New York, December 15, 2021 -- Moody's Investors Service ("Moody's") has affirmed
the ratings of Associated Banc-Corp and the ratings and assessments
of its main bank operating subsidiary Associated Bank, N.A.
collectively referred to as "Associated", including the bank's
a3 standalone baseline credit assessment (BCA), its A1/Prime-1
deposit ratings and its Baa1 long-term subordinate rating.
The outlook on both Associated and Associated Bank remains negative.
While the affirmation of Associated's BCA and ratings reflects Moody's
unchanged view of the bank's standalone credit profile, the continued
negative outlook reflects the bank's weaker capital and liquidity profile
relative to similarly-rated US regional banks.
Affirmations:
..Issuer: Associated Banc-Corp
....Pref. Stock Non-cumulative
(Local Currency), Affirmed Baa3 (hyb)
....Subordinate Regular Bond/Debenture (Local
Currency), Affirmed Baa1
....Commercial Paper (Local Currency),
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 (Foreign Currency),
Affirmed A3
....LT Counterparty Risk Rating (Local Currency),
Affirmed A3
....ST Counterparty Risk Rating (Foreign Currency),
Affirmed P-2
....ST Counterparty Risk Rating (Local Currency),
Affirmed P-2
....ST Deposit Rating (Local Currency),
Affirmed P-1
....LT Deposit Rating (Local Currency),
Affirmed A1, Negative
Outlook Actions:
..Issuer: Associated Banc-Corp
....Outlook, Remains Negative
..Issuer: Associated Bank, N.A.
....Outlook, Remains Negative
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
deposit funding, as well as strong asset quality and a conservative
credit culture. These credit strengths are balanced by the credit
challenge from the bank's lower capitalization relative to peers that
have similar BCAs, as well as a significantly lower proportion of
liquid assets on its balance sheet. The bank also has an above-peer
average exposure to commercial real estate (CRE) relative to its tangible
common equity (TCE) giving rise to concentration risk, though its
asset quality performance has remained strong through the coronavirus
pandemic. Associated's relatively high concentration in CRE lending
was about 2.3 times TCE as of 30 June 2021 and continues to be
its key credit challenge. However, the bank has been able
to successfully reduce its energy sector exposure over the last few years;
oil & gas loans outstanding equaled approximately 6.58%
of TCE at 30 September 2021, compared to 17.4% of
TCE at 30 June 2020.
Associated's capital position has historically been lower relative to
similarly rated US regional bank peers. At 30 September 2021,
the company's reported common equity tier 1 (CET1) ratio was 10.6%,
although this is a 35 basis point increase from the same period the previous
year, it remains below the median for similarly-rated US
banks, which is approximately 15.6%. While
Associated's profitability deteriorated in 2020 following the implementation
of the Current Expected Credit Losses (CECL) accounting standard,
reflecting a worsening in the operating environment, Moody's
expects profitability to continue to improve in 2021 and through 2022.
In recent months, the bank has taken significant steps to diversify
its revenue stream, and while pressure remains on net interest margin
(NIM) and net interest income from the lower interest rate environment,
Moody's expects that the bank's increased income diversity
from new business verticals, such as its recent expansion into auto
financing, will help support its profitability assessment.
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. The outlook could return to stable
if the company improves profitability on a sustainable basis. The
ratings could however be upgraded if Moody's expects capitalization
and profitability to improve meaningfully, to levels in line with
higher rated peers and provided strong asset quality is maintained.
The BCA and ratings could be downgraded if contrary to Moody's expectation,
core profitability does not improve, if the bank reverts to higher
levels of market funding and its liquidity position weakens. Additionally,
a decline in capitalization beyond Moody's expectation or evidence
of weakening in Associated's risk profile, for example, resulting
from deterioration in the bank's CRE portfolio or credit weakness
in new lending areas could also lead to a ratings downgrade.
The principal methodology used in these ratings was Banks Methodology
published in July 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1269625.
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 http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.
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.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the UK and is endorsed
by Moody's Investors Service Limited, One Canada Square,
Canary Wharf, London E14 5FA under the law applicable to credit
rating agencies in the UK. Further information on the UK 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
Vice President - Senior 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
Andrea Usai
Associate Managing Director
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
