO
|
US |
|
|
Target Corp
NYSE:TGT
|
US |
|
|
Walt Disney Co
NYSE:DIS
|
US |
|
|
Mueller Industries Inc
NYSE:MLI
|
US |
|
|
PayPal Holdings Inc
NASDAQ:PYPL
|
US |
This alert will be permanently deleted.
Associated Banc-Corp
You don't have any saved screeners yet
Good afternoon, everyone, and welcome to Associated Banc-Corp's, First Quarter 2019 Earnings Conference Call. My name is Tim, and I will be your operator today. [Operator Instructions]. Copies of the slides that will be referenced during today's call are available on the company's website at investor.associatedbank.com. As a reminder, this conference call is being recorded.
As outlined on slide two, during the course of the discussion today, management may make statements that constitute projections, expectation, beliefs or similar forward-looking statements. Associated actual results could differ materially from the results anticipated or projected in any such forward-looking statements.
Additional detailed information concerning the important factors that could cause Associated's actual results to differ materially from the information discussed today is readily available on the SEC website and the Risk Factors section of Associated's most recent Form 10-K and any subsequent SEC filing. These factors are incorporated herein by reference.
For a reconciliation of the non-GAAP financial measures to the GAAP financial measures mentioned in this conference call, please refer to pages 13 and 14 of the slide presentation and through page eight of the Press Release Financial Tables. Following today's presentation, instructions will be given for the question-and-answer session.
At this time, I would like to turn the conference over to Philip Flynn, President and CEO, for opening remarks. Please go ahead, sir.
Thanks. Welcome to our first quarter earnings call. Joining me today as usual are Chris Niles, our Chief Financial Officer; and John Hankerd, our Chief Credit Officer.
Turning to slide three, our first quarter earnings were $0.50 per share driven by growing commercial and business lending along with improving expense trends. We had growth of over 5% in our general commercial lending business and signed creases across most of our specialty verticals. This loan growth contributed to a $6 million increase in net interest income on a year-over-year basis.
Our non-interest expenses decreased 1% from last quarter, due in part to the elimination of the FDIC surcharge. We experienced our typical seasonal deposit flows and we repurchased $30 million of common stock in the quarter, leaving $181 million on our current authorization available.
Loan details for the first quarter are shown on slide four. Total loan balances increased more than 1% from the prior quarter due to growth in commercial and business lending, which was up over 4% from the fourth quarter of ‘18 and up to 15% year-over-year. The increase from the prior quarter was led by growth in our general commercial lending business and we also saw gains in our specialty verticals particularly in power & utilities.
Our C&I loan pipeline remains solid and we expect balances to increase through the remainder of the year. As anticipated, our commercial real estate loans declined in the quarter due to continued elevated pay-down activity. However, we believe we are nearing the inflection point and we expect that this portfolio will begin to show positive growth in the second half of the year as we begin funding our construction lending commitments. We currently have over $1 billion in unused commitments and expect that we'll fund $500 million of those over the remainder of 2019.
Our residential mortgage portfolio was up slightly in the first quarter. Growth in this business has been restrained by generally weak sales volume in the housing industry and modest refinance activity.
Turning to slide five, average deposits were up $300 million from the fourth quarter. Our deposit mix shifted slightly from the first quarter as we managed our seasonal DD outflows and funded our loan growth by increasing our interest bearing deposits.
We saw the usual deposit outflows from our municipal customers as they continue to draw on government funding they received in the third quarter. Additionally we saw reduced non-interest bearing balances from consumers and commercial customers as often occurs in the first quarter. We expect these balances will return in coming months.
We offset these outflows in part by temporally increasing our network transaction deposits, which were less expensive than alternative funding sources such as FHLB advances. Despite the increase this quarter, our long term strategy to reduce these index deposits remains on track. On a year-over-year basis our network deposit balances decreased nearly $200 million from the first quarter of 2018, continuing the downward trend of network deposit mix as shown in the upper right chart.
