Associated Banc-Corp (ASB) Ratings, Outlook Affirmed by Moody's

Core Viewpoint - Associated Banc-Corp's (ASB) outlook has been reaffirmed as stable by Moody's Investors Service, maintaining its Baa3 standalone baseline credit assessment and issuer rating for long-term senior unsecured notes [1][2] Group 1: Reasons for Affirming the Ratings - The affirmation reflects a balance between credit headwinds from a concentrated portfolio in commercial real estate (CRE) loans and mitigating qualitative and quantitative factors [2] - ASB's CRE exposure, which represents 241% of its tangible common equity (TCE) as of March 31, 2024, may pressure asset quality and profitability due to the high interest rate environment [2] - ASB's TCE/risk-weighted assets (RWA) ratio was 9.3% as of March 31, 2024, indicating relative weakness in capitalization compared to peers, which magnifies the impact of CRE [2] Group 2: Portfolio Composition and Management - CRE loans constitute only 25% of ASB's total loans, which is lower than many regional banks, and the largest CRE exposures are well-underwritten and managed [3] - The company's long-run profitability, with a five-year average net income/tangible assets of 0.8% from 2019 to 2023, is deemed sufficient to mitigate CRE concentration risks at the current rating level [3] Group 3: Liquidity and Profitability Metrics - ASB's balance sheet liquidity is considered a relative weakness, with liquid banking assets comprising 15.6% of tangible banking assets [4] - Core deposit funding is adequate, with approximately 77% of deposits insured and collateralized, despite depositors switching to higher interest accounts [4] - Profitability metrics are moderate, with a marginal improvement expected in 2024 due to balance sheet repositioning efforts, including the sale of low-yield residential loans [4][5] Group 4: Outlook and Potential Rating Changes - The stable outlook is primarily due to ASB's concentrated loan portfolio in CRE and weaker capital and liquidity compared to peers, although insured deposit mix and well-managed CRE loans mitigate default risk [6] - Ratings could be upgraded if TCE/RWA ratio exceeds 10.5%, pre-provision profitability improves, and loan losses decrease [7] - Ratings could be downgraded if asset quality worsens or if TCE/RWA ratio falls below 9% [8] Group 5: Market Performance - Shares of Associated Banc-Corp have increased by 22.1% over the past year, outperforming the industry's growth of 15.4% [9]