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ASSOCIATED BANC-CORP (ASB)·Q4 2014 Earnings Summary

Executive Summary

  • Q4 2014 delivered steady results: diluted EPS of $0.31 (+11% YoY) on non-GAAP total revenue of $0.249B, with net interest income up modestly and continued loan/deposit growth, while noninterest income (especially mortgage banking) remained a headwind .
  • Net interest margin compressed to 3.04% (down 19 bps YoY), partially offset by ~$5M of interest recoveries/prepayment fees (~8 bps to NIM); issuance of $500M long-term debt raised funding costs and reduced NIM by ~5 bps in the quarter .
  • Credit remained benign: net charge-offs were $4.5M (10 bps annualized), nonaccrual loans fell 4% QoQ to $177M, and allowance coverage ended at 150% of nonaccruals; Tier 1 common equity ratio was 9.74% at year-end .
  • 2015 outlook introduced: high single-digit average loan growth; Q1’15 NIM ~2.95% with modest full-year compression; noninterest income up mid-to-upper single digits; expense up low single digits; provision to rise with growth and risk changes .

What Went Well and What Went Wrong

What Went Well

  • Broad-based loan growth and deposit inflows: total loans +3% QoQ (+11% YoY) to $17.6B; total deposits +3% QoQ (+9% YoY) to $18.8B, supporting stable net interest income trends .
  • Strong capital return and positioning: $100M repurchased via two ASR transactions in Q4; Tier 1 common equity ratio at 9.74% exceeded fully-phased Basel III “well-capitalized” benchmarks .
  • Management focus and tone: “We continued to grow our balance sheet, total revenues, and bottom line earnings… while slightly reducing total expenses,” noted CEO Philip B. Flynn, highlighting disciplined capital deployment and the announced Ahmann & Martin insurance agency acquisition .

What Went Wrong

  • Margin pressure: NIM of 3.04% fell 19 bps YoY and 2 bps QoQ, with higher long-term funding costs from the November $500M debt issue (approx. -5 bps NIM impact) despite $5M in interest recoveries (+8 bps) .
  • Mortgage banking drag: noninterest income fell 7% QoQ and 8% YoY; mortgage banking was down $3.7M QoQ and $5.3M YoY in Q4, reflecting sustained industry headwinds .
  • Provision normalization: provision for credit losses increased to $5M vs. $1M in Q3, reflecting higher loan growth and reserve dynamics (still low in context of benign loss experience) .

Financial Results

Headline P&L and Margins (banks show “total revenue” as non-GAAP = net interest income (tax-equivalent) + noninterest income)

MetricQ4 2013Q3 2014Q4 2014
Total Revenue (non-GAAP) ($B)$0.248 $0.252 $0.249
Diluted EPS ($)$0.28 $0.31 $0.31
Net Interest Margin (%)3.23% 3.06% 3.04%
Efficiency Ratio (FTE, non-GAAP) (%)72.59% 69.04% 69.66%

Balance Sheet and Credit KPIs

KPIQ4 2013Q3 2014Q4 2014
Loans (period-end, $B)$15.896 $17.159 $17.594
Deposits (period-end, $B)$17.267 $18.201 $18.764
Avg Loans (quarter, $B)$15.748 $17.141 $17.387
Nonaccrual Loans ($M)$185.4 $184.1 $177.4
Net Charge-offs ($M)$5.4 $2.6 $4.5
Provision for Credit Losses ($M)$2.3 $1.0 $5.0
Tier 1 Common Equity Ratio (%)11.46% (FY13) 10.39% 9.74%

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Average Loan GrowthFY 2015n/aHigh single-digit growth New
Net Interest MarginQ1 2015 (then FY)n/aQ1 ~2.95% with modest compression through 2015 New
Noninterest IncomeFY 2015n/aUp mid-to-upper single digits New
Noninterest ExpenseFY 2015n/aUp low single digits, focus on efficiency New
Provision for Credit LossesFY 2015n/aTo increase with loan growth and risk changes New
DividendQ4 2014$0.09 prior quarters $0.10 in Q4 Raised sequentially

