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Associated BancCorp Reports Operating Results (10-Q)

November 04, 2010 | About:

10qk

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Associated BancCorp (ASBC) filed Quarterly Report for the period ended 2010-09-30.

Associated Banccorp has a market cap of $2.26 billion; its shares were traded at around $12.8 with and P/S ratio of 1.7. The dividend yield of Associated Banccorp stocks is 0.3%.ASBC is in the portfolios of RS Investment Management, Bill Frels of Mairs & Power Inc. , Columbia Wanger of Columbia Wanger Asset Management, Arnold Schneider of Schneider Capital Management, HOTCHKIS & WILEY of HOTCHKIS & WILEY Capital Management LLC, Pioneer Investments, Chuck Royce of Royce& Associates, Jim Simons of Renaissance Technologies LLC, Jeremy Grantham of GMO LLC.

Highlight of Business Operations:

Mortgage servicing rights are carried at the lower of amortized cost or estimated fair value and are assessed for impairment at each reporting date. Impairment is assessed based on the fair value at each reporting date using estimated prepayment speeds of the underlying mortgage loans serviced and stratifications based on the risk characteristics of the underlying loans (predominantly loan type and note interest rate). As mortgage interest rates fall, prepayment speeds are usually faster and the value of the mortgage servicing rights asset generally decreases, requiring additional valuation reserve. Conversely, as mortgage interest rates rise, prepayment speeds are usually slower and the value of the mortgage servicing rights asset generally increases, requiring less valuation reserve. However, the extent to which interest rates impact the value of the mortgage servicing rights asset depends, in part, on the magnitude of the changes in market interest rates and the differential between the then current market interest rates for mortgage loans and the mortgage interest rates included in the mortgage servicing portfolio. Management recognizes that the volatility in the valuation of the mortgage servicing rights asset will continue. To better understand the sensitivity of the impact of prepayment speeds on the value of the mortgage servicing rights asset at September 30, 2010 (holding all other factors unchanged), if prepayment speeds were to increase 25%, the estimated value of the mortgage servicing rights asset would have been approximately $7.9 million (or 13%) lower, while if prepayment speeds were to decrease 25%, the estimated value of the mortgage servicing rights asset would have been approximately $8.6 million (or 14%) higher. The Corporation believes the mortgage servicing rights asset is properly recorded in the consolidated financial statements. See Note 6, Goodwill and Other Intangible Assets, and Note 12, Fair Value Measurements, of the notes to consolidated financial statements and section Noninterest Income.

The contribution from the wealth management segment to consolidated total revenues (as defined and disclosed in Note 14, Segment Reporting, of the notes to consolidated financial statements) was 10% and 8%, respectively, for the comparable nine month periods in 2010 and 2009. Wealth management segment revenues were up $3.3 million (5%) and expenses were up $0.7 million (1%) between the comparable nine month periods of 2010 and 2009. Wealth segment assets (which consist predominantly of cash equivalents, investments, customer receivables, goodwill and intangibles) were up $12 million (10%) between September 30, 2010 and September 30, 2009, predominantly due to higher cash and cash equivalents. The major components of wealth management revenues are trust fees, insurance fees and commissions, and brokerage commissions, which are individually discussed in section Noninterest Income. The major expenses for the wealth management segment are personnel expense (63% of total segment noninterest expense for both the first nine months 2010 and the comparable period in 2009), as well as occupancy, processing, and other costs, which are covered generally in the consolidated discussion in section Noninterest Expense.

The Corporation recorded a net loss of $14.9 million for the nine months ended September 30, 2010, compared to net income of $41.4 million for the nine months ended September 30, 2009. Net loss available to common equity was $37.0 million for the nine months ended September 30, 2010, or a net loss of $0.22 for both basic and diluted earnings per common share. Comparatively, net income available to common equity for the nine months ended September 30, 2009, was $19.4 million, or net income of $0.15 for both basic and diluted earnings per common share. The net interest margin for the first nine months of 2010 was 3.22% compared to 3.50% for the first nine months of 2009.

Net interest income on a taxable equivalent basis for the nine months ended September 30, 2010, was $500.8 million, a decrease of $65.5 million or 11.6% versus the comparable period last year. As indicated in Tables 2 and 3, the decrease in taxable equivalent net interest income was attributable to unfavorable volume variances (as changes in the balances and mix of earning assets and interest-bearing liabilities lowered taxable equivalent net interest income by $34.3 million) and unfavorable rate variances (as the impa

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