Associated Banc-Corp (ASBC) reported third-quarter 2014 earnings per share of 31 cents, outpacing the Zacks Consensus Estimate by a penny. Moreover, earnings were 14.8% above the year-ago quarter figure.
Commendable loan growth and improvement in top line aided the quarterly performance. On the other hand, escalating expenses along with rising provisions slightly weighed on the results. While asset quality displayed mixed numbers, capital ratios weakened during the quarter.
Net income available to common shareholders totaled $49.0 million, up 10.3% from the prior-year quarter.
Performance in Detail
Net revenue grew 7.0% year over year to $247.5 million. However, it missed the Zacks Consensus Estimate of $248.0 million.
NII improved 7.6% year over year to $172.6 million. The increase was owing to a 5.9% rise in interest income and 11.8% reduction in interest expense. However, net interest margin (NIM) inched down 7 basis points (bps) to 3.06% from the prior-year quarter.
Non-interest income summed $74.9 million, up 5.6% year over year. The rise was mainly due to a substantial climb in both net mortgage-banking fees and net assets gain, partially offset by a fall in service charges on deposit accounts as well as insurance commissions.
Non-interest expense climbed 4.0% year over year to $171.9 million. Elevated FDIC expenses, business development and advertising as well as technology expenses contributed to the rise, while lower occupancy costs and personnel expenses slightly mitigated the increase.
The efficiency ratio on a fully taxable equivalent basis decreased to 69.04% from the prior-year quarter ratio of 70.10%. A decline in efficiency ratio indicates higher profitability.
Total loans as of Sep 30, 2014 amounted to $17.2 billion, up 10.1% year over year. Further, total deposits and customer funding came in at $18.7 billion, down 0.8% from the prior-year quarter figure.
Asset Quality
Associated Banc-Corp’s asset quality demonstrated mixed figures. Provision for loan losses summed $1.0 million, up from the negative provisions in the year-ago quarter. However, non-accrual loans declined 11.3% year over year to $184.1 million. Also, total nonperforming assets reduced 13.6% year over year to $201.0 million.
Moreover, ratio of net charge-offs to annualized average loans came in at 0.06%, down 8 bps from the prior-year quarter.
Capital and Profitability Ratios
Capital ratios of Associated Banc-Corp deteriorated. As of Sep 30, 2014, Tier 1 risk-based capital ratio came in at 10.73%, down from 12.02% as of Sep 30, 2013.
Total risk-based capital ratio stood at 11.98% versus 13.44% at the end of the prior-year quarter. Tangible common equity ratio was 7.57%, compared with 8.21% as of Sep 30, 2013.
Further, profitability ratios represented a mixed bag. The return on average assets of 0.78% came at par with the year-ago quarter return. However, book value per common share was recorded at $18.15, up from $17.10 in the prior-year period.
Share Repurchase
During the reported quarter, Associated Banc-Corp bought back 5 million shares at an average cost of $18.17 per share.
Our Viewpoint
Associated Banc-Corp’s efforts to enhance its operating efficiency and appreciable growth in loans have started to pay off in the form of improved top line. The bank’s impressive organic growth strategy will further boost profitability in the upcoming quarters.
However, considerable exposure to commercial loans and concentration risks arising from limited geographic diversification are likely to be a drag on the financials.
At present, Associated Banc-Corp holds a Zacks Rank #2 (Buy).
Among other Midwest banks, Chemical Financial Corporation (CHFC), Old National Bancorp. (ONB) and First Interstate Bancsystem Inc. (FIBK) are slated to report third-quarter earnings results on Oct 27.
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