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A decline in interest expense and rise in core fee revenues drove Associated Banc-Corp’s (ASBC - Analyst Report) fourth-quarter 2013 earnings per share of 28 cents. Though the reported figure was in line with the Zacks Consensus Estimate, it compared favorably with the 26 cents earned in the year-ago quarter.

For the full year 2013, Associated Banc-Corp recorded earnings per share of $1.10 versus $1.00 in 2012. Earnings were in line with the Zacks Consensus Estimate.

Results benefited from growth in net interest income (NII), partially offset by a decline in non-interest income and higher operating expenses. Moreover, improvement in asset quality as well as loans and deposits were the other positives. Further, while capital ratios declined in the reported quarter, profitability ratios were mixed bag.

Net income available to shareholders was $47.8 million, up 2.4% from $46.6 million in the year-ago quarter. Further, for full-year 2013, net income came in at $188.7 million, increasing 5.4% from $179.0 million in 2012.

Performance in Detail

Associated Banc-Corp’s total revenue fell marginally from the year-ago quarter to $257.4 million. However, it beat the Zacks Consensus Estimate of $236.0 million.

For 2013, total revenue came in at $1.02 billion, down nearly 1.0% from $1.03 billion in 2012. However, total revenue surpassed the Zacks Consensus Estimate of $966.0 million.

NII improved 3.6% year over year to $167.2 million. The improvement was primarily attributable to a decrease in interest expense. However, net interest margin (NIM) fell 9 basis points (bps) from the prior-year quarter to 3.23%.

Non-interest income was $75.9 million, down 2.6% from $77.9 million in the prior-year quarter. The decrease was due to a fall other fee income, partially offset by rise in total core fee revenue.

Non-interest expense was $179.5 million, up 1.8% from $176.3 million in the year-ago quarter. This was mainly due to increase in personnel expense, business development and advertising costs as well as other expenditures.
The efficiency ratio increased to 73.83% from 73.71% recorded in the prior-year quarter. A rise in efficiency ratio indicates fall in profitability.

Asset Quality

Asset quality continued to improve in the quarter. Non-accrual loans declined 26.7% year over year to $185.4 million. Total nonperforming assets were $203.5 million, declining 29.3% from the year-ago quarter.

Moreover, ratio of net charge-offs to annualized average loans came in at 0.25%, down from 0.57% in the year-ago quarter.

Loans and Deposits

Associated Banc-Corp’s net loans in the quarter were $15.6 billion, up 3.4% from the prior-year quarter. Further, total deposits increased 1.9% year over year to $17.3 billion.

Capital and Profitability Ratios

In the reported quarter, Associated Banc-Corp’s capital ratios deteriorated. As of Dec 31, 2013, Tier 1 risk-based capital ratio was 11.83%, compared with 12.01% as of Dec 31, 2012.

Total risk-based capital ratio came in at 13.09% versus 13.42% at the end of the prior-year quarter. Tangible common equity ratio was 8.11%, compared with 8.56% as of Dec 31, 2012.

Profitability metrics were a mixed bag. The return on average assets was 0.80%, down from 0.83% as of Dec 31, 2012. However, book value per common share was recorded at $17.40, up from $16.97 in the year-ago period.

Our Viewpoint

A still low interest rate environment, considerable exposure to commercial loans and concentration risks arising from limited geographic diversification will continue to weigh on the top line.

Nevertheless, we expect loan and deposit growth to continue and capital ratios to stabilize, given the gradual recovery in the economy.

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

Other Midwest Banks

Among other Midwest Banks, Commerce Bancshares, Inc.’s (CBSH - Analyst Report) missed the Zacks Consensus Estimate while Huntington Bancshares Inc.'s (HBAN - Analyst Report) beat.

Another bank First Interstate Bancsystem Inc. (FIBK - Snapshot Report) is scheduled to release earnings results on Jan 29. The Earnings ESP for the company is 6.52%. This, along with its Zacks Rank #1 (Strong Buy), indicates that the company will likely deliver a positive earnings surprise.

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