DBRS: Associated’s 1Q14 Pre-tax Income Up, as Expense Discipline Outweighs Revenue Decline

Summary:
• Associated reported 1Q14 earnings available to common shareholders of $44.0 million, compared to $46.5 for 4Q13, as better income before provision and taxes (IBPT) was offset by higher taxes and provision for credit losses.
• DBRS views Associated’s increased 1Q14 IBPT as continued evidence of the Company’s execution on its strategic plan to grow loans, manage expenses and improve operating efficiency.
• DBRS rates Associated Banc-Corp’s Issuer & Senior Debt at BBB with a Positive Trend.

DBRS, Inc. (DBRS) considers Associated Banc-Corp’s (ASBC or the Company) 1Q14 earnings as reflecting continued steady progress towards the Company’s ongoing turnaround. Efficiency initiatives were effective, as noninterest expenses decreased 6.4% quarter-on-quarter (QoQ) with a lower headcount and absence of other variable expenses. The improvement in expenses was partially offset by a decline in both net interest income and fee income (including mortgage banking) QoQ. Reflecting growth in the loan portfolio, Associated increased its quarterly provision for credit losses. Taxes were also up this quarter reflecting the recognition of a tax benefit in the previous quarter primarily related to the settlement of a tax issue.

During the quarter, the Company repurchased $39 million, or approximately 2.3 million shares of common stock, which when combined with the common stock dividend accounted for an over 100% return of earnings to shareholders. Nevertheless, ASBC reported strong capital ratios, which included an estimated Tier 1 common equity ratio of 11.20% at March 31, 2014. 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 in the past and with still solid levels of capital and liquidity. Asset quality continues to show steady improvement and NCOs remain readily manageable at just 14 bps in 1Q14. While continuing to invest in the business, DBRS sees further improvement in core earnings capacity as an ongoing challenge for the Company, as well as the industry, with the current interest rate environment providing a headwind to expanding its NIM and growing its revenues. Associated is committed to keeping expenses flat in 2014 as compared to 2013 and remains focused on a number of efficiency initiatives.

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

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

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