Associated BancCorp Reports Operating Results (10-Q)
Associated Banc-Corp is a diversified multibank holding company. The company has banking offices serving communities in Wi., Il. and Min. The company offers a full range of traditional banking services such as: Business banking, Trust, asset management, and investment services, Retail banking, Private banking, Credit and debit cards, Personal loans, Full-service, discount and online investment brokerage, Personal trust, Employee benefit plan investment management, Insurance, Leasing, Correspondent banking, Cash management services, International banking. Associated Banccorp has a market cap of $1.6 billion; its shares were traded at around $12.48 with a P/E ratio of 46.22 and P/S ratio of 1.13. The dividend yield of Associated Banccorp stocks is 1.6%. Associated Banccorp had an annual average earning growth of 5.6% over the past 10 years. Highlight of Business Operations: 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, 2009 (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 $5.2 million lower, while if prepayment speeds were to decrease 25%, the estimated value of the mortgage servicing rights asset would have been approximately $4.8 million higher. The Corporation believes the mortgage servicing rights asset is properly recorded in the consolidated financial statements. See Note 7, Goodwill and Other Intangible Assets, and Note 13, Fair Value Measurements, of the notes to consolidated financial statements and section Noninterest Income.
The contribution from the wealth management segment to consolidated net income (as defined and disclosed in Note 15, Segment Reporting, of the notes to consolidated financial statements) was approximately 17% and 8%, respectively, for the comparable year-to-date periods in 2009 and 2008. Wealth management segment revenues were down $7.9 million (10%) and expenses were up $0.3 million (1%) between the comparable nine-month periods of 2009 and 2008. Wealth segment assets (which consist predominantly of cash equivalents, investments, customer receivables, goodwill and intangibles) were up $0.2 million between September 30, 2009 and September 30, 2008, predominantly due to higher cash and cash equivalents, partially offset by lower customer receivables. 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% and 66%, respectively, of total segment noninterest expense for the first nine months of 2009 and the comparable period in 2008), as well as occupancy, processing, and other costs, which are covered generally in the consolidated discussion in section Noninterest Expense.
Net income for the nine months ended September 30, 2009, totaled $41.4 million, or $0.15 for both basic and diluted earnings per common share. Comparatively, net income for the nine months ended September 30, 2008, totaled $151.6 million, or $1.19 and $1.18 for basic and diluted earnings per common share, respectively. For the first nine months of 2009, the annualized return on average assets was 0.23% and the annualized return on average equity was 1.90%, compared to 0.93% and 8.57%, respectively, for the comparable period in 2008. The net interest margin for the first nine months of 2009 was 3.50% compared to 3.57% for the first nine months of 2008.
Net interest income on a taxable equivalent basis for the nine months ended September 30, 2009, was $566.3 million, an increase of $41.1 million or 7.8% versus the comparable period last year. As indicated in Tables 2 and 3, the increase in taxable equivalent net interest income was attributable to favorable volume variances (as changes in the balances and mix of earning assets and interest-bearing liabilities added $62.2 million to taxable equivalent net interest income), partially offset by unfavorable rate variances (as the impact of changes in the interest rate environment and product pricing reduced taxable equivalent net interest income by $21.1 million).
Year-over-year changes in the average balance sheet were impacted by the preferred stock issuance of $525 million in the fourth quarter of 2008 and the levering of the balance sheet through the investment in mortgage-related securities. Average earning assets were $21.6 billion for the first nine months of 2009, an increase of $2.0 billion or 10.1% from the comparable period last year, with average securities and short-term investments up $2.1 billion (primarily mortgage-related securities) while average loans were down $0.1 billion. The decline in average loans was comprised of a $518 million decrease in commercial loans, partially offset by a $264 million increase in residential mortgages and a $172 million increase in retail loans.
Average interest-bearing liabilities of $18.0 billion for the first nine months of 2009 were $1.1 billion or 6.4% higher than the first nine months of 2008. On average, interest-bearing deposits grew $1.8 billion (primarily attributable to $0.8 billion higher network transaction deposits, $0.5 billion higher money market, and $0.3 billion higher brokered CDs), while noninterest-bearing demand deposits (a principal component of net free funds) were up $0.4 billion. Average wholesale funding balances decreased $0.7 billion between the comparable nine-month periods, with short-term borrowing lower by $1.0 billion and long-term funding higher
Read the The complete ReportASBC is in the portfolios of David Dreman of Dreman Value Management.