As announced, we expect to receive approximately $850 million of core deposits in the Huntington branch transaction in June, which will benefit our efforts to further reduce network deposits. Our loan to deposit ratio was 91% at the end of the quarter, at the low end of the range we typically experience at this time of the year.
Turning to slide six, we discussed our net interest income. Net interest income increased $6 million from the first quarter of 2018 which was down from the previous quarter due to lower levels of prepayment and acquisition related accretion.
Looking at the graph on the left, the dark green bar depicts our net interest income excluding prepayments, acquisition related accretion and day count effects. Removing these effects, our core net interest income trend has been positive over the last year. We had a $2 million increase in core net interest income in the first quarter of 2019 compared to the previous quarter, driven by higher loan volume. On a year-over-year basis first quarter net, core net interest income increased $10 million.
Lower prepayments and accretion growth, a significant reduction in our commercial real estate portfolio yield from the previous quarter, which is shown in the graph on the right. These factors have created noise in the commercial real estate portfolio yields over the last year, but we expect that the yields will remain near current levels for the remainder of 2019, borrowing any fed rate action.
While our total interest-bearing liabilities cost increase driven in part via deposit mix shift, the rate of increase this quarter slowed slightly compared with the increases seen in 2018.
Going forward we expect that upward pressure on liabilities costs will be mitigated by several factors. First, the fed has meaningfully changed its tone regarding rate increases and we now expect that there will be no additional fed action in 2019. This should stabilize the cost of our index based funding.
Second, we expect that core deposit balances will increase from the Huntington transaction in June and from seasonal deposit inflows in the third quarter, enabling us to reduce higher cost funding. Third, we anticipate our relatively low loan-to-deposit ratio will enable us to fund anticipated loan growth without having to pay up for funding.
Given our anticipate loan growth and reduced upward pressure on funding costs, we expect that our court net interest income will continue its upward trend for the remainder of the year.
Turning to slide seven, we show the margin impacts of lower prepayments and accretion. We've also detailed the quarter-to-quarter impacts of day count and the fed funds LIBOR spread. Prepayments and accretion negatively impacted our first quarter net interest margin by 12 basis points compared to the previous quarter.
The dark green bar in the graph on the left side of slide seven shows our core margin without the prepayments accretion and day count effects. Excluding those effects we grew our core margin over the last two quarters and by 5 basis points year-over-year.
The right side of slide seven shows a walk down between the third quarter of ‘18 and the fourth quarter of ‘18 on the top graph and between the fourth quarter of ‘18 and the first quarter of ‘19 on the bottom graph. We’ve also broken out the negative impact of the compressed fed funds LIBOR spread.
As you can see, our loan and funding composition has had a positive impact on our margins in each of the last two quarters. While much of this quarter's lower net interest margin is explained by the factors I've mentioned, we also recognize that the interest rate environment has meaningfully shifted since the end of 2018. The yield curve is flattering and rates on the long end are significantly lower.
These lower long term rates have reduced our expectation for our mortgage portfolio yields and to a lesser extent our securities portfolio yields. Additionally compression in the fed funds LIBOR spread has persisted, further decreasing our NIM estimates. Consequently, we now expect our 2019 net interest margin to be stable to slightly lower than it was in 2018 assuming no additional fed action.
Turning to slide eight, first quarter non-interest income of $91 million was up $7 million from last quarter and up $1 million year-over-year. The increase from last quarter was primarily driven by our insurance business as we realized seasonally higher income from property and casualty contingency fees. Additionally, our mortgage business was up this quarter due to increased gain on loan sales and we had asset losses in the prior quarter that did not occur in the first quarter.
These gains were offset somewhat by lower service charges and deposit account fees as our customers typically incur lower non-sufficient funds fees in the first quarter than they do in the fourth quarter. Our capital markets fees were also down due in part of lower interest rate swap income.
Moving to slide nine, non-interest expense of $192 million was down $1 million from the fourth quarter and well below the run rate of $800 million full year guidance that we provided. The decrease was driven by the discontinuation of the FDA surcharge, resulting in a $2 million reduction to associated FDIC assessment.