Note: Q2 2014 provided a 2H14 framework (NIM compression of a few bps per quarter, expenses flat vs 2013); formal 2015 guidance was first consolidated in the Q4 materials above .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 & Q3 2014)Current Period (Q4 2014)Trend
Loan GrowthRobust, driven by commercial; avg loans +3% QoQ in Q2; +3% QoQ in Q3 Loans +3% QoQ (+11% YoY) to $17.6B Sustained growth
NIM/RateNIM compressed (3.12%→3.08% Q2); guidance for a few bps compression per quarter NIM 3.04% (down 2 bps QoQ); pressure from long-term debt; partial offset from recoveries Continued mild compression
Mortgage BankingSignificant YoY decline through 1H; modest improvement in Q3 Down $3.7M QoQ and $5.3M YoY in Q4 Persistent headwind
Expenses/EfficiencyFlat QoQ in Q2; up 2% in Q3 with marketing; efficiency ratio ~68–69% Q4 expenses flat QoQ; efficiency ratio FTE 69.66% Stable control
Capital DeploymentBuybacks initiated in 1H; $30M in Q2; $5M shares in Q3 $100M buybacks (two ASRs) in Q4 Accelerated return
Strategic InitiativesCredit card portfolio participation (Q2) Insurance acquisition (Ahmann & Martin) announced Diversification momentum

Management Commentary

  • CEO Philip B. Flynn: “We continued to grow our balance sheet, total revenues, and bottom line earnings… while slightly reducing total expenses… We remain focused on opportunistic ways to deploy capital… We are also happy to kick off 2015 with last week’s announcement regarding the acquisition of the insurance agency, Ahmann-Martin.” .
  • Credit tone: “Potential problem loans of $190 million declined $30 million, or 13% from the prior quarter,” underscoring improving portfolio trends; allowance coverage at 150% of nonaccruals .
  • Funding/margin dynamics: “Asset yield compression was more than offset by interest recoveries and prepayment fees of nearly $5 million… [but] $500 million debt issued in November… decreased net interest margin by approximately 5 basis points” .

Q&A Highlights

  • We attempted to retrieve the full Q4 2014 earnings call transcript (Document ID: 1) but encountered a database inconsistency that prevented access. We searched for alternative transcript sources in the corpus but only located unrelated 2025 conference transcripts; therefore Q&A themes could not be verified and are omitted to maintain accuracy .

Estimates Context

  • Wall Street consensus (S&P Global) for Q4 2014 could not be retrieved due to an SPGI daily request limit error; as a result, we cannot quantify beats/misses vs consensus for revenue or EPS in this report. Values from S&P Global were unavailable due to API limits at the time of this analysis.

Additional Relevant Press Releases (Q4 context)

  • Acquisition: Associated Banc-Corp announced agreement to acquire Ahmann & Martin Co., expanding its insurance brokerage platform; consideration ~$48M plus up to $8M contingent, expected to be accretive to 2017 EPS .

Key Takeaways for Investors

  • Core banking momentum intact: loans and deposits grew solidly QoQ/YoY, supporting steady net interest income despite NIM pressure .
  • Margin outlook conservative: Q1’15 NIM guided to ~2.95% with modest compression through 2015; higher wholesale funding costs are a headwind, though recoveries/prepayment fees offered some cushion in Q4 .
  • Fee income remains the swing factor: mortgage banking softness weighed on noninterest income; diversification via AFG/Ahmann & Martin acquisition should broaden fee streams over time .
  • Credit benign; provisioning to rise with growth: losses low, NPLs down, coverage robust; expect provision to step up alongside portfolio growth and any risk grade migration .
  • Capital deployment supportive: $100M Q4 buybacks and still-strong capital ratios provide flexibility for further shareholder returns and strategic investments .
  • Near-term trading setup: absent published consensus comparisons this quarter, focus on trajectory—sustained loan growth vs NIM compression, fee stabilization, and any updates on insurance platform integration and margin path in early 2015 .