SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITI
- ----- EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2001
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
- ----- OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-5519
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Associated Banc-Corp
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(Exact name of registrant as specified in its charter)
Wisconsin 39-1098068
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(State or other jurisdiction of (IRS employer
incorporation or organization) identification no.)
1200 Hansen Road, Green Bay, Wisconsin 54304
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(Address of principal executive offices) (Zip code)
(920) 491-7000
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(Registrant's telephone number, including area code)
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(Former name, former address and former
fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares outstanding of registrant's common stock, par value $0.01
per share, at October 31, 2001, was 65,682,659 shares.
1
ASSOCIATED BANC-CORP
TABLE OF CONTENTS
Page No.
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PART I. Financial Information
Item 1. Financial Statements (Unaudited):
Consolidated Balance Sheets -
September 30, 2001, September 30, 2000
and December 31, 2000 3
Consolidated Statements of Income -
Three and Nine Months Ended
September 30, 2001 and 2000 4
Consolidated Statement of Changes in
Stockholders' Equity -
Nine Months Ended September 30, 2001 5
Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 2001 and 2000 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 26
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K 27
Signatures 28
2
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements:
ASSOCIATED BANC-CORP
Consolidated Balance Sheets
(Unaudited)
September 30, September 30, December 31,
2001 2000 2000
-----------------------------------------------
($ in Thousands, except share data)
ASSETS
Cash and due from banks $ 340,830 $ 323,129 $ 368,186
Interest-bearing deposits in other
financial institutions 25,379 20,052 5,024
Federal funds sold and securities purchased under
agreements to resell 305,825 21,075 23,310
Investment securities:
Held to maturity-at amortized cost (fair value of
$382,796 and $372,873, in 2000, respectively) -- 382,617 368,558
Available for sale-at fair value (amortized cost of
$3,127,117, $2,932,524, and $2,867,109, 2,891,647
respectively) 3,245,240 2,903,275
Loans held for sale 142,134 37,563 24,593
Loans 9,010,370 8,858,665 8,913,379
Allowance for loan losses (126,631) (117,607) (120,232)
--------------------------------------------
Loans, net 8,883,739 8,741,058 8,793,147
Premises and equipment 120,300 130,977 127,600
Other assets 501,378 560,256 526,329
--------------------------------------------
Total assets $ 13,564,825 $ 13,120,002 $ 13,128,394
============================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Noninterest-bearing deposits $ 1,213,541 $ 1,194,405 $ 1,243,949
Interest-bearing deposits, excluding Brokered CDs 6,875,173 7,113,917 7,131,637
Brokered CDs 310,198 1,022,994 916,060
--------------------------------------------
Total deposits 8,398,912 9,331,316 9,291,646
Short-term borrowings 2,882,156 2,590,127 2,598,203
Long-term debt 1,020,116 122,463 122,420
Accrued expenses and other liabilities 184,767 145,913 147,429
--------------------------------------------
Total liabilities 12,485,951 12,189,819 12,159,698
Stockholders' equity
Preferred stock -- -- --
Common stock (par value $0.01 per share,
authorized 100,000,000 shares, issued
66,370,157, 67,024,657 and 66,402,157 shares,
respectively) 664 670 664
Surplus 296,381 311,239 296,479
Retained earnings 734,345 645,413 663,566
Accumulated other comprehensive income (loss) 65,147 (18,926) 15,581
Treasury stock at cost (564,912, 299,219 and 285,948
shares, respectively) (17,663) (8,213) (7,594)
--------------------------------------------
Total stockholders' equity 1,078,874 930,183 968,696
--------------------------------------------
Total liabilities and stockholders' equity $ 13,564,825 $ 13,120,002 $ 13,128,394
============================================
See accompanying notes to consolidated financial statements.
3
ITEM 1. Financial Statements Continued:
ASSOCIATED BANC-CORP
Consolidated Statements of Income
(Unaudited)
Nine Months
Three Months Ended Ended
September 30, September 30,
2001 2000 2001 2000
----------------------------------------------
(In Thousands, except per share data)
INTEREST INCOME
Interest and fees on loans $ 170,895 $ 186,556 $ 533,506 $ 536,445
Interest and dividends on investment
securities:
Taxable 36,079 40,486 111,733 122,990
Tax exempt 10,123 10,170 30,329 27,537
Interest on deposits in other financial
institutions 91 122 306 292
Interest on federal funds sold and securities
purchased under agreements to resell 246 558 887 1,699
----------------------------------------------
Total interest income 217,434 237,892 676,761 688,963
INTEREST EXPENSE
Interest on deposits 70,314 100,727 240,706 274,422
Interest on short-term borrowings 30,247 40,469 111,691 119,964
Interest on long-term debt 9,862 2,158 16,398 5,328
----------------------------------------------
Total interest expense 110,423 143,354 368,795 399,714
----------------------------------------------
NET INTEREST INCOME 107,011 94,538 307,966 289,249
Provision for loan losses 6,966 4,122 18,913 15,003
----------------------------------------------
Net interest income after provision
for loan losses 100,045 90,416 289,053 274,246
NONINTEREST INCOME
Trust service fees 6,627 9,665 22,038 29,314
Service charges on deposit accounts 9,672 8,821 27,967 24,502
Mortgage banking 11,144 5,125 35,709 14,617
Credit card and other nondeposit fees 6,896 6,475 20,916 19,011
Retail commissions 4,119 4,632 12,868 15,577
Bank owned life insurance income 3,308 3,081 9,626 9,111
Asset sale gains, net 59 3,179 974 24,486
Investment securities gains (losses), net 476 (2) 718 (7,194)
Other 5,848 3,393 12,681 11,377
----------------------------------------------
Total noninterest income 48,149 44,369 143,497 140,801
NONINTEREST EXPENSE
Personnel expense 43,266 40,380 124,804 117,934
Occupancy 5,635 5,733 17,916 17,549
Equipment 3,493 3,755 10,823 11,607
Data processing 4,870 5,313 14,535 17,700
Business development and advertising 3,310 3,353 9,502 9,852
Stationery and supplies 959 1,970 5,021 5,793
FDIC expense 399 462 1,279 1,360
Mortgage servicing rights amortization 5,703 2,324 12,312 7,103
Other 16,453 16,875 48,624 50,909
----------------------------------------------
Total noninterest expense 84,088 80,165 244,816 239,807
----------------------------------------------
Income before income taxes 64,106 54,620 187,734 175,240
Income tax expense 19,001 13,116 54,524 46,958
----------------------------------------------
NET INCOME 45,105 $ 41,504 $ 133,210 $ 128,282
==============================================
Earnings per share:
Basic $ 0.68 $ 0.61 $ 2.01 $ 1.86
Diluted $ 0.68 $ 0.61 $ 2.00 $ 1.86
Average shares outstanding:
Basic 66,083 68,031 66,126 68,815
Diluted 66,633 68,293 66,653 69,089
See accompanying notes to consolidated financial statements.
4
ITEM 1. Financial Statements Continued:
ASSOCIATED BANC-CORP
Consolidated Statement of Changes in Stockholders' Equity
(Unaudited)
Accumulated
Other
Common Retained Comprehensive Treasury
Stock Surplus Earnings Income Stock Total
-------------------------------------------------------------------------------------
($ in Thousands)
Balance, December 31, 2000 $ 664 $ 296,479 $ 663,566 $ 15,581 $ (7,594) $ 968,696
Comprehensive income:
Net income -- -- 133,210 -- -- 133,210
Other comprehensive income (loss):
Cumulative effect of accounting
change, net of tax -- -- -- (1,265) -- (1,265)
Change in net unrealized loss
on derivative instruments,
net of tax -- -- -- (9,285) -- (9,285)
Change in net unrealized holding
gains on securities available
for sale, net of tax -- -- -- 60,116 -- 60,116
----------
Comprehensive income 182,776
-----------
Cash dividends, $0.91 per share -- -- (60,191) -- -- (60,191)
Common stock issued:
Stock options exercised -- -- (2,240) -- 6,417 4,177
Purchase and retirement of treasury
stock in connection with repurchase
program -- (1,005) -- -- -- (1,005)
Purchase of treasury stock -- -- -- -- (16,486) (16,486)
Tax benefit of stock options -- 907 -- -- -- 907
---------------------------------------------------------------------- -----------
Balance, September 30, 2001 $ 664 $ 296,381 $ 734,345 $ 65,147 $ (17,663) $ 1,078,874
=====================================================================================
See accompanying notes to consolidated financial statements.