Certain pension and miscellaneous employee expenses were also down this quarter. The benefit of these decreases was partially offset by higher stock compensation expense adjustments. We also had higher occupancy expense due to elevated snow removal costs, which we sincerely hope will not occur in the second quarter.
Looking ahead to the remainder 2019, we expect to incur one time charges related to the Huntington transaction of approximately $7 million, with the majority occurring in the second quarter and the rest in the third quarter. We also expect our expense run rate to increase in the second half of the year as a result of the 14 net additional branches and additional customer activity.
We anticipated these Huntington related expenses when we previously provided our not-interest expense guidance and we continue to target $800 million of expenses for the full year. Our adjusted efficiency ratio was 61.6% in the quarter. We remain confident that we will achieve our guidance of 100 basis point improvement in our full year adjusted efficiency ratio.
On slide 10 we detailed our quarterly credit quality metrics. Potential problem loans decreased by $9 million in the quarter; non-accrual loans increased to $156 million, while this is an increase over the fourth quarter non-accrual loans are flat compared to the third quarter and down from the first quarter of 2018.
Net charge-offs were $7 million in the quarter, up from the previous quarter but down from levels seen in the first three quarters of 2018. The aggregate allowance for loan losses was 1.02% of total loans, potentially unchanged from the previous two quarters. And our provision for credit losses was $6 million, up from $1 million last quarter, but still relatively small in relation to our $23 billion loan portfolio. Our credit environment remains benign.
So on slide 11 we update our outlook for the rest of 2019. We continue to anticipate 3% to 6% average loan growth for the year. We expect continued solid commercial and industrial growth and our commercial real estate portfolio will begin to ramp-up in the second half of the year.
Given the feds more dovish outlook and the flatter yield curve, we now expect our full year net interest margin will be in the mid-290s range based on no additional fed rate action. We continue to expect our fee based revenues will improve year-over-year and we are comfortable that we'll be able to meet the $800 million non-interest expense guidance.
Our capital priorities have not changed as we look to fund organic growth, pay a competitive dividend, pursue non organic growth opportunities and repurchase shares. We remain disciplined in our approach to acquisitions and share repurchases as we look to optimize capital and build shareholder value.
And with those comments, I’ll open it up for your questions.
Thank you. [Operator Instructions]. Our first question comes from the line of Scott Siefers of Sandler O'Neill. Please proceed with your question.
Good afternoon, guys. Thank you for taking the question. Guess I was hoping to just delve a little into the loan payments for the core. I guess just as you look at thing, you know is that something that's going to approve transient, in other words would we expect that to go up to somewhere between call it 5 and 10 basis points a quarter of benefit to the reported margin or is this lower, you know kind of two basis points level sort of the new run right and I guess if so, why or why not?
Sure, so Scott if you recall we closed on the bank mutual acquisition. And if I draw your attention to page seven in our slide, we noted we had not planned for the accretion when we closed on that transaction and the way it came in was probably a little lumpier than we had anticipated. So you'll notice the dark orange bars on that cart sort of bounce around between 7 and 13 basis points over the last four quarters.
We think we've run through most of the big rocks. Essentially that would have come through that. That’s not to say there won’t be more, but it's very hard to predict. But at this point in time we think a larger part of the equation, if you sort of look at our Press Release table you will see we started off with $34 million of net unaccreted discounts, we are down to 16 now.
So it's very clear to say more than half of it is run through, so to use – you threw out 5 basis points, that seems in the high end, because these numbers from last year would be at probably cut in half just by definition because half the balances are gone and what's left is likely to pay off on a more steady basis. So I would say it’s going to be hopefully a little more than two basis points, but probably not more than five. But again it’s lumpy and if it comes to us in lumpy terms, it’s hard to predict.
Yeah okay, that’s helpful color, so I appreciate it. But it sounds like maybe this newer level is sort of better based to go off of, so I appreciate that color.
