) reported its third quarter 2012 earnings of 26 cents per share,
which edged past the Zacks Consensus Estimate by a cent. The
results also compares favorably with the prior-quarter earnings
of 24 cents and prior-year quarter earnings of 20 cents.
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The improvement in the quarterly results came on the back of
increased top line, partially offset by a rise in operating
expenses. Moreover, asset quality, loan, and deposit balances
witnessed growth in the quarter. However, capital ratios were the
Net income available to shareholders for the reported quarter
came in at $45.1 million, up from $42.0 million in the prior
quarter and $34.0 million in the year-ago quarter.
Performance in Detail
Associated's total revenue edged up 2.0% sequentially and 2.2%
year over year to $259.6 million. Moreover, revenue surpassed the
Zacks Consensus Estimate of $240.0 million by 8.2%.
Net interest income improved 0.9% sequentially to $155.6 million.
The hike was mainly attributable to a marginal rise in total
interest income and lower total interest expenses. However, net
interest margin dipped 4 basis points from the prior quarter to
Non-interest income stood at $81.0 million, rising 6.6% from
$76.0 million in the prior quarter. The increase was primarily
due to higher core fee revenue, capital market fees, bank owned
life insurance income, net gains from Investment securities and
other income, partially offset by lower net mortgage banking
Non-interest expense was $169.7 million, up 2.2% from $166.0
million in the previous quarter. The rise was mainly a result of
higher personnel expense, occupancy costs, equipment costs, loan
expenses, legal and professional fees, losses other than
loans and Federal Deposit Insurance Corporation (FDIC) expenses.
However, these were offset by lower data processing expenditure,
business development and advertising costs, foreclosure/ other
real estate owned (OREO) costs and other expenses.
The efficiency ratio increased to 70.22% from 69.21% recorded in
the prior quarter. The hike in efficiency ratio indicates
deterioration in profitability.
Asset quality witnessed improvements in the quarter. Non-accrual
loans dipped 12.5% sequentially and 31.0% on a year-over-year
basis to $278.1 million.
Further, ratio of net charge offs to annualized average loans
came in at 0.47% in the reported quarter, down from 0.65% in the
previous quarter and 0.90% in the year-ago quarter. Total
nonperforming assets stood at $314.2 million, declining 12.2%
from last quarter and 29.5% from the year-ago quarter.
Loans and Deposits
Associated's total loans in the reported quarter were nearly
$15.0 billion, rising 1.8% from previous quarter and 10.8% from
the prior-year quarter. The improvement was mainly driven by
increases in commercial loans and residential mortgage loans.
Total deposits for the quarter expanded 8.9% sequentially and
11.3% on a year-over-year basis to $16.5 billion. The increases
were primarily due to the higher levels of noninterest-bearing
demand deposits and interest-bearing deposits
Profitability and Capital Ratios
Associated's profitability and capital ratios witnessed mixed
movements in the quarter. As of September 30, 2012, tier 1
risk-based capital ratio was 13.57% compared with 13.64% as of
June 30, 2012 and 14.35% as of September 30, 2011. Total
risk-based capital ratio came in at 15.0% as against 15.08% at
the end of the prior quarter and 15.81% at the end of the
prior-year quarter. Tangible common equity ratio stood at 8.91%,
down from 8.99% as of June 30, 2012 but up from 8.77% as of
September 30, 2011.
The return on average assets was 0.84% in the reported quarter
compared with 0.80% as of June 30, 2012 and 0.75% as of September
30, 2011. As of September 30, 2012, return on average
stockholders' equity came in at 6.29%, up from 5.98% as of June
30, 2012 and 5.49% as of September 30, 2011. Book value per
common share was recorded at $16.82, up from $16.59 in the prior
quarter and $16.07 in the year-ago period.
Associated's decent top-line growth as well as constantly
improving credit quality and strong balance sheet were quite
impressive. However, rising expenses keep us on the sidelines.
Moreover, we are concerned about the impacts of the prevailing
low interest rate environment, sluggish economic growth and
stringent regulatory landscape on the company's financials in the
Associated currently retains a Zacks #3 Rank, which translates
into a short-term Hold rating. Other Zacks #3 Rank bank stocks