5
ITEM 1. Financial Statements Continued:
ASSOCIATED BANC-CORP
Consolidated Statements Of Cash Flows
(Unaudited)
For the Nine Months
Ended September 30,
2001 2000
----------------------------
($ in Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 133,210 $ 128,282
Adjustments to reconcile net income to net cash
provided
by operating activities:
Provision for loan losses 18,913 15,003
Depreciation and amortization 14,185 14,633
Amortization (accretion) of:
Mortgage servicing rights 12,312 7,103
Intangibles 6,305 6,720
Investment premiums and discounts (154) (82)
Deferred loan fees and costs 1,820 1,964
(Gain) loss on sales of securities, net (718) 7,194
Gain on sale of assets, net (974) (24,486)
Gain on sales of loans held for sale, net (15,357) (2,042)
Mortgage loans originated and acquired for sale (1,498,709) (282,308)
Proceeds from sales of mortgage loans held for sale 1,396,525 258,742
Increase in interest receivable and other assets (26,299) (30,343)
Increase in interest payable and other liabilities 38,245 7,002
--------------------------
Net cash provided by operating activities 79,304 107,382
--------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Net increase in loans (113,468) (656,165)
Capitalization of mortgage servicing rights (14,348) (2,783)
Purchases of:
Securities available for sale (504,686) (754,407)
Premises and equipment, net of disposals (6,558) (8,229)
Proceeds from:
Sales of securities available for sale 135,627 458,612
Maturities of securities available for sale 478,481 272,825
Maturities of securities held to maturity -- 31,209
Sale of credit card receivables -- 156,376
Sales of other real estate owned and other assets 5,752 9,643
--------------------------
Net cash used by investing activities (19,200) (492,919)
--------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits (892,734) 748,687
Net increase (decrease) in short-term borrowings 283,953 (184,963)
Repayment of long-term debt (864) (1,820)
Proceeds from issuance of long-term debt 898,560 100,000
Cash dividends (60,191) (56,417)
Proceeds from exercise of stock options 4,177 2,892
Sales of branch deposits -- (98,034)
Purchase of treasury stock (17,491) (74,718)
--------------------------
Net cash provided by financing activities 215,410 435,627
--------------------------
Net increase in cash and cash equivalents 275,514 50,090
Cash and cash equivalents at beginning of period 396,520 314,166
--------------------------
Cash and cash equivalents at end of period $ 672,034 $ 364,256
==========================
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 388,955 $ 386,355
Income taxes 33,341 43,582
Supplemental schedule of noncash investing activities:
Securities held to maturity transferred to 372,873 --
securities
available for sale
Loans transferred to other real estate 2,143 5,809
See accompanying notes to consolidated financial statements.
6
ITEM 1. Financial Statements Continued:
ASSOCIATED BANC-CORP
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 1: Basis of Presentation
In the opinion of management, the accompanying unaudited consolidated financial
statements contain all adjustments necessary to present fairly Associated
Banc-Corp's ("Corporation") financial position, results of operations, changes
in stockholders' equity, and cash flows for the periods presented, and all such
adjustments are of a normal recurring nature. The consolidated financial
statements include the accounts of all subsidiaries. All material intercompany
transactions and balances are eliminated. The results of operations for the
interim periods are not necessarily indicative of the results to be expected for
the full year.
These interim consolidated financial statements have been prepared according to
the rules and regulations of the Securities and Exchange Commission and,
therefore, certain information and footnote disclosures normally presented in
accordance with accounting principles generally accepted in the United States of
America have been omitted or abbreviated. The information contained in the
consolidated financial statements and footnotes in the Corporation's 2000 annual
report on Form 10-K, should be referred to in connection with the reading of
these unaudited interim financial statements.
In preparing the consolidated financial statements, management is required to
make estimates and assumptions that affect the reported amounts of assets and
liabilities as of the date of the balance sheet and revenues and expenses for
the period. Actual results could differ significantly from those estimates.
Estimates that are particularly susceptible to significant change include the
determination of the allowance for loan losses and the valuation of investment
securities and mortgage servicing rights.
NOTE 2: Reclassifications
Certain items in the prior period consolidated financial statements have been
reclassified to conform with the September 30, 2001 presentation.
NOTE 3: Adoption of Statements of Financial Accounting Standards ("SFAS")
As required, on January 1, 2001, the Corporation adopted SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," as amended by
SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities -
Deferral of the Effective Date of FASB Statement No. 133," and SFAS No. 138,
"Accounting for Certain Derivative Instruments and Certain Hedging Activities,"
(collectively referred to as "SFAS 133"). The adoption of SFAS 133 had an
immaterial impact on the consolidated financial statements. See Note 5 of the
notes to consolidated financial statements for a more detailed discussion.
SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities," replaces SFAS No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,"
and rescinds SFAS No. 127, "Deferral of the Effective Date of Certain Provisions
of SFAS No 125." The statement revises the standards for accounting for
securitizations and other transfers of financial assets and requires certain
disclosures, but it also carries over most of the provisions of SFAS No. 125
without modification. The statement provides accounting and reporting standards
for transfers and servicing of financial assets and extinguishments of
liabilities based on the application of a financial components approach that
focuses on control. It was effective for transactions occurring after March 31,
2001, and was to be applied prospectively with certain exceptions. The adoption
was not material to the Corporation's financial position or results of
operations.
7
NOTE 4: Earnings Per Share
Basic earnings per share is calculated by dividing net income available to
common stockholders by the weighted average number of common shares outstanding.
Diluted earnings per share is calculated by dividing net income by the weighted
average number of shares adjusted for the dilutive effect of outstanding stock
options.
Presented below are the calculations for basic and diluted earnings per share:
Three Months Ended Nine Months Ended
September 30, September 30,
2001 2000 2001 2000
-----------------------------------------
(In Thousands, except per share data)
Net income $ 45,105 $ 41,504 $133,210 $128,282
=========================================
Weighted average shares outstanding 66,083 68,031 66,126 68,815
Effect of dilutive stock options outstanding 550 262 527 274
-----------------------------------------
Diluted weighted average shares outstanding 66,633 68,293 66,653 69,089
=========================================
Basic earnings per share $ 0.68 $ 0.61 $ 2.01 $ 1.86
=========================================
Diluted earnings per share $ 0.68 $ 0.61 $ 2.00 $ 1.86
=========================================
NOTE 5: Derivative and Hedging Activities
Effective January 1, 2001, the Corporation adopted SFAS 133, which establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts and for hedging activities.
All derivatives, whether designated in hedging relationships or not, are
required to be recorded on the balance sheet at fair value. If the derivative is
designated as a fair value hedge, the changes in the fair value of the
derivative and of the hedged item attributable to the hedged risk are recognized
in earnings. If the derivative is designated as a cash flow hedge, the effective
portions of changes in the fair value of the derivative are recorded in other
comprehensive income and are recognized in the income statement when the hedged
item affects earnings. Ineffective portions of changes in the fair value of cash
flow hedges are recognized in earnings.
The Corporation uses derivative instruments primarily to hedge the variability
in interest payments or protect the value of certain assets and liabilities
recorded in its balance sheet from changes in interest rates. The predominant
activities affected by the statement include the Corporation's use of interest
rate swaps and certain mortgage banking activities. The adoption of the
statement included the following:
- - Under SFAS No. 133, the Corporation was allowed a one-time opportunity to
reclassify investment assets from held-to-maturity to available-for-sale.
Thus, upon adoption, the Corporation reclassified all its held-to-maturity
securities to available-for-sale securities. The amortized cost and fair
value of the securities transferred were $369 million and $373 million,
respectively.
- - The Corporation designated its interest rate swaps existing at December 31,
2000, to qualify for hedge accounting. These swaps hedge the exposure to
variability in interest payments of variable rate liabilities. These hedges
represent cash flow hedges and were highly effective at adoption. On
adoption, the cumulative effect, net of taxes of $843,000, was recorded as
a decrease to other comprehensive income of $1.3 million.
8
- - The Corporation's commitments to sell groups of residential mortgage loans
that it originates or purchases as part of its mortgage banking operations,
as well as its commitments to originate residential mortgage loans are
considered derivatives under SFAS No. 133. The fair value of these
derivatives at adoption, an $11,000 net gain, was recorded directly to the
consolidated statement of income in mortgage banking income.
In accordance with the statement, the Corporation measures the effectiveness of
its hedges on a periodic basis. Any difference between the fair value change of
the hedge versus the fair value change of the hedged item is considered to be
the "ineffective" portion of the hedge. The ineffective portion of the hedge is
recorded as an increase or decrease in the related income statement
classification of the item being hedged. For the mortgage derivatives, which are
not accounted for as hedges, changes in the fair value are recorded as an
adjustment to mortgage banking income.
At September 30, 2001, the swaps designated as cash flow hedges have a notional
amount of $500 million, have a weighted average pay/receive rate of 5.61% and
3.79%, respectively, and a weighted average maturity of 52 months. At September
30, 2001, the estimated fair value of the swaps was a $17.6 million loss, or
$10.6 million, net of taxes of $7.0 million, carried as a component of other
comprehensive income. There was no ineffective portion to be recorded through
the statements of income. Currently, none of the existing amounts within other
comprehensive income are expected to be reclassified into earnings within the
next 12 months.
At September 30, 2001, the swaps designated as fair value hedges have a notional
amount of $67 million, a weighted average pay/receive rate of 7.20% and 5.47%,
respectively, and a weighted average maturity of 62 months. At September 30,
2001, the estimated fair value of these swaps was a $2.3 million loss, carried
as a component of other liabilities.