Well, we've tried to make that point Scott along the way and went through some trouble to present this slide so that you can really see what the core NIM is in that dark green bars.
Yeah, and then…
Which is actually rising?
Yeah, exactly. And that is the perfect segway into what I was going to ask as sort of a follow-up. As we look at sort of the flat to down slightly guide for the reported margin for the full year, are we sort of saying that the core margin may actually keep increasing a bit, while there is PAAs.
That is our expectation. We believe because of what we are seeing on the commercial loan growth side on the one hand and because of the anticipated flow back in of our normal seasonal deposits, and the addition of the lower than market costs, Huntington deposits, we think we will have positive tailwinds for ourselves on the margin in the next several quarters, on the core margin.
Yeah perfect, thank you very much. And if I could slip one, a separate one, I appreciate the comments about the roughly $7 million one-time cost related to the Huntington transition. I know the sort of steady state or ongoing costs in that transaction are already embedded into your guidance for the full year expense number, it was about $800 million. Would you be able to share roughly what the ongoing cost from those branches are expected to be?
We haven't detailed that in general, but the costs of running a branch you know kind of tend to be several hundred thousand, $400,000-is per branch I would assume and there will be some operational back office customer service costs on top of that for processing transactions.
Yeah, okay. Alright, that's perfect. Thank you guys very much, I appreciate it.
Our next question comes from the line of Chris McGratty or KBW. Please proceed with your question.
Great, thanks. Chris maybe another question for you on the deposit costs. Many of your competitors and I think you're sending the same message, have talked about less promotional activity in your markets. So I’m interested in some comments there and also relative to the 1.3% average cost of interest bearing deposits in the quarter, do you have any spot rate as of March 31?
I don't have the spot rate as of March 31, we only look at that on a daily account basis, but you know to the broader point, if I look at page six that’s detailed sort of yield by class, we’re not doing anything with saving account rates, they are going to stay low, I’m looking at the press release table sorry.
Interest bearing demand rates don't seem to have a lot of upward pressure on them nor do money market at this point in time. Network deposits are market based funding, we're going to look to reduce those, as we reduce balances over time and CDs is where all the promotional activity had been focused on for the last six to nine months, and that's probably been one of the larger drivers of our yield on interest bearing liabilities going up and that’s where we’ve seen – we would echo some of these sentiments from our regional bank peers. People have taken a look at those longer dated CD specials and they are starting to back them off.
I think the FDAC data came out this week and of the 22 categories tracked, six of them had showed declines and so my expectation is we’ll continue to see longer dated CD's priced in north of fed funds continue to come off the table at many of our competitors and we are also…[cross talk]
And here.
Great, maybe one more on the securities. You mentioned in your opening remarks kind of more challenging reinvestment rates. I guess what’s the plan to either grow or shrink – our whole balance to flat in the bond book and then also kind of where are you putting on new, where is kind of new money putting on today.
Yes, so as you can see we really haven't moved the balances there much on a quarter-to-quarter or year-over-year basis. So you can surmise that we are looking to the securities book as a source of funds not a place to put new funds and that's in part because new yields are on taxable stuff in the low threes and just doesn't make sense to us to put on stuff in the low threes.
Okay, great. And then the 800…
We rather make more loans.
Totally get it, thanks. Does the 800 – can you remind me does that include those charges from Huntington as one timers or is that exclusive, I can’t remember?
They are all included.
Okay, thank you.
[Operator Instructions]. Our next question is from a line of Jon Arfstrom of RBC Capital Markets. Please proceed with your question.
Thanks. Good afternoon.
Good afternoon Jon.
A question on the loan growth guidance, more bigger picture Phil, but where’s your head at today in terms of the range. It seems like you had a pretty good loan growth, according to you pretty optimistic. But give us an idea of kind of the puts and takes to the higher end or lower end of the range.
