New York, September 01, 2020 -- Moody's Investors Service, ("Moody's") has
affirmed the ratings of Associated Banc-Corp and its main bank
operating subsidiary Associated Bank, N.A. (Baa1 long-term
senior unsecured) collectively referred to as "Associated".
Moody's has also affirmed the a3 standalone baseline credit assessment
(BCA) of Associated Bank as well as its A1/Prime-1 long-term
deposit rating and its Baa1 long-term senior unsecured rating.
The outlook on both Associated and Associated Bank was changed to negative
from stable.
While the affirmation of Associated Bank's BCA and of the ratings
of Associated and Associated Bank reflects Moody's unchanged view
of the bank's standalone credit profile, the change in rating
outlook to negative reflects the bank's weaker capital position
relative to similarly-rated US regional banks, as it continues
to face a challenging operating environment due to the coronavirus pandemic
outbreak.
Moody's regards the coronavirus outbreak as a social risk under its environmental,
social and governance (ESG) framework, given the substantial implications
for public health and safety.
List of affected ratings:
Affirmations:
..Issuer: Associated Banc-Corp
....Pref. Shelf, Affirmed (P)Baa2
....Pref. Shelf Non-cumulative,
Affirmed (P)Baa3
....Subordinate Shelf, Affirmed (P)Baa1
....Senior Unsecured Shelf, Affirmed
(P)Baa1
....Pref. Stock Non-cumulative,
Affirmed Baa3 (hyb)
....Subordinate Medium-Term Note Program,
Affirmed (P)Baa1
....Subordinate Regular Bond/Debenture,
Affirmed Baa1
....Commercial Paper, Affirmed P-2
..Issuer: Associated Bank, N.A.
.... Adjusted Baseline Credit Assessment,
Affirmed a3
.... Baseline Credit Assessment, Affirmed
a3
....LT Counterparty Risk Assessment,
Affirmed A2(cr)
....ST Counterparty Risk Assessment,
Affirmed P-1(cr)
....LT Counterparty Risk Rating (Local Currency),
Affirmed A3
....ST Counterparty Risk Rating (Local Currency),
Affirmed P-2
....LT Counterparty Risk Rating (Foreign Currency),
Affirmed A3
....ST Counterparty Risk Rating (Foreign Currency),
Affirmed P-2
....LT Bank Deposits, Affirmed A1,
Negative from Stable
....ST Bank Deposits, Affirmed P-1
....Senior Unsecured Regular Bond/Debenture,
Affirmed Baa1, Negative from Stable
Outlook Actions:
..Issuer: Associated Banc-Corp
....Outlook, Changed To Negative From
Stable
..Issuer: Associated Bank, N.A.
....Outlook, Changed To Negative From
Stable
RATINGS RATIONALE
The affirmation of Associated Bank's a3 BCA and of the ratings for
Associated and Associated Bank reflects the bank's solid market
position and direct banking franchise in its primary Wisconsin markets
that support its strong funding and liquidity. These credit strengths
are balanced by the bank's lower capitalization relative to peers
that have similar BCAs. The bank also has an above-peer
average exposure to commercial real estate (CRE) relative to its tangible
common equity, though its asset quality performance has remained
strong going into the coronavirus pandemic. Associated's
relatively high concentration in commercial real estate lending was about
2.5 times tangible common equity (TCE) as at 30 June 2020 and continues
to be its key credit challenge. Additionally, while the bank
has been able to successfully reduce its energy sector exposure over the
last few years, oil & gas loans outstanding equated to approximately
17.4% of tangible common equity (TCE) at 30 June 2020.
Associated's lower historical profitability and capital position
relative to similarly rated US regional bank peers, makes its rating
position more sensitive to deterioration in the current uncertain operating
environment. Moody's expects the US economy to contract in
2020 and grow modestly in 2021 as a result of the coronavirus outbreak,
which will pressure Associate's asset quality, capitalization
and profitability.
Associated sold its insurance business Associated Benefits & Risk
Consulting (ABRC) to USI Insurance Services LLC (USI) for approximately
$266 million on 30 June 2020, which eliminated $99
million of goodwill and other tangibles and increased tangible common
equity by approximately $200 million. At 30 June 2020,
the company's reported common equity tier 1 (CET1) ratio was 10.25%,
a 89 basis point increase from the prior quarter-end. Associated's
profitability has deteriorated through the first half of 2020 compared
to the same period the previous year mostly due to the impact of the CECL
introduction and also reflecting the deteriorating macroeconomic outlook
due to the pandemic, continuing to lag similarly rated peers.
Moody's regards the coronavirus outbreak as a social risk under its ESG
framework, given the substantial implications for public health
and safety. Today's action reflects the impact of the breadth and
severity of the shock, and the deterioration in asset quality that
it will likely trigger. Moody's does not have any particular concerns
in respect of Associated's governance.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The negative outlook indicates that a ratings upgrade is unlikely over
the next 12-18 months, given the challenging operating environment
and its uncertain duration. The outlook could return to stable
if the company strengthens its capitalization and improves profitability
over the outlook period, and if Moody's observes that Associated's
performance in asset quality, capitalization, and profitability
proves to be as resilient as similarly-rated peers.
The BCA and ratings could be downgraded if capitalization weakens and
if Moody's observes that Associated's performance is worse than similarly-rated
US regional bank peers under the current challenging operating environment.
Additionally, a perceived weakening in Associated's risk profile,
for example, resulting from deterioration in the banks CRE portfolio
or evidence of deteriorating profitability and capital could also lead
to a ratings downgrade.
The principal methodology used in these ratings was Banks Methodology
published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1147865.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security or pursuant
to a program for which the ratings are derived exclusively from existing
ratings in accordance with Moody's rating practices. For ratings
issued on a support provider, this announcement provides certain
regulatory disclosures in relation to the credit rating action on the
support provider and in relation to each particular credit rating action
for securities that derive their credit ratings from the support provider's
credit rating. For provisional ratings, this announcement
provides certain regulatory disclosures in relation to the provisional
rating assigned, and in relation to a definitive rating that may
be assigned subsequent to the final issuance of the debt, in each
case where the transaction structure and terms have not changed prior
to the assignment of the definitive rating in a manner that would have
affected the rating. For further information please see the ratings
tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
The ratings have been disclosed to the rated entity or its designated
agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy
for Designating and Assigning Unsolicited Credit Ratings available on
its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Moody's general principles for assessing environmental, social
and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
At least one ESG consideration was material to the credit rating action(s)
announced and described above.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the EU and is endorsed
by Moody's Deutschland GmbH, An der Welle 5, Frankfurt
am Main 60322, Germany, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU endorsement status and on the Moody's
office that issued the credit rating is available on www.moodys.com.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Sadia Nabi
Asst Vice President - Analyst
Financial Institutions Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
M. Celina Vansetti-Hutchins
MD - Banking
Financial Institutions Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
