DBRS: Associated’s 4Q13 Earnings Increase QoQ as Revenues Improve

Summary

• Associated reported 4Q13 earnings available to common shareholders of $46.5 million, compared to $44.4 for 3Q13 as higher revenues and lower taxes were partially offset by higher expenses some of which may be temporary.
• DBRS views Associated’s 4Q13 results as indicating continued evidence of the Company’s execution on the last piece of its turnaround plan; improving earnings.
• DBRS rates Associated Banc-Corp’s Issuer & Senior Debt at BBB with a Stable Trend.

DBRS, Inc. (DBRS) considers Associated Banc-Corp’s (ASBC or the Company) 4Q13 earnings as reflecting continued steady progress towards the Company’s ongoing turnaround. For 4Q13, results equated to a 0.80% ROAA and a 9.87% return on average tangible common equity, roughly in line with recent periods. Growth in revenues for the quarter stemmed from both a volume and NIM-driven increase in net interest income and an improvement in fee income including mortgage banking QoQ. However, revenue growth for the quarter was overshadowed by increased expenses some of which would be viewed as nonrecurring such as severance expense related to efficiency initiatives, legal and professional fees, as well as heightened advertising and business development expense related to a brand campaign. Associated also recorded a provision for loan losses this quarter reflecting growth in the loan portfolio.

During the year, the company repurchased $120 million, or approximately 7.7 million shares, of common stock and with the increased common stock dividend, the Company returned about 100% of earnings to shareholders and a similar level of return to shareholders is expected in 2014. Still, at December 31, 2013, ASBC reported solid capital ratios which included an estimated Tier 1 common equity ratio of 11.46%. Based on current proposed rules, the Company is already in compliance with fully phased in Basel III requirements.

DBRS sees Associated’s financial profile as improved with the Company’s previous asset quality problems abating and with still solid levels of capital and liquidity. Additionally, Associated has maintained steady, although certainly not best in class profitability. While continuing to invest in the business, DBRS sees further improvement in core earnings capacity as an ongoing challenge for the Company. The Company is committed to keeping expenses flat in 2014 and has been focused on a number of efficiency initiatives.

DBRS rates ASBC’s Issuer & Senior Debt at BBB with a Stable trend.

Notes:
All figures are in U.S. dollars unless otherwise noted.

[Amended on December 23th, 2014 to remove unnecessary disclosures.]