Associated Banc-Corp. and TD Banknorth Inc. are offering tempered business outlooks for the first quarter and beyond, citing the interest rate environment and shrinking margins.
The companies gave their measured outlook after North Fork Bancorp. Inc. of Melville, N.Y., citing similar competitive pressures, said Sunday that it plans to sell itself to Capital One Financial Corp.
William J. Ryan, the chairman, president, and chief executive of TD Banknorth, said Tuesday at a New York conference sponsored by Cohen Bros. & Co. that his Portland, Maine, company could report first-quarter earnings that miss estimates by as much as 5 cents a share, or 8%. Before he spoke, analysts surveyed by Thomson Financial were expecting the $32.1 billion-asset company to report earnings of 60 cents a share for this quarter.
He cited the flat yield curve, margin compression, and what he called the quieter winter season for the fresh guidance. For the fourth quarter, TD Banknorth reported earnings of $55.6 million, up 169% from Banknorth Group Inc.'s earnings a year earlier. Toronto-Dominion Bank acquired a 51% stake in Banknorth for $3.8 billion in March.
Mr. Ryan said that his "optimistic friends say" the yield curve should unflatten in the second half of the year, but he said he believes it likely will not do so before early next year.
Late Monday, after North Fork had announced its deal, Associated told investors that it expects the first two quarters to be challenging, because of competition and the rate environment, and that it will have to further restructure its balance sheet. It did not offer specific earnings guidance, though at least three analysts trimmed their 2006 and 2007 estimates Tuesday by as much as 10 cents a share.
As of Tuesday morning, the average estimate of analysts called for earnings of 61 cents for this quarter, 64 cents for next quarter, and $2.61 for the full year, according to Thomson Financial.
The $22 billion-asset Green Bay, Wis., company said it will reduce wholesale borrowings by another $500 million to stave off margin compression. It also said it will sell $700 million of investments, as well as additional equity securities, this month. Those sales would not result in any pretax loss, the company said.
When Associated announced a balance-sheet restructuring in October, it said it was reducing wholesale borrowings by $1 billion to $1.5 billion over 12 months and using the proceeds to repurchase shares.
Paul S. Beideman, Associated's president and chief executive, said in an interview Tuesday that because of the rate environment, Associated "decided to take a more opportunistic and a slightly more aggressive approach" in managing its balance sheet.
The company expects the changes to improve its net interest margin. The fourth-quarter margin rose 3 basis points from the third quarter but dropped 15 basis points from a year earlier, to 3.59%. In the quarter the company reduced wholesale funding by $620 million, to $6.01 billion.
Associated expects to reduce wholesale funding as a percentage of total funding to the upper 20s. Currently it is 31%.
It does not plan to announce further reductions, Mr. Beideman said.
Also Monday, Associated said it had repurchased 4 million shares for $135.6 million from UBS AG and authorized repurchasing up to 5.4 million more shares.
Shares of Associated rose 0.8%, while shares of TD Banknorth fell 0.8%.
