433 Main Street
Green Bay, Wisconsin 54301
920-491-7007 PHONE
July 25, 2017
Mr. David Irving
United States Securities and Exchange Commission
Washington, D.C. 20549
Re: Associated Banc-Corp
Form 10-K for the Fiscal Year Ended December 31, 2016
Filed February 6, 2017
File No. 001-31343
Dear Mr. Irving:
The response of Associated Banc-Corp (the “Corporation” or “Associated”) to the comments in the Securities and Exchange Commission (the “SEC” or “Commission”) comment letter dated June 29, 2017 (the “Comment Letter”) related to the Corporation’s annual report on Form 10-K for the fiscal year ended December 31, 2016 (the “2016 Form 10-K”) follows. For reference purposes, the text of the Comment Letter has been reproduced below in bold followed by Associated’s response. Proposed disclosures for future filings are included in the responses and italicized.
Form 10-K for the Fiscal Year Ended December 31, 2016
Item 8: Financial Statements and Supplementary Data, page 71
1
Note 4 (Indicated as Note 5 of the original SEC comment letter), Loans, page 97
| 1. | We note on page 97 that you present impaired loans with and without a related allowance of $221.0 million and $134.1 million, respectively, and a related allowance of $46.5 million. We also note on page 101, that you present loans individually evaluated for impairment and the related allowance of $214.4 million and $24.1 million, respectively. Please explain this difference in your response, as well as any differences in the impaired loan disclosures in subsequent 10-Q’s, and revise future filings as necessary. |
Response to Item #1:
The Corporation acknowledges the tables on pages 97 and 101 differ based on the information being shown. The table on page 97, the Impaired Loans Table, presents only impaired loans, which are defined on page 82 of the 2016 Form 10-K as commercial and consumer loan relationships that have nonaccrual status or have had their terms restructured in a troubled debt restructuring. Impaired loans may include loans individually evaluated for impairment as well as homogeneous groups of loans collectively evaluated for impairment. In comparison, the table on page 101, the Allowance for Loan Losses Table, currently shows the allowance for loan losses and related loan balances for the total loan portfolio, which includes both impaired and non-impaired loans. Additionally, the Table on page 101, the Allowance for Loan Losses Table, does not segregate the allowance for loan losses and related loan balances of impaired loans collectively evaluated from the remaining loans collectively evaluated.
For future filings, the Corporation will expand the Allowance for Loan Losses Table to show additional detail regarding impaired loans collectively evaluated and non-impaired loans collectively evaluated, as well as add a row titled “Total Impaired Loans” to make the comparison between the Allowance for Loan Losses and Impaired Loans Tables more intuitive and easily reconcilable.
2
Shown below is the expanded Allowance for Loan Losses Table the Corporation proposes to use in future filings, as well as the Impaired Loans Table presented in the 2016 Form 10-K. The expanded Allowance for Loan Losses Table is intended to allow easy reconciliation between this table and the Impaired Loans Table. All figures shown are from or related to the 2016 Form 10-K.
Allowance for Loan Losses Table, Page 101
| $ in Thousands | Commercial and industrial | Commercial real estate — owner occupied | Commercial real estate — investor | Real estate construction | Residential mortgage | Home equity | Other consumer | Total | ||||||||||||||||
| December 31, 2015 | $ | 129,959 | $ | 18,680 | $ | 43,018 | $ | 25,266 | $ | 28,261 | $ | 23,555 | $ | 5,525 | $ | 274,264 | ||||||||
| Charge offs | (71,016 | ) | (512 | ) | (1,504 | ) | (558 | ) | (4,332 | ) | (4,686 | ) | (3,831 | ) | (86,439 | ) | ||||||||
| Recoveries | 14,543 | 74 | 1,624 | 203 | 755 | 3,491 | 820 | 21,510 | ||||||||||||||||
| Net charge offs | (56,473 | ) | (438 | ) | 120 | (355 | ) | (3,577 | ) | (1,195 | ) | (3,011 | ) | (64,929 | ) | |||||||||
| Provision for loan losses | 66,640 | (4,208 | ) | 2,147 | 2,021 | 2,362 | (1,996 | ) | 2,034 | 69,000 | ||||||||||||||