The change in fair value of the mortgage derivatives since adoption of SFAS 133
was a net gain of $1.2 million and is recorded in mortgage banking income for
the nine months ended September 30, 2001. The $1.2 million net gain is composed
of a $2.1 million gain on commitments to fund approximately $210.0 million of
loans to individual borrowers and a $944,000 loss on commitments to sell
approximately $235.3 million of loans to various investors.
NOTE 6: Long-term Debt
Long-term debt at September 30 is as follows:
2001 2000
------------------------
($ in Thousands)
Federal Home Loan Bank advances (3.82% to 6.81%,
fixed rate, maturing in 2002 through 2014
for 2001; 4.95% to 7.63%, fixed rate, maturing
in 2001 through 2014 for 2000) $614,596 $116,808
Bank Note (4.03%, variable rate, maturing in 2003) 200,000 --
Subordinated Debt (6.75%, fixed rate, maturing in 2011) 200,000 --
Other borrowed funds 5,520 5,655
-----------------------
Total long-term debt $1,020,116 $ 122,463
=======================
9
NOTE 7: Segment Reporting
SFAS No. 131, "Disclosures About Segments of an Enterprise and Related
Information," requires selected financial and descriptive information about
reportable operating segments. The statement uses a "management approach"
concept as the basis for identifying reportable segments. The management
approach is based on the way that management organizes the segments within the
enterprise for making operating decisions, allocating resources, and assessing
performance. The segments reflect the structure of the internal organization,
focusing on financial information that the enterprise uses to make decisions
about the operating matters.
The Corporation's reportable segment is banking, conducted through its bank,
mortgage, insurance and brokerage subsidiaries. For purposes of segment
disclosure under this statement, these entities have similar economic
characteristics and the nature of their products, services, processes,
customers, delivery channels and regulatory environment are similar.
The "other" segment is comprised of smaller nonreportable segments, including
asset management, consumer finance, treasury, holding company investments, as
well as inter-segment eliminations and residual revenues and expenses,
representing the difference between actual amounts incurred and the amounts
allocated to operating segments. The net loss for the "other" segment in 2001
versus 2000 was predominantly driven by the lower trust service fees.
Selected segment information is presented below.
Consolidated
Banking Other Eliminations Total
----------------------------------------------------------
As of and for the three months ended ($ in Thousands)
September 30, 2001
Total assets $14,440,670 $ 1,417,000 $(2,292,845) $13,564,825
=======================================================
Interest income $ 224,098 $ 4,680 $ (11,344) $ 217,434
Interest expense 118,747 3,020 (11,344) 110,423
-------------------------------------------------------
Net interest income 105,351 1,660 -- 107,011
Provision for loan losses 6,636 330 -- 6,966
Noninterest income 56,258 16,307 (24,416) 48,149
Depreciation and amortization 12,193 271 -- 12,464
Other noninterest expense 76,806 19,234 (24,416) 71,624
Income taxes 19,277 (276) -- 19,001
-------------------------------------------------------
Net income $ 46,697 $ (1,592) $ --- $ 45,105
=======================================================
As of and for the three months ended
September 30, 2000
Total assets $14,032,520 $ 1,180,873 $(2,093,391) $13,120,002
=======================================================
Interest income $ 250,848 $ 5,269 $ (18,225) $ 237,892
Interest expense 158,232 3,347 (18,225) 143,354
-------------------------------------------------------
Net interest income 92,616 1,922 -- 94,538
Provision for loan losses 3,880 242 -- 4,122
Noninterest income 57,377 18,084 (31,092) 44,369
Depreciation and amortization 8,956 274 -- 9,230
Other noninterest expense 84,582 17,445 (31,092) 70,935
Income taxes 14,969 (1,853) -- 13,116
-------------------------------------------------------
Net income $ 37,606 $ 3,898 $ --- $ 41,504
=======================================================
- ----------------------------------------------------------------------------------------------
10
Consolidated
Banking Other Eliminations Total
---------------------------------------------------------
As of and for the nine months ended ($ in Thousands)
September 30, 2001
Total assets $14,440,670 $ 1,417,000 $(2,292,845) $13,564,825
=======================================================
Interest income $ 706,650 $ 13,345 $ (43,234) $ 676,761
Interest expense 404,056 7,973 (43,234) 368,795
-------------------------------------------------------
Net interest income 302,594 5,372 -- 307,966
Provision for loan losses 18,836 77 -- 18,913
Noninterest income 186,587 49,062 (92,152) 143,497
Depreciation and amortization 31,969 833 -- 32,802
Other noninterest expense 247,627 56,539 (92,152) 212,014
Income taxes 53,446 1,078 -- 54,524
-------------------------------------------------------
Net income $ 137,303 $ (4,093) $ --- $ 133,210
=======================================================
As of and for the nine months ended
September 30, 2000
Total assets $14,032,520 $ 1,180,873 $(2,093,391) $13,120,002
=======================================================
Interest income $ 726,758 $ 15,714 $ (53,509) $ 688,963
Interest expense 443,549 9,674 (53,509) 399,714
-------------------------------------------------------
Net interest income 283,209 6,040 -- 289,249
Provision for loan losses 13,288 1,715 -- 15,003
Noninterest income 182,514 54,960 (96,673) 140,801
Depreciation and amortization 27,608 849 -- 28,457
Other noninterest expense 256,088 51,935 (96,673) 211,350
Income taxes 48,144 (1,186) -- 46,958
-------------------------------------------------------
Net income $ 120,595 $ 7,687 $ --- $ 128,282
=======================================================
- ----------------------------------------------------------------------------------------------
11
ITEM 2. Management's Discussion and Analysis of Financial Condition and the
Results of Operations
Forward-Looking Statements
Forward-looking statements have been made in this document that are subject to
risks and uncertainties. These forward-looking statements describe future plans
or strategies and include Associated Banc-Corp's expectations of future results
of operations. The words "believes," "expects," "anticipates," or other similar
expressions identify forward-looking statements.
Shareholders should note that many factors, some of which may be discussed
elsewhere in this document could affect the future financial results of
Associated Banc-Corp ("Corporation") and could cause those results to differ
materially from those expressed in forward-looking statements contained in this
document. These factors include the following:
- - operating, legal, and regulatory risks;
- - economic, political, and competitive forces affecting the Corporation's
banking, securities, asset management, and credit
services businesses; and
- - the risk that the Corporation's analyses of these risks and forces could be
incorrect and/or that the strategies developed to address them could be
unsuccessful.
These factors should be considered in evaluating the forward-looking statements,
and undue reliance should not be placed on such statements.
Overview
The following discussion and analysis is presented to assist in the
understanding and evaluation of the Corporation's financial condition and
results of operations. It is intended to complement the unaudited financial
statements, footnotes, and supplemental financial data appearing elsewhere in
this Form 10-Q and should be read in conjunction therewith.
Management continually evaluates strategic acquisition opportunities and other
various strategic alternatives that could involve the sale or acquisition of
branches or other assets, or the consolidation or creation of subsidiaries.
In the second quarter of 2001, the Corporation merged all of the Wisconsin bank
affiliates (Associated Bank South Central, Associated Bank North, Associated
Bank Milwaukee, Associated Bank, National Association, Associated Bank
Lakeshore, National Association, and Associated Bank Green Bay, National
Association) into a single national banking charter, headquartered in Green Bay,
Wisconsin, under the name Associated Bank, National Association. Certain nonbank
subsidiaries (Associated Leasing, Inc. and Associated Banc-Corp Services, Inc.)
also merged with and into the resultant bank, becoming operating divisions of
Associated Bank, National Association.
Pending Business Combination
On September 10, 2001, the Corporation announced the signing of a definitive
agreement to acquire Signal Financial Corporation ("Signal") of Mendota Heights,
Minnesota. Based upon the Corporation's closing stock price on September 10,
2001 (the date of public announcement of the acquisition) and other terms of the
Merger Agreement, the acquisition price is approximately $192.3 million, of
which, $58.4 million will be paid in cash and the remainder in the Corporation's
stock. Signal has approximately $1.1 billion in total assets, and operates in
nine locations in the Twin Cities and Eastern
12
Minnesota. The transaction will be accounted for under the purchase method and
is expected to be completed in the first quarter of 2002, pending approval by
regulators and Signal shareholders.
Results of Operations - Summary
Net income for the first nine months of 2001 ("YTD01") totaled $133.2 million,
or $2.01 and $2.00 of basic and diluted earnings per share, respectively.
Comparatively, net income for the first nine months of 2000 ("YTD00") was $128.3
million, or $1.86 of basic and diluted earnings per share. YTD01 results
generated an annualized return on average assets of 1.36% and an annualized
return on average equity of 17.41%, compared to 1.35% and 18.70%, respectively,
for the same period in 2000. YTD01 net interest margin was 3.51% compared to
3.35% for the comparable period in 2000.
