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Associated Banc-Corp Posts In-Line Q2 Earnings, Costs Rise - Analyst Blog

Associated Banc-Corp 's ASB second-quarter 2015 earnings per share of 31 cents came in line with the Zacks Consensus Estimate. Moreover, earnings were 10.7% above the year-ago quarter figure.

Higher non-interest income was offset by lower net interest income and elevated costs. The quarter witnessed robust growth in deposits and loans, which provided a boost to overall revenue generation.

Net income available to common shareholders for the quarter totaled $47.9 million, up 6.1% from the prior-year period.

Performance in Detail

Net revenue grew 5% year over year to $253.0 million. However, it came below the Zacks Consensus Estimate of $254.1 million.

Net interest income fell 1.3% year over year to $166.5 million. The decline was attributable to a 48% rise in interest expense, partially offset by a 2.2% increase in interest income. Net interest margin ("NIM") inched down 25 basis points (bps) to 2.83% from the prior-year quarter.

Non-interest income totaled $86.5 million, up 19.8% year over year. The increase was mainly due to a rise in net asset gains, net mortgage banking income, net investment securities gains, net capital market fees and other income, partially mitigated by lower bank owned life insurance income.

Non-interest expense climbed 5.3% year over year to $176.8 million. The rise was mainly the result of an increase in expenses related to personnel, technology, occupancy, business development and advertising as well as FDIC expenses. 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, stood at 69.05% compared with 68.23% in the prior-year quarter. An increase in efficiency ratio indicates a decline in profitability.

Total loans as of Jun 30, 2015 amounted to $18.3 billion, up 7.4% year over year. Further, total deposits came in at $19.3 billion, up 11.3% from the prior-year quarter figure.

Asset Quality

Associated Banc-Corp's asset quality demonstrated a mixed bag. Non-accrual loans declined 10.5% year over year to $160.4 million. Moreover, total nonperforming assets fell 11.7% year over year to $173.9 million.

Provision for credit losses remained flat at $5.0 million on a year-over-year basis. However, ratio of net charge-offs to annualized average loans came in at 0.19%, up 13 bps from the prior-year quarter.

Capital and Profitability Ratios

Capital ratios and profitability ratios of Associated Banc-Corp represented a mixed picture. As of Jun 30, 2015, Tier 1 risk-based capital ratio came in at 9.89%, down from 11.06% as of Jun 30, 2014.

Tangible common equity ratio stood at 6.85%, compared with 7.79% as of Jun 30, 2014. However, total risk-based capital ratio came in at 12.41%, up from 12.31% at the end of the prior-year quarter.

The return on average assets of 0.74% was down 1 bps year over year. However, book value per common share was recorded at $18.44, up from $17.99 in the prior-year period.

Share Repurchase

During the reported quarter, Associated Banc-Corp bought back 3.2 million shares worth $63 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 enhanced top line. We believe that the company will keep the growth momentum alive given the constant change in deposit-mix, supported by rising non-interest-bearing deposit accounts.

Nonetheless, we remain apprehensive about weak cost control, margin compression and concentration risks, which are likely to be a drag on the financials in the near term.

At present, Associated Banc-Corp carries a Zacks Rank #3 (Hold).

Among other Midwest banks, First Interstate Bancsystem Inc. FIBK , Enterprise Financial Services Corp. EFSC and Old National Bancorp. ONB are scheduled to report June-end quarterly results on Jul 20, Jul 23 and Jul 27, respectively.

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OLD NATL BCP (ONB): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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