GREEN BAY, Wis. – Oct. 19, 2004 – Associated Banc-Corp (NASDAQ: ASBC) earned $.57 per diluted share in the quarter ended Sept. 30, 2004, up 9.6 percent compared to $.52 per diluted share for the same period in 2003, and $.58 per diluted share for the second quarter of 2004.
Return on average assets was 1.60 percent in the third quarter 2004 compared to 1.53 percent in the third quarter of 2003, and 1.67 percent in the second quarter of 2004. Third quarter return on average equity was 17.76 percent compared to 17.75 percent in the year-earlier quarter and 18.87 percent in second quarter of 2004.
For the nine months ended Sept. 30, 2004, diluted earnings per share were $1.68, up 8.4 percent from $1.55 per diluted share in the same period in 2003. Return on average assets was 1.62 percent year-to-date and return on average equity was 18.00 percent, compared to 1.54 percent and 17.82 percent, respectively, for the nine months ended Sept. 30, 2003.
“Our third quarter results reflect progress on our strategy to diversify revenue. In addition, expenses remain well controlled, and improvements in our asset quality did not require a loan loss provision in the third quarter. Our progress has allowed us to overcome the industry-wide decline in mortgage banking revenue relative to the year-earlier period, resulting in continued bottom line improvement,” Associated President and CEO Paul Beideman said.
Net income was $63.4 million for the quarter that ended Sept. 30, 2004. This compares to $58.4 million for the third quarter of 2003 and $64.5 million for second quarter 2004. On a year-to-date basis, net income was $187.4 million, up 8.3 percent from $173.0 million for the comparable period of 2003.
The comparisons between 2004 and 2003 continue to be affected by significantly lower refinancing activity throughout the mortgage banking industry that began most notably in the fourth quarter 2003, impacting both mortgage banking revenue and mortgage servicing rights expense. Gains on sales of mortgage loans have moved in line with the lower mortgage production, generally reducing mortgage banking revenue. On the other hand, loan prepayment speeds, a key valuation factor, have varied between the comparable periods, impacting the recorded value of the mortgage servicing asset. Mortgage servicing rights expense included a $2.0 million valuation reserve addition for third quarter 2004 (compared to no valuation adjustment for the third quarter 2003), and a $2.2 million valuation reserve recovery for the nine months of 2004 (compared to $15.8 million additional valuation reserve for the comparable 2003 period).
For the comparable third quarter periods, mortgage banking revenue was down $15.1 million and mortgage servicing rights expense was up $1.8 million, for a net unfavorable pre-tax impact of $16.9 million. For the comparable nine-month periods, mortgage banking revenue was down $48.6 million while mortgage servicing rights expense was down $18.4 million, for a net unfavorable pre-tax impact of $30.2 million. On a sequential quarter basis, mortgage banking revenue was down compared to the second quarter of 2004 by $2.5 million (influenced mostly by lower volumes) and mortgage servicing rights expense was up $8.3 million (increased mostly by lower valuation due to faster prepayment speeds), for a net unfavorable pre-tax impact of $10.8 million.
Also, Associated’s acquisition of Jabas Group, Inc., one of Wisconsin’s leading employee benefit firms, on April 1, 2004, affects the comparison of retail commission income and noninterest expenses between third quarter and year-to-date periods. Associated’s acquisition of CFG Insurance on April 1, 2003 affects year-to-date comparisons.
Associated Banc-Corp’s net interest income rose to $133.2 million in the third quarter, compared to $129.0 million in the third quarter of 2003 and $131.9 million in the second quarter of 2004. For the first nine months of 2004, net interest income was $394.2 million, up 2.7 percent compared to $383.6 million for the same period of 2003.
The net interest margin was 3.76 percent for the third quarter of 2004, compared to 3.78 percent for third quarter of 2003 and 3.80 percent for the second quarter of 2004. For the comparable nine-month periods, the net interest margin was 3.79 percent compared to 3.82 percent last year.
Total loans at the end of the third quarter 2004 were $10.8 billion, up 5.3 percent from $10.3 billion a year earlier, including 6.5 percent growth in commercial loans and 14.9 percent growth in home equity loans. Since June 30, 2004, total loans increased 10.3 percent on an annualized basis, led by 12.8 percent annualized growth in commercial loans.
Total deposits were $9.7 billion as of Sept. 30, 2004, up from $9.6 billion for both Sept. 30, 2003 and June 30, 2004. Demand deposits increased 3.5 percent from a year ago, and grew at a 9.9 percent annualized rate from June 30 to Sept. 30, 2004.
No provision for loan losses was required for the third quarter of 2004, a result of sustained improvement in asset quality trends and an adequate level of allowance for loan losses. The allowance for loan losses of $175.0 million represented 1.62 percent of total loans at Sept. 30, 2004, compared to 1.71 percent at Sept. 30, 2003, while for the same periods nonperforming loans declined 26.9 percent from $125.2 million to $91.5 million.