- -----------------------------------------------------------------------------------------------------------
TABLE 1
Summary Results of Operations: Trends
($ in Thousands, except per share data)
Sept. 30, June 30, March 31, Dec. 31, Sept. 30
2001 2001 2001 2000 2000
- -----------------------------------------------------------------------------------------------------------
Net income (Qtr) $ 45,105 $ 46,019 $ 42,086 $ 39,701 $ 41,504
Net income (YTD) $ 133,210 $ 88,105 $ 42,086 $ 167,983 $ 128,282
Earnings per share - basic (Qtr) $ 0.68 $ 0.70 $ 0.64 $ 0.60 $ 0.61
Earnings per share - basic (YTD) $ 2.01 $ 1.33 $ 0.64 $ 2.46 $ 1.86
Earnings per share - diluted (Qtr) $ 0.68 $ 0.69 $ 0.63 $ 0.60 $ 0.61
Earnings per share - diluted (YTD) $ 2.00 $ 1.32 $ 0.63 $ 2.46 $ 1.86
Return on average assets (Qtr) 1.36% 1.42% 1.31% 1.21% 1.28%
Return on average assets (YTD) 1.36% 1.36% 1.31% 1.31% 1.35%
Return on average equity (Qtr) 17.03% 18.02% 17.18% 16.95% 17.75%
Return on average equity (YTD) 17.41% 17.61% 17.18% 18.26% 18.70%
Efficiency ratio (Qtr) * 52.49% 51.38% 53.68% 54.08% 56.63%
Efficiency ratio (YTD) * 52.48% 52.48% 53.68% 55.48% 55.95%
Net interest margin (Qtr) 3.63% 3.56% 3.34% 3.20% 3.25%
Net interest margin (YTD) 3.51% 3.45% 3.34% 3.36% 3.35%
* Noninterest expense divided by sum of taxable equivalent net interest income plus noninterest income, excluding
investment securities gains (losses), net, and asset sales gains, net.
- ------------------------------------------------------------------------------------------------------------
Net Interest Income and Net Interest Margin
Net interest income on a fully taxable equivalent basis for the nine months
ended September 30, 2001, was $324.7 million, up $19.6 million or 6.4% from the
comparable period last year. This increase was primarily attributable to the
benefit of lower interest rates, particularly on the cost of interest-bearing
liabilities, and a higher level of earning assets.
Interest rates fell steadily during the first nine months of 2001, but were
generally rising during the same period in 2000. Comparatively, the average
Federal funds rate for YTD01 was 166 basis points ("bp") lower than for YTD00,
while the rate at September 30, 2001 was 350 bp lower than that at September 30,
2000.
The net interest margin for YTD01 was 3.51%, up 16 bp from 3.35% for YTD00. This
comparable period increase is attributable to an 18 bp increase in interest rate
spread (i.e. a 45 bp decrease in the cost of interest-bearing liabilities, net
of a 27 bp decrease in the yield on earning assets), partially offset by a 2 bp
lower contribution from net free funds.
The yield on earning assets was 7.52% for YTD01, down 27 bp from the comparable
period last year, driven primarily by a 41 bp decrease in the loan yield.
Pressure on loan yields was the result of the repricing of variable rate loans
as well as a lower interest rate environment and competitive factors on new and
refinanced loans. The yield on investments and other earning assets was up 1 bp,
supported by portfolio strategies that started during 2000 to mitigate interest
rate risk.
13
The cost of interest-bearing liabilities was 4.56% for YTD01, down 45 bp
compared to YTD00, impacted strongly by the declining rate environment during
2001. The average cost of interest-bearing deposits excluding brokered CDs
decreased 23 bp, primarily from carrying a higher proportion of lower costing
transaction accounts during YTD01 versus YTD00. Brokered CDs fell to represent
4.0% of interest-bearing liabilities (versus 7.0% for YTD00) and cost less (down
34 bp to 6.10% for YTD01). The cost of wholesale funds (comprised of short-term
borrowings and long-term debt) was 5.11% (down 103 bp from YTD00), also
attributable primarily to the declining rate environment during 2001.
Average earning assets increased by $273 million (2.3%) over the comparable nine
month period last year, while interest-bearing liabilities grew $161 million
(1.5%). An increase in average loans of $443 million (5.1%) over YTD00, with 14%
growth in commercial loans, was the primary contributor to the growth in earning
assets. The ratio of average loans to earning assets increased, with loans
representing 74.0% of earning assets for YTD01 compared to 72.0% for YTD00.
Average investments decreased $170 million, primarily in U.S. government agency
securities and mortgage related securities.
Interest-bearing liabilities grew $161 million (1.5%) over the YTD00 average,
with notable changes in the mix. The use of brokered CDs was reduced, down $311
million on average, representing 4.0% of interest-bearing liabilities for YTD01
versus 7.0% last year. Interest-bearing deposits excluding brokered CDs were
down $154 million (principally in other time deposits). Wholesale funding
increased $626 million (predominantly in long-term debt) to 30.7% of
interest-bearing liabilities for YTD01 compared to 25.3% for YTD00. To take
advantage of the lower rate environment, improve liquidity and mitigate interest
rate risk, the Corporation increased its long-term debt, on average, to 4.0% of
total interest-bearing liabilities compared to 1.0% last year, including the
issuance of $200 million of fixed rate subordinated debt, $200 million of
variable rate bank notes and the use of long-term FHLB advances during YTD01.
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TABLE 2
Net Interest Income Analysis-Taxable Equivalent Basis
($ in Thousands)
- -----------------------------------------------------------------------------------------------------------------------
Nine Months ended September 30, 2001 Nine Months ended September 30, 2000
------------------------------------ ------------------------------------
Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
- -----------------------------------------------------------------------------------------------------------------------
Loans $ 9,052,783 $534,366 7.83% $ 8,609,637 $537,399 8.24%
Investments and other 3,185,888 159,117 6.66 3,356,167 167,442 6.65
---------- ------- ---------- -------
Total earning assets 12,238,671 693,483 7.52 11,965,804 704,841 7.79
Other assets, net 815,823 751,585
---------- ---------
Total assets $13,054,494 $12,717,389
========== ==========
Interest-bearing
deposits,
excluding brokered CDs $ 7,025,457 $220,729 4.20% $ 7,179,758 $238,355 4.43%
Brokered CDs 437,531 19,977 6.10 748,138 36,067 6.44
Wholesale funding 3,307,965 128,089 5.11 2,682,370 125,292 6.14
---------- ------- --------- --------
Total interest-bearing
liabilities 10,770,953 368,795 4.56 10,610,266 399,714 5.01
------- --------
Demand, non-interest bearing 1,123,109 1,063,391
Other liabilities 137,342 127,423
Stockholders' equity 1,023,090 916,309
---------- ----------
Total liabilities and equity $13,054,494 $12,717,389
========== ==========
Interest rate spread 2.96% 2.78%
Net free funds 0.55 0.57
---- ----
Net interest income, taxable
equivalent, and net interest margin $324,688 3.51% $305,127 3.35%
================== =================
Tax equivalent adjustment 16,722 15,878
------- ------
Net interest income, as reported $307,966 $289,249
======== =======
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14
- -----------------------------------------------------------------------------------------------------------------------
TABLE 2 (Continued)
Net Interest Income Analysis-Taxable Equivalent Basis
($ in Thousands)
- -----------------------------------------------------------------------------------------------------------------------
Three Months ended September 30, 2001 Three Months ended September 30, 2000
------------------------------------- -------------------------------------
Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
- -----------------------------------------------------------------------------------------------------------------------
Loans $ 9,107,577 $171,180 7.41% $ 8,771,251 $186,884 8.37%
Investments and other 3,182,051 51,834 6.51 3,351,628 56,848 6.78
--------- ------- -----------------------
Total earning assets 12,289,628 223,014 7.18 12,122,879 243,732 7.93
Other assets, net 823,842 780,665
---------- ----------
Total assets $13,113,470 $12,903,544
========== ==========
Interest-bearing deposits,
excluding Brokered CDs $ 6,995,925 $ 66,202 3.75% $ 7,166,268 $ 84,153 4.67%
Brokered CDs 304,289 4,112 5.36 981,916 16,574 6.71
Wholesale funding 3,446,910 40,109 4.56 2,576,545 42,627 6.47
----------------------- -----------------------
Total interest-bearing liabilities 10,747,124 110,423 4.06 10,724,729 143,354 5.29
-------- -------
Demand, non-interest bearing 1,168,294 1,104,719
Other liabilities 146,988 143,840
Stockholders' equity 1,051,064 930,256
---------- ----------
Total liabilities and equity $13,113,470 $12,903,544
========== ==========
Interest rate spread 3.12% 2.64%
Net free funds 0.51 0.61
---- ----
Net interest income, taxable
equivalent, and net interest margin $112,591 3.63% $100,378 3.25%
================= =================
Tax equivalent adjustment 5,580 5,840
------ -----
Net interest income, as reported $107,011 $ 94,538
======== ========
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- -------------------------------------------------------------------------------------------
TABLE 3
Volume / Rate Variance - Taxable Equivalent Basis
($ in Thousands)
- -------------------------------------------------------------------------------------------
Comparison of
Nine months ended September 30, 2001
versus 2000
Income/ Variance Attributable to
Expense Variance* Volume Rate
- -------------------------------------------------------------------------------------------
INTEREST INCOME
Loans $ (3,033) $ 25,444 $(28,477)
Investments and other (8,326) (8,411) 85
--------------------------------
Total interest income (11,359) 17,033 (28,392)
INTEREST EXPENSE
Interest-bearing deposits, excluding Brokered CDs $(17,626) $ (5,056) $(12,570)
Brokered CDs (16,090) (10,174) (5,916)
Wholesale funding 2,796 24,243 (21,447)
--------------------------------
Total interest expense (30,920) 9,013 (39,933)
--------------------------------
Net interest income $ 19,561 $ 8,020 $ 11,541
================================
- -------------------------------------------------------------------------------------------
15
- ----------------------------------------------------------------------------------------
TABLE 3 (continued)
Volume / Rate Variance - Taxable Equivalent Basis
($ in Thousands)
- -----------------------------------------------------------------------------------------
Comparison of
Three months ended September 30, 2001
versus 2000
Income/ Variance Attributable to
Expense
Variance* Volume Rate
- -----------------------------------------------------------------------------------------
INTEREST INCOME
Loans $(15,704) $ 6,487 $(22,191)
Investments and Other (5,014) (2,864) (2,150)
---------------------------------
Total interest income (20,718) 3,623 (24,341)
INTEREST EXPENSE
Interest-bearing deposits, excluding Brokered CDs $(17,951) $ (1,426) $(16,525)
Brokered CDs (12,462) (6,527) (5,935)
Wholesale funding (2,518) 10,636 (13,154)
---------------------------------
Total interest expense (32,931) 2,683 (35,614)
---------------------------------
Net interest income $ 12,213 $ 940 $ 11,273
=================================
* The change in interest due to both rate and volume has been allocated
proportionately to volume variance and rate variance based on the relationship
of the absolute dollar change in each.
