Fitch has upgraded its rating outlook on
) along with its banking subsidiary Associated Bank, NA from
'Stable' to 'Positive.' Moreover, the rating agency has affirmed
the Issuer Default Ratings (IDRs) - long-term and short-term -
for the company.
Rationale Behind Upgrade
The rating revision came on the back of a strong capital base and
constantly improving asset quality metrics of the company. Fitch
stated that Associated's strong liquidity along with a sound loan
growth has driven it to upgrade the rating outlook. In addition,
Associated is well positioned to meet the Basel III requirements
given its strong Tier 1 Leverage and Total Risk-Based Capital
The company's last quarter was exceptional in terms of asset
quality improvement. The quarter witnessed nearly 20% reduction
in non-performing assets (inclusive of troubled debt
restructurings) compared with the prior-year quarter.
Moreover, net charge-offs (year to-date) fell to 0.58% against
1.32% in the same period last year. The improvement in asset
quality was also contributed by reserve releases and absence of
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Further, improvement in earnings was contributed by hikes in
mortgage rates, which added nearly $47 million of incremental
pre-tax mortgage banking income to the bottom line last year.
Additionally, Associated's return on assets (ROA) has been
improving. Consequently, Fitch expects stabilizing provision
expense, hiked mortgage banking income, as well as various
efficiency initiatives, such as branch consolidation, to
contribute further in ROA improvement.
As of September 30, 2012, other credit rating agencies, namely
Moody's Investors Service - the ratings arm of
) - and Standard & Poor's (S&P), have maintained their
outlook on Associated at 'Stable.'
This rating outlook revision depicts creditworthiness of the
company and will instill investors' confidence. Further, a decent
top-line growth and sound capital deployment activities will help
the stock sustain investor interest.
However, rising expenses keep us on the sidelines. Moreover, we
are concerned about the impacts of the prevailing low interest
rate environment, sluggish economic growth and stringent
regulatory landscape on the company's financials in the
Associated retains a Zacks #2 Rank, which translates into a
short-term Buy rating. We expect positive earnings estimate
revisions in the days ahead based on the rating outlook revision
by Fitch, aiding the stock achieve a better Zacks Rank.