Fitch Upgrades Associated Banc-Corp's IDR to 'BBB-'; Affirms Associated Bank at 'BBB-'

CHICAGO--(BUSINESS WIRE)-- Fitch Ratings has upgraded the long- and short-term Issuer Default Ratings (IDRs) for Associated Banc-Corp (ASBC) to 'BBB-/F3' from 'BB+/B'. In addition, the long- and short-term IDRs for Associated Bank, N.A. (ABNA), its principal banking subsidiary, were affirmed at 'BBB-/F3'. Fitch has also upgraded the Individual Rating for both entities to 'C' given the company's modestly improving fundamentals. The Rating Outlook is Stable. A full list of ratings is provided at the end of this release.

Fitch's upgrade of ASBC's holding company rating reflects the more typical alignment of bank and holding company IDRs following improvements to the financial profile of the holding company. ASBC's IDR was notched from ABNA in December 2009 reflecting concerns about capital and liquidity, which have been addressed. The affirmation of the bank-level ratings as well as the upgrade of the Individual rating for all of ASBC's entities reflects the improving fundamentals of the business given the combined entity's higher liquidity, stronger capital position, and improving asset quality measures. Over the course of the last year, ASBC has brought in a new management team, aggressively written down problem assets, raised almost $500 million in fresh equity, committed to maintaining high levels of overall liquidity, and engaged in over $430 million of bulk loan sales to help restructure its balance sheet. Fitch believes these actions provide the company positive traction to return to more normalized levels of earnings and profitability.

In addition, after several quarters of losses, ASBC returned to profitability in the third quarter of 2010, due to some reserve releases associated with its bulk loan sales. Fitch believes the company's ratings could be affected favorably, should the positive asset quality and earnings trends continue for a sustained number of consecutive quarters. However, given that ASBC's non-performing assets (NPA) as a percentage of loans plus real estate owned remain still elevated at 7.00% as of Sept. 30, 2010, there is risk of additional losses should economic conditions deteriorate in ASBC's core Midwestern footprint. This risk is particularly notable within ASBC's large commercial and industrial and commercial real estate loan portfolios, and if either of these portfolios begin to exhibit meaningfully higher losses, ratings could be pressured negatively. That said, Fitch's internal stress analysis indicates that the risk of unexpected losses is buffered by ASBC's strong capital ratios, as the company's tangible equity ratio, Tier one ratio, and total capital ratio stood at 8.03%, 17.68%, and 19.16%, respectively, as of Sept. 30, 2010, supporting the Stable Rating Outlook.

Fitch notes that ASBC also continues to remain under the close purview of regulators given its Memorandum of Understanding (MOU) with the Comptroller of the Currency (OCC) and its separate MOU with the Federal Reserve Bank of Chicago (FRBC). The MOU with the OCC relates to risk management of its loan portfolio, maintenance of specified capital levels, and notification of proposed dividend payments to the holding company. The MOU with the FRBC requires the company to obtain approval prior to payment of dividends, interest or principal payments on subordinated debt, increases in borrowings, or stock repurchases. To date, Fitch believes the company is in compliance with this enhanced regulatory oversight, but should the company fail to adequately comply with any regulatory requests its business could become constrained. Fitch also acknowledges ASBC's continued participation in the TARP program, having sold $525 million of preferred stock (CPP) to the U.S. Treasury in November 2008. Fitch does not expect in the near term that ASBC will be allowed to repurchase its CPP, but when the company does, Fitch believes ASBC will raise additional capital in order to facilitate that eventual transaction.

ASBC is a $22.5 billion regional bank that operates approximately 300 offices in Wisconsin, Illinois, and Minnesota. It offers consumer and commercial banking services, trust and investment management services, insurance, and mortgage banking.

Fitch has upgraded the following ratings:

Associated Banc-Corp
--Long-term IDR to 'BBB-' from 'BB+';
--Subordinated debt to 'BB+' from 'BB';
--Preferred stock to 'BB' from 'BB-';
--Short-term IDR to 'F3' from 'B';
--Commercial Paper to 'F3' from 'B';
--Individual to 'C' from 'C/D'.

Associated Bank, N.A.
--Individual rating to 'C' from 'C/D';
--Short-term deposits to 'F2' from 'F3';

Associated Trust Company, N.A.
--Individual to 'C' from 'C/D'.

ASBC Capital I
--Preferred stock to 'BB' from 'BB-'.

Fitch has affirmed the following ratings:

Associated Banc-Corp
--Support at '5';
--Support floor at 'NF'.

Associated Bank, N.A.
--Long-term IDR at 'BBB-';
--Long-term deposits at 'BBB';
--Long-term senior debt at 'BBB-';
--Short-term IDR at 'F3';
--Support at '5';
--Support floor at 'NF'.

Associated Trust Company, N.A.
--Long-term IDR at 'BBB-';
--Short-term IDR at 'F3';
--Support at '5';
--Support floor at 'NF'.

The Rating Outlook is Stable.

Additional information is available at www.fitchratings.com

Applicable Criteria and Related Research:
--'Global Financial Institutions Rating Criteria', Aug. 16, 2010;
--'Bank Holding Company Criteria', Dec. 30, 2009.

Applicable Criteria and Related Research:
Bank Holding Companies
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=493324
Global Financial Institutions Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=547685

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CONTACT:

Fitch Ratings
Primary Analyst:
Justin Fuller, CFA, +1-312-368-2057
Director
70 West Madison,
Chicago, IL 60602
or
Secondary Analyst:
John Mackerey, +1-212-908-0366
Senior Director
or
Committee Chairperson
Christopher D. Wolfe, +1-212-908-0771
Managing Director
or
Media Relations, New York:
Brian Bertsch, +1-212-908-0549
[email protected]
Sandro Scenga, +1-212-908-0278
[email protected]

KEYWORDS:   United States  North America  Illinois  New York

INDUSTRY KEYWORDS:   Professional Services  Banking  Finance

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