Jon Drayna
Vice President, Corporate Communications
Associated Banc-Corp
920-491-7006
News Release
GREEN BAY, Wis. – Jan. 20, 2005 – Associated Banc-Corp (Nasdaq: ASBC) earned $2.25 per diluted share in 2004, up 10 percent from 2003. Net income for 2004 was $258.3 million, up 13 percent from $228.7 million in 2003.
Associated’s acquisition of First Federal Capital Corp. on Oct. 29, 2004, affects comparisons to past periods, adding the balance sheet of a $4 billion thrift and two months of operations in 2004. Additionally, the acquisitions of Jabas Group, Inc., an employee benefits firm, on April 1, 2004, and of CFG Insurance Services, Inc., on April 1, 2003, also affect the comparison of retail commission income and noninterest expenses.
Net income for the fourth quarter of 2004 was $70.9 million, up 27 percent from $55.6 million in the fourth quarter of 2003. Fourth quarter earnings per diluted share were 57 cents, up 14 percent from the 50 cents per diluted share earned in the fourth quarter of 2003.
Return on average assets (ROA) and equity (ROE) for 2004 were 1.58 percent and 17.22 percent, respectively. This compares to ROA of 1.53 percent and ROE of 17.58 percent in 2003. Book value per share rose to $15.55 as of Dec. 31, 2004, up 27 percent compared to a year earlier.
Return on average tangible equity (which is a non-GAAP measure that excludes the average of goodwill and other intangible assets from average equity) was 22.11 percent for 2004 compared to 21.56 percent for 2003.
“We are pleased with our results in 2004, both organizationally and in terms of EPS growth, which is in line with our long-term goal,” said Paul S. Beideman, president and CEO of Associated Banc-Corp. “We have made investments in our people to improve customer service. We continue to make progress on our strategy to diversify revenue by optimizing performance across our businesses. In 2004 we overcame the industry-wide decline in mortgage banking revenue relative to 2003, and posted our seventh consecutive year of record earnings,” Beideman said.
Associated’s net interest income for 2004, which includes two months’ contribution from First Federal, was $552.6 million, up 8 percent from 2003’s $510.8 million. Net interest margin for 2004 was 3.80 percent, compared to 3.84 percent for 2003.
For the fourth quarter of 2004 the net interest margin was 3.74 percent versus 3.81 percent for the comparable quarter of 2003, and down 2 basis points from the third quarter of 2004. While the Federal Reserve raised rates five times since mid-year 2004, the longer-term rates have increased at a slower pace. This flattening of the yield curve put downward pressure on the margin especially in the second half of 2004.
Period end loans at Dec. 31, 2004 were $13.9 billion, up 35 percent over year-end 2003. Excluding First Federal, total loans grew 8 percent, despite residential mortgage loans declining 2 percent. Commercial loans and home equity were strategically emphasized in 2004 and, excluding First Federal, grew 11 percent and 22 percent, respectively, between year-end 2004 and 2003, with strong momentum in the second half of the year.
The mix of loans at Dec. 31, 2004, including First Federal, was 59 percent commercial (versus 63 percent last year), 20 percent residential mortgage (versus 19 percent last year), 13 percent home equity (compared to 11 percent) and 8 percent installment loans (versus 7 percent last year).
Period end deposits at year-end 2004 were $12.8 billion, up 31 percent over the prior year end, with minimal shift in deposit mix. Excluding First Federal, deposits grew 3 percent.
In 2004 net charge-offs were $17.3 million or 0.15 percent of average loans, as compared to $31.7 million or 0.30 percent of average loans for 2003. Nonperforming loans at Dec. 31, 2004 were $115.0 million or 0.83 percent of loans, as compared to $121.5 million or 1.18 percent of loans a year ago. The provision for loan losses for 2004 was $14.7 million, compared to $46.8 million for 2003. The provision for loan losses was reduced given improved asset quality trends and the favorable resolution of problem credits in 2004.
The allowance for loan losses was $189.8 million, or 1.37 percent of total loans at Dec. 31, 2004, and covered 165 percent of nonperforming loans. At Dec. 31, 2003 the allowance was $177.6 million, or 1.73 percent of total loans, and covered 146 percent of nonperforming loans.
The comparison of noninterest income between 2004 and 2003 was affected by significantly less net mortgage banking income (down $33.2 million or 62 percent between 2004 and 2003). Secondary mortgage production was $1.6 billion for 2004, down 62 percent compared to 2003, influencing a $46.0 million or 55 percent decline in gross mortgage banking income between the years. Netted against gross mortgage banking income is mortgage servicing rights expense which was down $12.8 million. The favorable change to this expense was due to slower loan prepayment speeds in 2004, a key valuation factor, increasing the recorded value of the mortgage servicing asset and requiring less valuation reserve. At Dec. 31, 2004, the net mortgage servicing rights asset represented 0.80 percent of the $9.5 billion mortgage portfolio serviced for others.
Noninterest income excluding net mortgage banking income was $189.9 million for 2004, up $26.5 million, or 16 percent, compared to $163.4 million for 2003. Retail commissions of $47.2 million led the increase, up $21.6 million compared to last year, predominantly from both organic and acquired growth in insurance revenues. Service charges on deposits of $56.2 million were up $5.8 million (12 percent), aided by fee increases in early 2004 and the addition of First Federal. Trust income of $31.8 million and credit card and other nondeposit fees of $26.2 million also grew, up $2.2 million (7 percent) and $2.5 million (11 percent), respectively, over last year.
Included in net investment securities losses for fourth quarter 2004 was an other-than-temporary impairment charge of $2.2 million taken on Associated’s holdings of FHLMC preferred stock securities (bringing their carrying value to $8.4 million), offset partially by gains on sales of Sallie Mae stock of $1.5 million.
Noninterest expenses were a critical focus during 2004 and remained well-controlled, rising $18.8 million or 5 percent year-over-year to $377.9 million, including the CFG, Jabas and First Federal acquisitions. Excluding only First Federal, noninterest expense for 2004 would have been approximately $359 million, unchanged from last year.
“Associated is well-positioned for sustained growth, through our diverse revenue sources. We now have the opportunity to leverage our increased distribution capacity as a result of the acquisition of First Federal. We are on track to consolidate the First Federal operating systems in February,” Beideman said.
He added, “We are confident that we can meet or exceed consensus earnings estimates for 2005, assuming a stable or growing economy. Positive loan growth momentum and anticipated rate increases by the Federal Reserve with a steepening of the yield curve are expected to improve net interest income. Full year contributions in 2005 from the Jabas and First Federal acquisitions will enhance the bottom line. We also expect to realize further cost efficiencies following our first quarter 2005 integration of First Federal into Associated.”
The company paid dividends of 98 cents per share in 2004, up from 89 cents in 2003, making 2004 Associated’s 34th consecutive year of increasing dividends.
Associated repurchased approximately 1.1 million shares of its common stock in 2004 at an average cost of $30.43 per share during 2004, compared to 3.1 million shares at $24.11 average cost per share during 2003. Associated starts 2005 with authorizations to repurchase approximately 6 million shares.
Associated will host a conference call for investors and analysts at 3 p.m. CST today. The toll-free dial-in number is 877-654-5513. Participants should ask the operator for the Associated Banc-Corp earnings call, or for call ID number 3275588. A taped play-back of the call will be available through Feb. 3 by calling 800-642-1687.
Associated Banc-Corp, headquartered in Green Bay, Wis., is a diversified multibank holding company with total assets of $20.5 billion. Associated has more than 300 banking offices serving more than 150 communities in Wisconsin, Illinois, and Minnesota. 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 to be filed on Form 10-K.
