Associated Banc-Corp ASB reported first-quarter 2015 earnings per share of 30 cents, outpacing the Zacks Consensus Estimate by a penny. Moreover, earnings came 11.1% above the year-ago quarter figure.
Results benefited from higher net interest income as well as non-interest income, partially offset by higher expenses. The quarter witnessed strong growth in deposits and loans. While asset quality displayed enhancement, capital ratios weakened.
Net income available to common shareholders for the quarter totaled $45.4 million, up 3.4% from the prior-year quarter.
Performance in Detail
Net revenue grew 3.9% year over year to $247.9 million. Further, it came almost in line with the Zacks Consensus Estimate of $248 million.
Net interest income rose 1.7% year over year to $167.8 million. The improvement was attributable to a 4.8% rise in interest income, partially offset by a 43.6% increase in interest expense. Net interest margin (“NIM”) inched down 23 basis points (bps) to 2.89% from the prior-year quarter.
Non-interest income summed $80.1 million, up 8.9% year over year. The increase was mainly due to a rise in net asset gains, net mortgage banking income and net capital market fees, which was partially mitigated by lower bank owned life insurance income as well as net investment securities gains.
Non-interest expense climbed 3.9% year over year to $174.3 million. The rise was mainly the result of an increase in expenses related to personnel, technology, occupancy, business development and advertising, FDIC expenses as well as legal and professional fees. These were, however, partly offset by a reduction in equipment costs, other intangible amortization, foreclosure/OREO expenses and other costs.
The efficiency ratio, on a fully taxable equivalent basis, remained stable at 68.86% compared with the prior-year quarter ratio.
Total loans as of Mar 31, 2015 amounted to $18.0 billion, up 9.4% year over year. Further, total deposits came in at $19.9 billion, up 13.4% from the prior-year quarter figure.
Asset Quality
Associated Banc-Corp’s asset quality demonstrated improvement. Provision for credit losses summed $4.5 million, down 10% year over year. Moreover, non-accrual loans declined 2% year over year to $174.3 million. Also, total nonperforming assets fell 4% year over year to $189.3 million.
Further, ratio of net charge-offs to annualized average loans came in at 0.13%, down 1 bps from the prior-year quarter.
Capital and Profitability Ratios
Capital ratios of Associated Banc-Corp deteriorated. As of Mar 31, 2015, Tier 1 risk-based capital ratio came in at 9.70%, down from 11.56% as of Mar 31, 2014.
Total risk-based capital ratio stood at 12.21% versus 12.81% at the end of the prior-year quarter. Tangible common equity ratio was 7.04%, compared with 7.96% as of Mar 31, 2014.
Further, profitability ratios represented a mixed bag. The return on average assets of 0.71% was down 5 bps year over year. However, book value per common share was recorded at $18.38, up from $17.64 in the prior-year period.
Share Repurchase
During the reported quarter, Associated Banc-Corp bought back 1.7 million shares worth $30 million.
Our Viewpoint
Associated Banc-Corp’s efforts to improve its operating efficiency, along with appreciable growth in loans and deposits, have started to pay off in the form of an improved top line. Impressive organic growth strategy will further boost the bank’s 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 carries a Zacks Rank #3 (Hold).
Among other Midwest banks, First Interstate Bancsystem Inc. FIBK and Old National Bancorp. ONB are slated to report March-end quarter results on Apr 27, while Enterprise Financial Services Corp. EFSC is scheduled to report on Apr 23.
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