Yeah, I mean we had a good quarter after having watched loan balances basically shrink, we had a good piece last year. So our commercial backlog is strong, our specialty units were good. As I mentioned, we’ve done a lot of work around our commercial real-estate book to try to estimate when we are going to get that term, because we’ve been making a lot of new loans and new commitments. So in the not too distant future those lines will cross and we’ll start to see growth there.
And rising mortgage will continue to bump along, but at much slower pace than we’ve seen in some years. But all in all we feel very comfortable with that range and I think it would be fair to say that probably moving towards that higher end of that range at this point as we look out.
Okay good, that’s helpful. And then I guess the other unasked question here is just on the provision, in terms of how you guys think we should think about the provision. I mean obviously you had a little bit this quarter, it was nothing a year ago, but what’s the message in terms of adjusting the risk rate and indications of credit quality and loan volume. How should we be thinking about it?
Sure. So keep in mind that last year we really didn’t have a lot of loan growth. So that weighed on the fact that we didn’t have any provisioning. We had loan growth this quarter, so that’s a piece of it. So if we continue to have the really decent loan growth that we’d expect, you know we’ll be providing along the way of course. But you know the overall portfolio for the credit point of view still looks unbelievably good, you know 10 years into a credit recovery cycle, but we are still there.
Yeah okay. Alright, that helps, thank you.
Our next question comes from the line of Michael Young of SunTrust Robinson Humphrey.
Please proceed with your question.
Hey, good evening. I just wanted to ask just on the kind of loan mix. Historically you guys have always targeted a third, a third, a third and you know commercial real estate has come down to be a pretty small percentage of the balance sheet now and you know the other commercial categories are growing and maybe in an outsized pace relative to that. So just trying to think about going forward how you are thinking about kind of the balance of the loan book.
Yeah, so good question. You know we've never tried to dial into exactly 33% for each of the three major food groups; you know they operated in a range. Certainly commercial real estate has fallen down to what, probably about 25%-ish right now, maybe a little more than that, but somewhere around there.
Yeah, we expect as we get further into the year that we’ll have commercial real estate growth, but you know we in particular want to continue to grow our commercial, general commercial loan book because obviously its diverse, it covers lots of different industries.
We are and have been very deliberate about growing commercial real estate over these last few years, just because we are so late in the cycle of as I was referencing a moment ago. Not to say that we're not comfortable with what we're putting on, we are very comfortable with it, but it’s a late cycle. So we are very diligent about concentrations on geographies and product types and all that kind of stuff.
Okay. And one last one just on the deposit side if I could go there. Just on the network deposits, if we're not going to see anymore rate hikes going forward, I mean is there an interest in going ahead and terming some of that out and really reducing it. I know in the past you wanted to hold it at a certain level to have that lever available, but maybe just any updated thoughts, big picture on network deposits there?
Sure. So I mean I guess the good news is assuming rates don’t go higher the expected date on this stuff will be zero for the foreseeable future and the one upside perhaps to network deposit is they also have a data of one on the way down. So essentially they are – there is a hedge there again the fed lowering rate unexpectedly on us, which has some of the consequences.
But nonetheless we’ve look to continue to sort of manage that book down as you can see in our core deposits. So ideally the best answer here is we’ll continue to add and grow core deposits over the balance of the year and through the acquisitions, and as a result mitigate our need to have that market based funding there.
Yeah and putting $850 million of core deposits on from Huntington is going to be a big help there.
Okay thanks.
At this time there are no further questions over the audio portion of the conference. I would like to turn the conference back over to management for closing remarks.
Okay, well thanks for joining us today. We are really pleased with this quarter's loan growth and lower expense trends. We are optimistic as I mentioned for continued loan growth and we expect to maintain our effective cost controls for the rest of the year.
We look forward to welcoming Huntington's Wisconsin branch customers to Associated in June and to talking to all of your again in July. So if you have any questions in the meantime give us a call. As always, thanks for your interest in Associated.
This concludes today's conference. Thank you for your participation. You may disconnect your lines at this time. Have a wonderful rest of your day!