Net charge-offs have been declining as well. On a year-to-date basis net charge-offs were $13.7 million, down 41.9 percent from $23.5 million for the comparable nine-month period of 2003. Quarterly net charge-offs were $3.0 million, $5.6 million and $8.3 million for third quarter 2004, second quarter 2004 and third quarter 2003, respectively.
On a year-to-date basis, the provision for loan losses was $11.1 million compared to $37.2 million for the nine-month period of 2003, and net charge-offs were $13.7 million (or 0.17 percent of average loans, annualized) versus $23.5 million (or 0.29 percent) for the comparable period of 2003.
For the third consecutive quarter, nonperforming loans to total loans were below 0.90 percent and nonperforming assets to total assets were below 0.70 percent. Nonperforming loans were $91.5 million, or 0.84 percent of loans at Sept. 30, 2004, compared to 0.81 percent for second quarter 2004 and 1.22 percent for third quarter 2003. Nonperforming assets were $96.0 million, or 0.59 percent of total assets at Sept. 30, 2004, compared to 0.60 percent for second quarter 2004 and 0.87 percent for third quarter 2003.
Excluding mortgage banking revenue, noninterest income was $46.5 million for third quarter 2004, up from $40.3 million for the third quarter of 2003, and comparable to $46.5 million for second quarter 2004. Compared to the third quarter of 2003, insurance and brokerage retail commissions increased $5.1 million, primarily due to the inclusion of Jabas and $0.8 million higher fixed annuity sales commissions. Credit card and other nondeposit fees were up $0.8 million, or 15.1 percent, particularly from stronger credit card fees. Trust service fees were up $0.8 million, or 11.0 percent, in line with the growth in assets under management.
On a year-to-date basis, noninterest income excluding mortgage banking revenue was $136.9 million, or 13.5 percent higher than $120.7 million for the first nine months of 2003. The increase was led by retail commission revenues that nearly doubled as a result of the Jabas and CFG acquisitions and increased annuities sales commissions, as well as solid growth in trust fees and service charges on deposit accounts.
Excluding mortgage servicing rights expense, noninterest expense was $89.0 million for third quarter 2004, down 2.8 percent from $91.6 million for the comparable 2003 period, and down 3.2 percent from $92.0 million for second quarter 2004. Despite the inclusion of Jabas operating expenses, declines have been achieved in most noninterest expense categories.
On a year-to-date basis, noninterest expense excluding mortgage servicing rights expense was $267.9 million for the first nine months of 2004, only 0.8 percent higher than $265.7 million for the comparative period last year. The efficiency ratio improved to 48.58 percent, compared to 49.47 percent for the first nine months of 2003.
“We are continuing to invest in our capabilities to diversify Associated’s revenue streams. We see positive momentum in our fee-based businesses, and our investments in our people are beginning to show results as the pace of commercial and retail lending improves, along with growth in demand deposits. We are also creating positive operating leverage by continuing our focus on expense control.
“Given the current trends in our business, we remain confident that we can meet or exceed the consensus of analysts’ estimates for our 2004 earnings,” Beideman said.
“Additionally, we look forward to the vote of First Federal Capital Corp shareholders on Oct. 20. We feel very positive about the benefits of this combination. Integration planning continues to progress well, and we remain on target for a systems conversion and integration in the first quarter of 2005,” Beideman said. Upon a successful shareholder vote, the company expects to close the transaction at the end of October.
Associated did not repurchase any shares in the third quarter under its current authorizations. Year-to-date repurchases through Sept. 30 total 0.7 million shares at $28.91 average cost per share.
The company will host a conference call for investors and analysts at 3 p.m. CDT today. The toll-free dial-in number is 877-654-5513. Participants should ask the operator for the Associated Banc-Corp earnings call, number 1557845. An archived recording of the call will be available for two weeks.
Associated Banc-Corp has more than 200 banking offices serving more than 150 communities in Wisconsin, Illinois, and Minnesota. Following the integration of First Federal, the company will have approximately 300 offices. The company offers a full range of traditional banking services and a variety of other financial products and services. More information about Associated Banc-Corp is available at www.AssociatedBank.com.
Statements made in this document that are not purely historical are forward-looking statements, as defined in the Private Securities Litigation Reform Act of 1995. This includes any statements regarding management’s plans, objectives, or goals for future operations, products or services, and forecasts of its revenues, earnings, or other measures of performance. Forward-looking statements are based on current management expectations and, by their nature, are subject to risks and uncertainties. These statements may be identified by the use of words such as “believe,” “expect,” “anticipate,” “plan,” “estimate,” “should,” “will,” “intend,” or similar expressions. Outcomes related to such statements are subject to numerous risk factors and uncertainties including those listed in the company’s Annual Report filed on Form 10-K.