- -----------------------------------------------------------------------------------------
Provision for Loan Losses
YTD01 provision for loan losses was $18.9 million, up $3.9 million from YTD00.
YTD01 net charge-offs as a percent of average loans (on an annualized basis)
were 0.18% compared to YTD00 of 0.10%. The ratio of the allowance for loan
losses to total loans was 1.41%, up from the 1.33% for YTD00. See Table 8.
The provision for loan losses results from the methodology used to determine the
adequacy of the allowance for loan losses which focuses on changes in the size
and character of the loan portfolio, changes in the levels of impaired and other
nonperforming loans, historical losses on each portfolio category, the risk
inherent in specific loans, concentrations of loans to specific borrowers or
industries, existing economic conditions, the fair value of underlying
collateral, and other factors which could affect potential credit losses. See
additional discussion under the "Allowance for Loan Losses" section.
Noninterest Income
YTD01 noninterest income was $143.5 million, up $2.7 million (1.9%) compared to
YTD00. Primary categories that have impacted the change between comparable
periods were mortgage banking, net gains (losses) on both investment securities
and asset sales, and trust service fees.
16
- ----------------------------------------------------------------------------------------------------------------------------------
TABLE 4
Noninterest Income
($ in Thousands)
- ----------------------------------------------------------------------------------------------------------------------------------
3rd Qtr. 3rd Qtr. Dollar Percent YTD YTD Dollar Percent
2001 2000 Change Change 2001 2000 Change Change
- ----------------------------------------------------------------------------------------------------------------------------------
Trust service fees $ 6,627 $ 9,665 $ (3,038) (31.4)% $ 22,038 $ 29,314 $ (7,276) (24.8)%
Service charges on deposit 9,672 8,821 851 9.6 27,967 24,502 3,465 14.1
accounts
Mortgage banking 11,144 5,125 6,019 117.4 35,709 14,617 21,092 144.3
Credit card & other nondeposit fees 6,896 6,475 421 6.5 20,916 19,011 1,905 10.0
Retail commissions 4,119 4,632 (513) (11.1) 12,868 15,577 (2,709) (17.4)
Bank owned life insurance income 3,308 3,081 227 7.4 9,626 9,111 515 5.7
Asset sale gains, net 59 3,179 (3,120) (98.1) 974 24,486 (23,512) (96.0)
Other 5,848 3,393 2,455 72.4 12,681 11,377 1,304 11.5
-----------------------------------------------------------------------------------------------
Subtotal $ 47,673 $ 44,371 $ 3,302 7.4% $ 142,779 $ 147,995 $ (5,216) (3.5)%
Investment securities gains
(losses), net 476 (2) 478 N/M 718 (7,194) 7,912 N/M
-----------------------------------------------------------------------------------------------
Total noninterest income $ 48,149 $ 44,369 $ 3,780 8.5% $ 143,497 $ 140,801 $ 2,696 1.9%
===============================================================================================
Subtotal, net of asset sale gains $ 47,614 $ 41,192 $ 6,422 15.6% $ 141,805 $ 123,509 $ 18,296 14.8%
===============================================================================================
N/M = not meaningful
- ----------------------------------------------------------------------------------------------------------------------------------
Trust service fees decreased $7.3 million, or 24.8%, between the comparable
nine-month periods. The change was predominantly due to a decrease in the market
value of assets under management (from $4.9 billion at YTD00 to $3.8 billion at
YTD01), primarily from the declines in the stock and bond markets between the
comparable periods, and competitive market conditions.
Service charges on deposit accounts were up $3.5 million, or 14.1%, primarily
due to YTD01 benefiting from the 2000 mid-year increases and changes in
non-sufficient fund/overdraft charges and other service charges.
Mortgage banking income consists of servicing fees, the gain or loss on sales of
mortgage loans to the secondary market, gains on sales of servicing, and
production-related revenue (origination, underwriting and escrow waiver fees).
Mortgage banking income increased $21.1 million, more than double the YTD00
level. The increase was primarily the result of a significant increase in
secondary mortgage loan production and related sales between comparable periods
($1.5 billion of production in YTD01 versus $282 million in YTD00). The higher
production levels positively impacted gains on sales (up $18.7 million, of
which, $1.2 million was related to gains in the fair value of mortgage
derivatives and $4.3 million was due to the sale of mortgage servicing rights)
and volume related fees (up $2.9 million). Servicing fees were down $0.5 million
compared to YTD00, in line with the decline in the portfolio serviced for others
(down 5% to $5.2 billion from $5.5 billion at September 30, 2000), due primarily
to the sales of mortgage servicing rights on a portion of the portfolio.
Credit card and other nondeposit fees were $20.9 million for YTD01, an increase
of $1.9 million or 10.0% over YTD00. Credit card revenue was enhanced by the
April 2000 acquisition agreement and five-year agency agreement with Citibank
USA which provide for agent fees and other income on new and existing card
business, as well as increased merchant income.
Retail commission income (which includes commissions from insurance and
brokerage product sales) was down $2.7 million compared to YTD00, primarily due
to a weaker stock market and lower interest rate environment between comparable
periods. Brokerage commissions declined $1.7 million, while insurance
commissions declined $1.0 million.
Net asset sale gains decreased $23.5 million versus YTD00, due to the gain on
sale of $128 million credit card receivables ($12.9 million) and the net premium
on the sales of deposits of six branches ($11.1 million) during YTD00.
17
Other noninterest income increased $1.3 million, or 11.5% from YTD00. The sale
of stock in a regional ATM network resulted in a gain of $2.6 million in the
third quarter of 2001. During the second quarter of 2000, $1.5 million was
recognized in connection with an interim servicing agreement with Citibank USA
related to the credit card receivable sale.
Net investment securities gains (losses) increased $7.9 million versus YTD00.
The YTD00 net losses of $7.2 million were from securities sold to mitigate
interest rate risk and enhance future yields.
Noninterest Expense
YTD01 noninterest expense was $244.8 million, up $5.0 million, or 2.1%, compared
to YTD00. Excluding a $5.6 million valuation adjustment on mortgage servicing
rights in YTD01, noninterest expense was relatively unchanged (down $570,000 or
0.2%) between comparable periods.
- ---------------------------------------------------------------------------------------------------------------------------
TABLE 5
Noninterest Expense
($ in Thousands)
- ---------------------------------------------------------------------------------------------------------------------------
3rd Qtr. 3rd Qtr. Dollar Percent YTD YTD Dollar Percent
2001 2000 Change Change 2001 2000 Change Change
- ---------------------------------------------------------------------------------------------------------------------------
Personnel expense $ 43,266 $ 40,380 $ 2,886 7.1% $124,804 $117,934 $ 6,870 5.8%
Occupancy 5,635 5,733 (98) (1.7) 17,916 17,549 367 2.1
Equipment 3,493 3,755 (262) (7.0) 10,823 11,607 (784) (6.8)
Data processing 4,870 5,313 (443) (8.3) 14,535 17,700 (3,165) (17.9)
Business development & 3,310 3,353 (43) (1.3) 9,502 9,852 (350) (3.6)
advertising
Stationery and supplies 959 1,970 (1,011) (51.3) 5,021 5,793 (772) (13.3)
FDIC expense 399 462 (63) (13.6) 1,279 1,360 (81) (6.0)
Mortgage servicing rights 5,703 2,324 3,379 145.4 12,312 7,103 5,209 73.3
amortization
Intangible amortization expense 2,102 2,229 (127) (5.7) 6,305 6,720 (415) (6.2)
Legal and professional fees 925 1,806 (881) (48.8) 2,593 5,602 (3,009) (53.7)
Other 13,426 12,840 586 4.6 39,726 38,587 1,139 3.0
---------------------------------------------------------------------------------------
Total noninterest expense $ 84,088 $ 80,165 $ 3,923 4.9% $244,816 $239,807 $ 5,009 2.1%
=======================================================================================
- ---------------------------------------------------------------------------------------------------------------------------
Personnel expense increased $6.9 million or 5.8% over YTD00, and represented
51.0% of total noninterest expense in YTD01 compared to 49.2% in YTD00. Salary
expense increased $3.6 million or 3.9% between comparable periods, due primarily
to merit increases, partially offset by the decline in full-time equivalent
employees. Average full-time equivalent employees were down 2.2% to 3,856 for
YTD01. Fringe benefits increased $3.3 million (13.6%) over YTD00, primarily the
result of higher premium-based benefits.