| December 31, 2016 | $ | 140,126 | $ | 14,034 | $ | 45,285 | $ | 26,932 | $ | 27,046 | $ | 20,364 | $ | 4,548 | $ | 278,335 | ||||||||
| Allowance for loan losses: | ||||||||||||||||||||||||
| Impaired loans: | ||||||||||||||||||||||||
| Individually evaluated | $ | 20,836 | $ | — | $ | 3,117 | $ | — | $ | 147 | $ | 3 | $ | — | $ | 24,103 | ||||||||
| Collectively evaluated | 781 | 295 | 424 | 441 | 10,944 | 9,309 | 186 | 22,380 | ||||||||||||||||
| Total impaired loans | 21,617 | 295 | 3,541 | 441 | 11,091 | 9,312 | 186 | 46,483 | ||||||||||||||||
| Non-impaired loans: | ||||||||||||||||||||||||
| Collectively evaluated | 118,509 | 13,739 | 41,744 | 26,491 | 15,955 | 11,052 | 4,362 | 231,852 | ||||||||||||||||
| Total | $ | 140,126 | $ | 14,034 | $ | 45,285 | $ | 26,932 | $ | 27,046 | $ | 20,364 | $ | 4,548 | $ | 278,335 | ||||||||
| Period end loan balances: | ||||||||||||||||||||||||
| Impaired loans: | ||||||||||||||||||||||||
| Individually evaluated | $ | 180,965 | $ | 8,439 | $ | 17,322 | $ | — | $ | 7,033 | $ | 650 | $ | — | $ | 214,409 | ||||||||
| Collectively evaluated | 34,290 | 6,595 | 16,018 | 1,203 | 61,303 | 20,107 | 1,235 | 140,751 | ||||||||||||||||
| Total impaired loans | 215,255 | 15,034 | 33,340 | 1,203 | 68,336 | 20,757 | 1,235 | 355,160 | ||||||||||||||||
| Non-impaired loans: | ||||||||||||||||||||||||
| Collectively evaluated | 6,273,759 | 882,690 | 3,541,392 | 1,431,294 | 6,263,991 | 913,686 | 392,744 | 19,699,556 | ||||||||||||||||
| Total | $ | 6,489,014 | $ | 897,724 | $ | 3,574,732 | $ | 1,432,497 | $ | 6,332,327 | $ | 934,443 | $ | 393,979 | $ | 20,054,716 | ||||||||
3
Impaired Loans Table, Page 97
| Recorded Investment | Unpaid Principal Balance | Related Allowance | Average Recorded Investment | Interest Income Recognized | |||||||||||||||
| ($ in Thousands) | |||||||||||||||||||
| Loans with a related allowance | |||||||||||||||||||
| Commercial and industrial | $ | 101,770 | $ | 107,813 | $ | 21,617 | $ | 111,211 | $ | 2,512 | |||||||||
| Commercial real estate — owner occupied | 6,595 | 8,641 | 295 | 7,111 | 274 | ||||||||||||||
| Commercial and business lending | 108,365 | 116,454 | 21,912 | 118,322 | 2,786 | ||||||||||||||
| Commercial real estate — investor | 27,196 | 27,677 | 3,541 | 31,142 | 2,124 | ||||||||||||||
| Real estate construction | 1,203 | 1,566 | 441 | 1,321 | 67 | ||||||||||||||
| Commercial real estate lending | 28,399 | 29,243 | 3,982 | 32,463 | 2,191 | ||||||||||||||
| Total commercial | 136,764 | 145,697 | 25,894 | 150,785 | 4,977 | ||||||||||||||
| Residential mortgage | 62,362 | 67,090 | 11,091 | 63,825 | 2,263 | ||||||||||||||
| Home equity | 20,651 | 22,805 | 9,312 | 21,825 | 1,114 | ||||||||||||||
| Other consumer | 1,235 | 1,284 | 186 | 1,294 | 29 | ||||||||||||||
| Total consumer | 84,248 | 91,179 | 20,589 | 86,944 | 3,406 | ||||||||||||||
| Total loans | $ | 221,012 | $ | 236,876 | $ | 46,483 | $ | 237,729 | $ | 8,383 | |||||||||
| Loans with no related allowance | |||||||||||||||||||
| Commercial and industrial | $ | 113,485 | $ | 134,863 | $ | — | $ | 117,980 | $ | 1,519 | |||||||||
| Commercial real estate — owner occupied | 8,439 | 9,266 | — | 8,759 | 138 | ||||||||||||||
| Commercial and business lending | 121,924 | 144,129 | — | 126,739 | 1,657 | ||||||||||||||
| Commercial real estate — investor | 6,144 | 6,478 | — | 7,092 | — | ||||||||||||||
| Real estate construction | — | — | — | — | — | ||||||||||||||
| Commercial real estate lending | 6,144 | 6,478 | — | 7,092 | — | ||||||||||||||
| Total commercial | 128,068 | 150,607 | — | 133,831 | 1,657 | ||||||||||||||
| Residential mortgage | 5,974 | 6,998 | — | 6,610 | 184 | ||||||||||||||
| Home equity | 106 | 107 | — | 107 | 4 | ||||||||||||||
| Other consumer | — | — | — | — | — | ||||||||||||||
| Total consumer | 6,080 | 7,105 | — | 6,717 | 188 | ||||||||||||||
| Total loans | $ | 134,148 | $ | 157,712 | $ | — | $ | 140,548 | $ | 1,845 | |||||||||
| Total | |||||||||||||||||||
| Commercial and industrial | $ | 215,255 | $ | 242,676 | $ | 21,617 | $ | 229,191 | $ | 4,031 | |||||||||
| Commercial real estate — owner occupied | 15,034 | 17,907 | 295 | 15,870 | 412 | ||||||||||||||
| Commercial and business lending | 230,289 | 260,583 | 21,912 | 245,061 | 4,443 | ||||||||||||||
