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Associated Banc-Corp’s (ASBC - Analyst Report) third-quarter 2013 earnings per share came in at 27 cents. This beat the Zacks Consensus Estimate and the year-ago earnings of 26 cents.

Better-than-expected results were driven by growth in net interest income and lower operating expenses, partially offset by a fall in non-interest income. Moreover, improvements in asset quality, loans and deposits were the other positives.

Net income available to shareholders came in at $45.7 million, down 1.6% from $46.4 million in the year-ago quarter.

Performance in Detail

Associated Banc-Corp’s total revenue appreciated 4.3% from the year-ago quarter to $246.7 million and beat the Zacks Consensus Estimate of $244.0 million by 1.1%.

Net interest income improved 3.2% year over year to $160.5 million. The improvement was mainly attributable to a decrease in interest expense. However, net interest margin (NIM) decreased 13 basis points (bps) from the prior-year quarter to 3.13%.

Non-interest income was $70.9 million, down 12.4% from $81.0 million in the prior-year quarter. The decrease was primarily due to fall in insurance commissions, mortgage banking, capital market fees, bank owned life insurance income, investment securities gain and others. These negatives were partially offset by rise in trust service fees, service charges on deposit accounts, card-based and other non-deposit fees, brokerage and annuity commissions as well as asset gains.

Non-interest expense was $164.4 million, down 3.1% from $169.7 million in the year-ago quarter. This was mainly due to fall in other intangible amortization costs, loan expenses, legal and professional fees, losses other than loans, foreclosure/ other real estate owned (OREO) expenses, and FDIC expenses. However, these were partially offset by rise in personnel expense, occupancy costs, equipment costs, data processing expenditure, business development as well as advertising costs and other expenses.

The efficiency ratio decreased to 71.10% from 72.81% recorded in the prior-year quarter. A decline in efficiency ratio indicates rise in profitability.

Asset Quality

Asset quality improved in the quarter. Non-accrual loans declined 25.4% year over year to $207.6 million. Total nonperforming assets were $232.7 million, declining 26.0% from the year-ago quarter.

Moreover, ratio of net charge-offs to annualized average loans came in at 0.29%, down from 0.58% in the year-ago quarter.

Loans and Deposits

Associated Banc-Corp’s average loans in the quarter were $15.7 billion, up nearly 5.4% from the prior-year quarter. Further, average deposits increased 3.0% year over year to $17.6 billion.

Capital and Profitability Ratios

In the reported quarter, Associated Banc-Corp remained well capitalized. As of Sep 30, 2013, Tier 1 risk-based capital ratio was 12.02%, compared with 13.57% as of Sep 30, 2012.

Total risk-based capital ratio came in at 13.44%, compared with 15.00% at the end of the prior-year quarter. Tangible common equity ratio was 8.21%, compared with 8.91% as of Sep 30, 2012.

Profitability metrics were a mixed bag. The return on average assets was 0.78%, down from 0.84% as of Sep 30, 2012. However, book value per common share was recorded at $17.10, up from $16.82 in the year-ago period.

Share Repurchase

During the reported quarter, Associated bought back 1.8 million shares worth $30 million. Moreover, earlier this month, the company initiated an additional accelerated share repurchase of 1.8 million shares.

Performance of Other Midwest Banks

Commerce Bancshares, Inc.’s (CBSH - Analyst Report) earnings of 78 cents per share beat the Zacks Consensus Estimate. Better-than-expected results were driven by increased non-interest income and lower provisions for credit losses.

Huntington Bancshares Inc.'s (HBAN - Analyst Report) earnings of 20 cents per share beat the Zacks Consensus Estimate. Better-than-expected results came on the back of lower-than-expected provision for credit losses and decrease in expenses.

First Interstate Bancsystem Inc. (FIBK - Snapshot Report) is scheduled to report earnings on Oct 21. The Earnings ESP for the company is 0.00%. This, along with its Zacks Rank #4 (Sell), doesn’t conclusively indicate that the company will beat the Zacks Consensus Estimate this announcement.

Our Viewpoint

We expect loan and deposit growth to continue and capital ratios to stabilize, given the gradual recovery in the economy. Moreover, significant capital deployment activities will reinstate investors’ confidence in the stock. However, a still low interest rate environment, considerable exposure to commercial loans and concentration risks arising from limited geographic diversification keep us apprehensive.

Associated Banc-Corp currently carries a Zacks Rank #3 (Hold).

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