Occupancy expense increased primarily due to rate increases in utilities, while
equipment expense declined predominantly in computer depreciation expense. Data
processing costs decreased due to lower overall vendor costs and lower credit
card processing costs given the sale of the credit card receivables in April
2000.
Mortgage servicing rights amortization expense includes the amortization of the
mortgage servicing rights asset and increases or decreases to the valuation
allowance associated with the mortgage servicing rights asset. Amortization of
mortgage servicing rights increased by $5.2 million between comparable periods,
predominantly driven by an increase of $5.6 million to the valuation reserve
during YTD01, reflecting the decline in interest rates in 2001 and the
acceleration in prepayment speeds in the portfolio of loans serviced for others.
The mortgage servicing rights asset balance, included in other assets on the
consolidated balance sheet, was $33.2 million, net of a $5.6 million valuation
allowance, at September 30, 2001.
Legal and professional fees were down $3.0 million between comparable periods,
principally in consultant fees. Other expense was $39.7 million, up $1.1 million
from YTD00, due principally to increased mortgage loan expenses related to the
higher secondary mortgage loan production during 2001 versus 2000.
18
Income Taxes
Income tax expense for YTD01 was $54.5 million, up $7.6 million or 16.1% from
YTD00. The effective tax rate (income tax expense divided by income before
taxes) was 29.0% and 26.8% for YTD01 and YTD00, respectively.
Balance Sheet
At September 30, 2001, total assets were $13.6 billion, an increase of $445
million, or 3.4%, over September 30, 2000. Loans grew $152 million, or 1.7%,
since September 30, 2000. Commercial loans (up $499 million or 11.0%) now
comprise 56% of total loans, consistent with Corporate strategic objectives,
while residential real estate loans tempered overall loan growth (down $466
million or 14.6%) given the high refinance activity that occurred in 2001. Loans
held for sale grew $105 million as a result of the increased residential
mortgage loan activity between periods. Total deposits were down $932 million or
10.0%, primarily in brokered CDs, which were down $713 million since September
30, 2000. Total deposits excluding brokered CDs were down $220 million or 2.6%.
Demand deposits grew $19 million (1.6%), representing 14% of total deposits and
15% of retail deposits at September 30, 2001, compared to 13% and 14%,
respectively, a year earlier. Short-term borrowings increased $292 million
between comparable periods, predominantly in treasury, tax and loan notes, which
was a key driver to the increase in federal funds sold at September 30, 2001.
Since September 30, 2000, long-term debt grew $898 million due to the issuance
of $200 million of subordinated debt, $200 million of bank notes and the use on
long-term FHLB advances.
Since year-end 2000, total assets grew $436 million. Loans increased $97 million
(1.5% annualized), to $9.0 billion at September 30, 2001, with continued mix
changes as noted in Table 6. Deposits decreased $893 million (12.8% annualized)
to $8.4 billion at September 30, 2001, led by brokered CDs, which decreased $606
million since year-end 2000.
- -----------------------------------------------------------------------------------------------------------
TABLE 6
Period End Loan Composition
($ in Thousands)
- -----------------------------------------------------------------------------------------------------------
September 30, % of September 30, % of Dec. 31, % of
2001 Total 2000 Total 2000 Total
- -----------------------------------------------------------------------------------------------------------
Commercial, financial & agricultural $1,760,412 19% $1,625,358 18% $1,657,322 19%
Real estate-construction 787,112 9 633,834 7 660,732 7
Commercial real estate 2,488,711 28 2,276,206 26 2,287,946 26
Lease financing 13,759 -- 15,613 -- 14,854 --
--------------------------------------------------------------------
Commercial 5,049,994 56 4,551,011 51 4,620,854 52
Residential real estate 2,729,833 30 3,195,865 36 3,158,721 35
Home equity 571,513 7 474,481 6 508,979 6
--------------------------------------------------------------------
Residential mortgage 3,301,346 37 3,670,346 42 3,667,700 41
Consumer 659,030 7 637,308 7 624,825 7
--------------------------------------------------------------------
Total loans $9,010,370 100% $8,858,665 100% $8,913,379 100%
====================================================================
- -----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
TABLE 7
Period End Deposit Composition
($ in Thousands)
- ----------------------------------------------------------------------------------------------------------------------
September 30, % of September 30, % of Dec. 31, % of
2001 Total 2000 Total 2000 Total
- ----------------------------------------------------------------------------------------------------------------------
Demand $1,213,541 14% $1,194,405 13% $1,243,949 14%
Savings 837,967 10 932,020 10 857,247 9
Interest-bearing demand 791,914 9 785,062 8 850,280 9
Money market 1,733,427 21 1,455,117 16 1,492,628 16
Brokered CDs 310,198 4 1,022,994 11 916,060 10
Other time deposits 3,511,865 42 3,941,718 42 3,931,482 42
-----------------------------------------------------------------------------
Total deposits $8,398,912 100% $9,331,316 100% $9,291,646 100%
=============================================================================
Total deposits excluding Brokered CDs $8,088,714 96% $8,308,322 89% $8,375,586 90%
=============================================================================
- -------------------------------------------------------------------------------------------------------------------------
19
On average, total assets for YTD01 increased to $13.1 billion, or $337 million
(2.7%) over YTD00. Average earning assets for YTD01 were $12.2 billion, an
increase of $273 million over YTD01. Loan growth accounted for essentially all
the earning asset growth. Average interest-bearing liabilities for YTD01 grew
$161 million (1.5%) over the YTD00 average, predominantly in long-term debt. For
more information on average balances, refer to the section titled "Net Interest
Income and Net Interest Margin."
Allowance For Loan Losses
The loan portfolio is the Corporation's primary asset subject to credit risk.
Credit risk is controlled and monitored through the use of lending standards, a
thorough review of potential borrowers, and on-going review of loan payment
performance. Active asset quality administration, including early problem loan
identification and timely resolution of problems, further ensures appropriate
management of credit risk and minimization of loan losses.
- ---------------------------------------------------------------------------------------------
TABLE 8
Allowance for Loan Losses and Nonperforming Assets
($ in Thousands)
- ---------------------------------------------------------------------------------------------
At and for
At and for the the
Nine months ended year ended
September 30, December 31,
- ------------------------------------------------- -------------------------- ----------------
2001 2000 2000
----------------------------------------
Allowance for Loan Losses (AFLL):
Balance at beginning of period $ 120,232 $ 113,196 $ 113,196
Decrease from sale of credit card receivables -- (4,216) (4,216)
Provision for loan losses 18,913 15,003 20,206
Charge-offs (14,343) (7,954) (11,155)
Recoveries 1,829 1,578 2,201
--------------------------------------
Net charge-offs (12,514) (6,376) (8,954)
--------------------------------------
Balance at end of period $ 126,631 $ 117,607 $ 120,232
======================================
Nonperforming Assets:
Nonaccrual loans $ 56,651 $ 39,907 $ 41,045
Accruing loans past due 90 days or more 11,376 5,520 6,492
Restructured loans 241 23 159
--------------------------------------
Total nonperforming loans $ 68,268 $ 45,450 $ 47,696
Other real estate owned 2,396 3,710 4,032
--------------------------------------
Total nonperforming assets $ 70,664 $ 49,160 $ 51,728
======================================
Ratios:
Net charge-offs to average loans (annualized) 0.18% 0.10% 0.10%
AFLL to total loans 1.41% 1.33% 1.35%
Nonperforming loans to total loans 0.76% 0.51% 0.54%
Nonperforming assets to total assets 0.52% 0.37% 0.39%
AFLL to nonperforming loans 185% 259% 252%
- -------------------------------------------------------------------------------------------
As of September 30, 2001, the allowance for loan losses ("AFLL") was $126.6
million, representing 1.41% of loans outstanding, compared to $117.6 million (or
1.33% of loans) at September 30, 2000, and $120.2 million (or 1.35% of loans) at
year-end 2000. At September 30, 2001, the AFLL was 185% of nonperforming loans
compared to 259% and 252% at September 30 and December 31, 2000, respectively.