| Commercial real estate — investor | 33,340 | 34,155 | 3,541 | 38,234 | 2,124 | ||||||||||||||
| Real estate construction | 1,203 | 1,566 | 441 | 1,321 | 67 | ||||||||||||||
| Commercial real estate lending | 34,543 | 35,721 | 3,982 | 39,555 | 2,191 | ||||||||||||||
| Total commercial | 264,832 | 296,304 | 25,894 | 284,616 | 6,634 | ||||||||||||||
| Residential mortgage | 68,336 | 74,088 | 11,091 | 70,435 | 2,447 | ||||||||||||||
| Home equity | 20,757 | 22,912 | 9,312 | 21,932 | 1,118 | ||||||||||||||
| Other consumer | 1,235 | 1,284 | 186 | 1,294 | 29 | ||||||||||||||
| Total consumer | 90,328 | 98,284 | 20,589 | 93,661 | 3,594 | ||||||||||||||
| Total impaired loans | $ | 355,160 | $ | 394,588 | $ | 46,483 | $ | 378,277 | $ | 10,228 | |||||||||
4
Note 18, Fair Value Measurements, page 127
| 2. | You noted provision for credit losses of $75.2 million from non-recurring changes in the fair value of impaired loans of $79.3 million in the table on page 131 disclosing details concerning assets and liabilities measured at fair value on a nonrecurring basis. Please address the following: |
| • | Revise future filings to enhance your description of the inputs used in the fair value measurement, including quantitative information about the significant unobservable inputs. Refer to ASC 820-10-50-2.bbb; and |
| • | Explain how the provision for credit losses of $75.2 million reconciles with the total provision for credit losses of $70.0 million included in the Consolidated Statements of Income. |
Response to Item #2:
Although narratively disclosed on pages 130 and 131 of the 2016 Form 10-K, future filings will expand Note 18 to include a table which outlines the quantitative information regarding the significant unobservable inputs used for fair value measurements categorized in Level 3 of the fair value hierarchy. Shown is the table the Corporation proposes to include in future filings utilizing financial information as of our 2016 Form 10-K filing.
| December 31, 2016 | Valuation Technique | Significant Unobservable Input | Weighted Average Input Applied | ||
| Mortgage servicing rights | Discounted cash flow | Constant prepayment rate | 11% | ||
| Mortgage servicing rights | Discounted cash flow | Discount rate | 10% | ||
| Impaired Loans | Appraisals / Discounted cash flow | Collateral / Discount factor | 20% | ||
The Corporation acknowledges the $70.0 million and $75.2 million provision for credit losses differ based on the information presented. The provision for credit losses figure of $70.0 million shows the consolidated provision for credit losses, which includes impaired loans, non-impaired loans, and unfunded loan commitments, consistent with the Corporation’s policies described on pages 83 and 84 of the 2016 Form 10-K. The provision for credit losses figure of $75.2 million shows the income statement impact of the fair value change from period to period on only individually evaluated impaired loans. The $5.2 million difference is reflective of net recoveries, improvement in the credit quality, and changes in the total loan portfolio from period to period.
For future filings, the Corporation will revise the footnote to the table currently on page 131 of the 2016 Form 10-K to clearly state only individually evaluated impaired loans are included in the provision for credit losses amount included in the table.
On behalf of Associated, and as requested in your letter, the Corporation acknowledges that:
| • | Associated is responsible for the adequacy and accuracy of the disclosure in its filings; |
| • | Staff comments or changes to disclosure in response to staff comments do not foreclose the Commission from taking any action with respect to the filing; and |
| • | Associated may not assert staff comments as a defense in any proceeding initiated by the Commission or any person under the federal securities laws of the United States. |
5
We believe this letter is responsive to your comments. Please feel free to contact me at 920-491-7007 if you have any questions or need further information.
Sincerely,
/s/ Christopher J. Del Moral-Niles
Christopher J. Del Moral-Niles
Chief Financial Officer
Associated Banc-Corp
/s/ Tammy C. Stadler
Tammy C. Stadler
Principal Accounting Officer
Associated Banc-Corp
6