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Associated Banc-Corp expecting mortgage banking to slow; CRE, energy could rise

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Associated Banc-Corp expecting mortgage banking to slow; CRE, energy could rise

Following a strong year, mortgage banking at Associated Banc-Corp is expected to slow into 2017, executives said Jan. 19.

Overall, in 2016, mortgage banking income increased by $6 million, or 18%, year over year, mainly due to portfolio loan sales. During the fourth quarter of 2016, it decreased by $7 million.

"Looking ahead into 2017, we expect reported noninterest income to decline by approximately $20 million year over year," President and CEO Philip Flynn said on the company's 2016 fourth-quarter earnings call. "The drivers of the expected decline are lower mortgage banking income and increased tax credits investment activity. However, this decline is expected to be largely offset in other reported income statement line items."

Meanwhile, management said it is likely the company's oil and gas portfolio will pick up in 2017 as prices increase, though they remain conservative in their projections. Net charge-offs were down $9 million from the linked quarter, but up $35 million from the year-ago quarter, which was mainly attributed to oil and gas loans.

"It's highly likely that the worst is behind us, obviously, on our oil and gas portfolio," Flynn added.

They also said they are well-positioned for additional commercial real estate lending.

"We are particularly well-positioned because we have substantial room underneath the OCC guidance [whereas] other banks are bumping up against their various limits," Flynn said. "We've been very disciplined about making sure that we have diversity amongst the product types.

Average loans grew by 8%, or $1.4 billion, from a year ago, which Flynn attributed to growth driven by commercial real estate and residential lending. Residential mortgages represented approximately 31% of the company's total loan book during the quarter, while CRE lending accounted for 20% to 24%, Flynn said. Summarizing 2017's outlook, Flynn said the company expects mid- to high-single-digit average loan growth.

Average deposits grew by 6%, or $1.1 billion, in 2016, year over year. "We focus our efforts on growing organic long-term deposits; our affinity programs and evolving mobile technology have proven to be effective in capturing low-cost deposit balances," Flynn added.

Management said they feel their footprint has an "appropriate" size, and they are not planning near-term M&A activity. Flynn said the December 2016 rate hike had "no real impact" on 2016 fourth-quarter results, but is expected to add to 2017's bottom line.

Associated Banc-Corp reported earnings of 34 cents per common share for the quarter ended Dec. 31, compared to 27 cents per common share in the year-ago period.