The AFLL at September 30, 2001 increased $9.0 million (7.7%) since September 30,
2000, and $6.4 million (5.3%) since December 31, 2000. The increase is, in part,
in response to continued growth in and changes in the mix of total loans and the
increase in nonperforming loans between comparable
20
periods. Loans at September 30, 2001 grew $152 million (1.7%) since September
30, 2000. Commercial loans were up $499 million, while residential real estate
loans were down $466 million, tempering overall loan growth. Period end loans
grew $97 million (1.5% annualized) since year-end. The mix of commercial loans
increased as a percent of total loans to 56% at September 30, 2001 compared to
51% at September 30, 2000 and 52% at December 31, 2000.
Charge-offs were $14.3 million for the nine months ended September 30, 2001,
$8.0 million for the comparable period ended September 30, 2000, and $11.2
million for the year 2000, while recoveries for the corresponding periods were
$1.8 million, $1.6 million and $2.2 million, respectively. As a result, the
ratio of net charge-offs to average loans on an annualized basis was 0.18%,
0.10%, and 0.10% for YTD01, YTD00, and for the year 2000, respectively. The
softening economy has affected the Corporation's customers and will likely
continue for the remainder of the year.
The AFLL represents management's estimate of an amount adequate to provide for
probable credit losses in the loan portfolio at the balance sheet date.
Management's evaluation of the adequacy of the AFLL is based on management's
ongoing review and grading of the loan portfolio, consideration of past loan
loss experience, trends in past due and nonperforming loans, risk
characteristics of the various classifications of loans, existing economic
conditions, the fair value of underlying collateral, and other factors which
could affect probable credit losses. Thus, in general, the change in the AFLL is
a function of a number of factors, including but not limited to changes in the
loan portfolio (see Table 6), net charge-offs and nonperforming loans (see Table
8).
Management believes the AFLL to be adequate at September 30, 2001. While
management uses available information to recognize losses on loans, future
adjustments to the AFLL may be necessary based on changes in economic conditions
and the impact of such change on the Corporation's borrowers. As an integral
part of their examination process, various regulatory agencies also review the
AFLL. Such agencies may require that changes in the AFLL be recognized when
their credit evaluations differ from those of management, based on their
judgments about information available to them at the time of their examination.
Nonperforming Loans And Other Real Estate Owned
Management is committed to an aggressive nonaccrual and problem loan
identification philosophy. This philosophy is embodied through the ongoing
monitoring and reviewing of all pools of risk in the loan portfolio to ensure
that problem loans are identified quickly and the risk of loss is minimized.
Nonperforming loans are considered an indicator of potential future loan losses.
Nonperforming loans are defined as nonaccrual loans, loans 90 days or more past
due but still accruing and restructured loans. The Corporation specifically
excludes student loan balances that are 90 days or more past due and still
accruing and that have contractual government guarantees as to collection of
principal and interest, from its definition of nonperforming loans. The
Corporation had $18 million, $19 million and $20 million of these loans at
September 30, 2001, September 30, 2000, and December 31, 2000, respectively.
Table 8 provides detailed information regarding nonperforming assets. Total
nonperforming loans at September 30, 2001 were $68.3 million, up $22.8 million
and up $20.6 million, from September 30 and December 31, 2000, respectively. The
ratio of nonperforming loans to total loans was .76%, .51% and .54% at September
30, 2001, September 30, 2000 and December 31, 2000, respectively. Nonaccrual
loans account for the majority of the $22.8 million increase in nonperforming
loans between comparable September 30 periods, with nonaccrual loans increasing
$16.7 million (of which, $14.4 million was attributable to the addition of
several large commercial relationships) and accruing loans past due 90 or more
days increasing $5.9 million (due primarily to the addition of two large
commercial credits). Nonaccrual loans also account for the majority of the $20.6
million increase in nonperforming loans since year-end 2000. Nonaccrual loans
increased $15.6 million (attributable to the addition of several
21
large commercial relationships during 2001) and accruing loans past due 90 or
more days increased $4.9 million (due to the addition of two large commercial
credits). Economic conditions continue to soften and, as such, credit trends
will be watched carefully and necessary actions will be taken to preserve the
strength of the balance sheet and credit loss reserve.
Other real estate owned was $2.4 million at September 30, 2001, down $1.3
million from a year ago, and down $1.6 million from December 31, 2000.
Potential problem loans are loans where there are doubts as to the ability of
the borrower to comply with present repayment terms. The decision of management
to place loans in this category does not necessarily mean that the Corporation
expects losses to occur but that management recognizes that a higher degree of
risk is associated with these performing loans. At September 30, 2001, potential
problem loans totaled $167 million. The loans that have been reported as
potential problem loans are not concentrated in a particular industry.
Management does not presently expect significant losses from credits in this
category.
Liquidity
Effective liquidity management ensures the cash flow requirements of depositors
and borrowers, as well as the operating cash needs of the Corporation, are met.
Funds are available from a number of sources, including the securities
portfolio, the core deposit base, lines of credit with major banks, the ability
to acquire large and brokered deposits, and the ability to securitize or package
loans for sale. Additionally, liquidity is provided from loans and securities
repayments and maturities.
The subsidiary banks are subject to regulation and, among other things, may be
limited in their ability to pay dividends or transfer funds to the parent
company. Accordingly, consolidated cash flows as presented in the consolidated
statements of cash flows may not represent cash immediately available for the
payment of cash dividends to the Corporation's stockholders or for other cash
needs.
For the nine months ended September 30, 2001, net cash provided from operating
and financing activities was $69.9 million and $215.4 million, respectively,
while investing activities used net cash of $9.8 million, for a net increase in
cash and cash equivalents of $275.5 million since year-end 2000. Generally,
during YTD01, anticipated maturities of time deposits (primarily in brokered
CDs) occurred, while total asset growth since year-end 2000 was moderate. Thus,
other financing sources increased, particularly long-term debt and other
short-term borrowings, to help replenish the net decrease in deposits and to
provide for common stock repurchases and payment of cash dividends to the
Corporation's stockholders.
For the nine months ended September 30, 2000, net cash was provided from both
operating and financing activities ($107.4 million and $435.6 million,
respectively), while investing activities used net cash of $492.9 million, for a
net increase in cash and cash equivalents of $50.1 million since year-end 1999.
Generally, total assets grew during the first nine months of 2000, primarily in
loans, and cash was also needed for payment of cash dividends and for common
stock repurchases. These needs were funded by increased deposits (primarily
brokered CDs) net of deposits sold, and by proceeds from the sale of credit card
receivables. During YTD00 proceeds from the sales and maturities of investment
securities were predominantly reinvested by the Corporation to mitigate interest
rate risk and enhance future investment yields.
The parent company manages its liquidity position to provide the funds necessary
to pay dividends to stockholders, service debt, invest in subsidiaries,
repurchase common stock, and satisfy other operating requirements. The parent
company's funding sources are varied, including dividends and service fees from
subsidiaries, borrowings with major banks, commercial paper issuance, and
proceeds from the issuance of equity. The parent company had $200 million of
established lines of credit with nonaffiliated banks, of which $200 million was
available at September 30, 2001. During 2000, a $200
22
million commercial paper program was initiated, of which $200 million was
available at September 30, 2001. Additionally, effective in May 2001, the parent
filed a registration statement utilizing a "shelf" registration process. Under
this shelf process, the parent company may offer up to $500 million of any
combination of the following securities, either separately or in units: debt
securities, preferred stock, depositary shares, common stock, and warrants. In
the third quarter of 2001, the parent company obtained $200 million in a
subordinated notes offering, bearing a 6.75% fixed coupon rate and 10-year
maturity.
During 2000, the four largest subsidiary banks (Associated Bank Illinois,
National Association, Associated Bank Milwaukee, Associated Bank Green Bay,
National Association, and Associated Bank North) established a $2.0 billion bank
note program. As noted in the section titled "Overview," during the second
quarter of 2001 the Corporation merged its Wisconsin banks into a single
national charter named Associated Bank, National Association; thus, subsequently
the program is associated with Associated Bank Illinois, National Association
and Associated Bank, National Association. Under this program, short-term and
long-term debt may be issued. As of September 30, 2001, $200 million of
long-term, variable rate bank notes was outstanding under this program.
The parent company and certain banks are rated by Moody's, Standard and Poor's
(S&P), and Fitch. These ratings, along with the Corporation's other ratings,
provide opportunity for greater funding capacity and funding alternatives.
Capital
Stockholders' equity at September 30, 2001 increased to $1.1 billion (or 7.95%
of total assets), compared to $930.2 million (or 7.09% of total assets) at
September 30, 2000. The increase in equity between the two periods was primarily
composed of the retention of earnings and the exercise of stock options, with
offsetting decreases to equity from the payment of dividends and the repurchase
of common stock. Additionally, stockholders' equity at September 30, 2001,
included $65.1 million of accumulated other comprehensive income, predominantly
related to unrealized gains on securities available-for-sale, net of the tax
effect. At September 30, 2000, stockholders' equity was reduced by $18.9 million
of accumulated other comprehensive loss, related to unrealized losses on
securities available-for-sale, net of the tax effect. Excluding the accumulated
other comprehensive income (loss), stockholders' equity to assets would be 7.51%
and 7.22% at September 30, 2001 and 2000, respectively.
