Associated Banc-Corp’s (ASBC) second-quarter 2014 earnings per share of 28 cents came in line with both the Zacks Consensus Estimate as well as the year-ago quarter number.
Results benefited from an increase in net interest income (NII.TO) and fall in expenses, offset by lower non-interest income and higher provisions. Moreover, steady growth in loans was a tailwind. Further, while capital ratios declined, credit quality and profitability ratios were mixed in the quarter.
Net income available to common shareholders was $45.1 million, down 3.2% from the prior-year quarter. Though net income declined on a year-over-year basis, earnings came in line with the prior-year quarter. This was primarily due to a 3.5% fall in average common shares outstanding to 160.8 million in the reported quarter.
Performance in Detail
Associated Banc-Corp’s net revenue fell 1.4% to $241.0 million from the year-ago quarter. Moreover, it missed the Zacks Consensus Estimate of $247.0 million.
NII improved 5.3% year over year to $168.7 million. The increase was owing to a 3.0% rise in interest income and 20.1% decline in interest expense. However, net interest margin (NIM) fell 8 basis points (bps) from the prior-year quarter to 3.08%.
Non-interest income was $72.2 million, down 14.3% from the prior-year quarter. The decrease was mainly due to a fall in both net mortgage-banking fees and net capital-market fees, partially offset by rise in total core fee-based revenues and insurance commissions.
Non-interest expense was $167.9 million, down 0.5% year over year.
The efficiency ratio on a fully taxable equivalent basis increased to 68.23% from 67.21% recorded in the prior-year quarter. A rise in efficiency ratio indicates fall in profitability.
Associated Banc-Corp’s total loans as of Jun 30, 2014 were $17.0 billion, up 8.2% year over year. Further, total deposits and customer funding of $17.8 billion was up 1.0% from the prior-year quarter figure.
Associated Banc-Corp’s asset quality was a mixed bag in the quarter. Provision for loan losses was $6.5 million, up 62.5% from the prior-year quarter. However, non-accrual loans declined 17.6% year over year to $179.2 million. Total nonperforming assets were $197.0 million, decreasing 19.6% from the year-ago quarter.
Moreover, ratio of net charge-offs to annualized average loans came in at 0.06%, down 29 bps from the year-ago quarter.
Capital and Profitability Ratios
In the reported quarter, Associated Banc-Corp’s capital ratios deteriorated. As of Jun 30, 2014, Tier 1 risk-based capital ratio was 11.06%, down from 11.88% as of Jun 30, 2013.
Total risk-based capital ratio came in at 12.31% versus 13.29% at the end of the prior-year quarter. Tangible common equity ratio was 7.79%, compared with 8.25% as of Jun 30, 2013.
Profitability ratios represented a mixed bag. The return on average assets was 0.75%, down from 0.82% as of Jun 30, 2013. However, book value per common share was recorded at $17.99, up from $16.97 in the year-ago period.
During the reported quarter, Associated Banc-Corp bought back 1.7 million shares worth $30 million.
Further, on Jul 1, 2014, the company repurchased 1.6 million additional shares.
Associated Banc-Corp’s organic growth strategy seems impressive. We believe that increase in loans and deposits will continue to support the top line in the upcoming quarters. However, considerable exposure to commercial loans and concentration risks arising from limited geographic diversification are likely to be drags on profitability.
At present, Associated Banc-Corp has a Zacks Rank #2 (Buy).
Among other Midwest banks, Commerce Bancshares, Inc.(CBSH) reported second-quarter earnings per share of 70 cents, beating the Zacks Consensus Estimate of 68 cents.
PrivateBancorp, Inc. (PVTB) reported earnings per share of 52 cents which comfortably outpaced the Zacks Consensus Estimate of 44 cents.
Old National Bancorp. (ONB) is slated to report results on Aug 4.