Stockholders' equity grew $110.2 million since year-end 2000. The increase in
equity between the two periods was primarily composed of the retention of
earnings and the exercise of stock options, with offsetting decreases to equity
from the payment of dividends and the repurchase of common stock. Additionally,
stockholders' equity at year-end 2000, included $15.6 million of accumulated
other comprehensive income, related to unrealized gains on securities
available-for-sale, net of the tax effect. Excluding the accumulated other
comprehensive income, stockholders' equity to assets would be 7.51% and 7.27% at
September 30, 2001 and December 31, 2000, respectively.
Cash dividends of $0.91 per share were paid in YTD01, compared to $0.8172 per
share in YTD00, representing an increase of 11.4%.
The Board of Directors ("BOD") has authorized management to repurchase shares of
the Corporation's common stock each quarter in the market, to be made available
for issuance in connection with the Corporation's employee incentive plans and
for other corporate purposes. During YTD01, 500,000 shares were repurchased
under this authorization, at an average cost of $32.73 per share. Additionally,
under two separate actions in 2000, the BOD authorized the repurchase and
cancellation of the Corporation's outstanding shares, not to exceed
approximately 6.7 million shares on a combined basis. Under these authorizations
32,000 shares were repurchased during YTD01, at an average cost of $31.39 per
share, while approximately 3.3 million shares remain authorized to repurchase at
September 30, 2001. The repurchase of shares will be based on market
opportunities, capital levels, growth prospects,
23
and other investment opportunities.
The adequacy of the Corporation's capital is regularly reviewed to ensure that
sufficient capital is available for current and future needs and is in
compliance with regulatory guidelines. The assessment of overall capital
adequacy depends on a variety of factors, including asset quality, liquidity,
stability of earnings, changing competitive forces, economic conditions in
markets served and strength of management. The capital ratios of the Corporation
and its banking affiliates are greater than minimums required by regulatory
guidelines. The Corporation's capital ratios are summarized in Table 9.
- --------------------------------------------------------------------------------------------------------------
TABLE 9
Capital Ratios
(In Thousands, except per share data)
- --------------------------------------------------------------------------------------------------------------
Sept. 30, June 30, March 31, Dec. 31, Sept. 30,
2001 2001 2001 2000 2000
- --------------------------------------------------------------------------------------------------------------
Total stockholders' equity $1,078,874 $1,050,678 $1,023,978 $ 968,696 $ 930,183
Tier 1 capital 913,281 896,276 870,096 846,371 840,180
Total capital 1,238,673 1,020,620 989,683 966,994 957,530
Market capitalization 2,230,131 2,379,119 2,198,989 2,008,274 1,751,531
---------------------------------------------------------------------
Book value per share $ 16.39 $ 15.89 $ 15.48 $ 14.65 $ 13.94
Cash dividend per share 0.31 0.31 0.29 0.29 0.29
Stock price at end of period 33.89 35.99 33.25 30.38 26.25
Low closing price for the period 29.83 31.63 29.75 21.84 22.13
High closing price for the period 36.91 35.99 36.19 30.63 26.63
---------------------------------------------------------------------
Total equity / assets 7.95% 7.95% 7.80% 7.38% 7.09%
Total equity / assets, adjusted (1) 7.51 7.59 7.46 7.27 7.22
Tangible equity / assets 7.27 7.23 7.06 6.62 6.31
Tier 1 leverage ratio 7.02 6.93 6.74 6.52 6.57
Tier 1 risk-based capital ratio 9.73 9.64 9.69 9.37 9.41
Total risk-based capital ratio 13.19 10.98 11.02 10.70 10.72
---------------------------------------------------------------------
Shares outstanding (period end) 65,805 66,105 66,135 66,116 66,725
Basic shares outstanding (average) 66,083 66,146 66,150 66,314 68,031
Diluted shares outstanding (average) 66,633 66,691 66,688 66,542 68,293
=====================================================================
(1) - Ratio is based upon total equity and assets excluding the unrealized gains
(losses) arising during the year, net of income tax.
- --------------------------------------------------------------------------------------------------------------
Third Quarter Results
Net income for third quarter 2001 ("3Q01") was $45.1 million, or $0.68 per
diluted share, compared to $41.5 million net income, or $0.61 per diluted share,
for the third quarter of 2000 ("3Q00"). Return on average equity was 17.03%,
down 72 bp from 3Q00 (influenced primarily by the increase in equity from the
swing in other comprehensive income). The return on average assets increased 8
bp to 1.36%, given the increased net income and moderate average asset growth.
Fully taxable equivalent net interest income for 3Q01 was $112.6 million, $12.2
million higher than 3Q00. The net interest margin of 3.63% in 3Q01 was 38 bp
higher than the net interest margin of 3.25% in 3Q00 (see Tables 2 and 3).
Changes in the rate environment contributed $11.3 million to taxable equivalent
net interest income, and changes in the volume and mix of average earning assets
also impacted taxable equivalent net interest income favorably by $940,000 (see
Table 3). Average earning assets growth (up $167 million to $12.3 billion), a
decrease in interest-bearing deposits excluding brokered CDs (down $170
million), and a decrease in brokered CDs (down $678 million), was funded
primarily by wholesale funds (up $870 million).
The net interest margin rose 38 bp to 3.63% for 3Q01, attributed primarily to
declining interest rates (the average Fed funds rate for 3Q01 was 294 bp lower
than 3Q00), and greater reliance on wholesale funds (which represented 32.1% of
interest-bearing liabilities for 3Q01 compared to 24.0% for 3Q00). The 38 bp
increase in net interest margin was the result of a 123 bp decrease in rate on
interest-bearing liabilities, offset partly by a 75 bp drop in earning asset
yield and 10 bp lower contribution from net free funds.
24
The provision for loan losses was up $2.8 million over the provision for 3Q00.
The AFLL to loans at September 30, 2001 was 1.41% compared to 1.33% at September
30, 2000 (see Table 8).
Noninterest income was $48.1 million for 3Q01, up $3.8 million over 3Q00 (see
Table 4). The change between comparable quarters was impacted by three primary
components: a) net asset sale gains (down $3.1 million, attributable to the $2.9
million net premium on deposits of one branch sold during 3Q00), b) mortgage
banking income (up $6.0 million, primarily due to a dramatic increase in
secondary mortgage loan production, positively impacting gains on the sale of
mortgages and volume related fees), and c) trust service fees (down $3.0
million, as the result of declines in the market value of assets under
management). Service charges on deposit accounts in 3Q01 were up $851,000 (9.6%)
and include fee increases and changes in non-sufficient fund and other service
charges. Other income increased $2.5 million, primarily due to $2.6 million
recognized in connection with the sale of stock in a regional ATM network.
Noninterest expense for 3Q01 was up $3.9 million over 3Q00 (see Table 5), in
part due to a $2.9 million (7.1%) increase in personnel expense and a $3.4
million increase in mortgage servicing rights amortization (predominantly driven
by an increase of $3.4 million to the valuation allowance during 3Q01).
Partially offsetting these expense increases were lower stationery and supplies
(due to lower overall vendor costs) and legal and professional fees
(attributable to higher consultant fees during 3Q00). Income taxes were up $5.9
million between comparable quarters, due to the increase in income before taxes
and the increase in the effective tax rate, at 29.6% for 3Q01 compared to 24.0%
for 3Q00.
Current Accounting Pronouncements
In July 2001, the FASB issued Statement of Financial Accounting Standard
("SFAS") No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other
Intangible Assets." SFAS No. 141 requires that the purchase method of accounting
be used for all business combinations initiated after June 30, 2001 as well as
all purchase method business combinations completed after June 30, 2001. SFAS
No. 141 also specifies criteria which intangible assets acquired in a purchase
method business combination must meet to be recognized and reported apart from
goodwill. SFAS No. 142 will require that goodwill and intangible assets with
indefinite lives no longer be amortized, but instead tested for impairment at
least annually. SFAS No. 142 will also require that intangible assets with
definite useful lives be amortized over their respective estimated useful lives
to their estimated residual values, and reviewed for impairment in accordance
with SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets to Be
Disposed Of."
The Corporation is required to adopt the provisions of SFAS No. 141 immediately
and SFAS No. 142 effective January 1, 2002. Furthermore, any goodwill and any
intangible asset determined to have an indefinite useful life that are acquired
in a purchase business combination completed after June 30, 2001 will not be
amortized, but will continue to be evaluated for impairment in accordance with
the appropriate pre-SFAS No. 142 accounting literature. Goodwill and intangible
assets acquired in business combinations completed before July 1, 2001 will
continue to be amortized prior to the adoption of SFAS No. 142.
SFAS No. 141 will require upon adoption of SFAS No. 142, that the Corporation
evaluate its existing goodwill and intangible assets that were acquired in a
prior purchase business combination, and to make any necessary reclassifications
in order to conform with the new criteria in SFAS No. 141 for recognition apart
from goodwill. Upon adoption of SFAS No. 142, the Corporation will be required
to assess the useful lives and residual values of all intangible assets acquired
in purchase business combinations, and make any necessary amortization period
adjustments by the end of the first interim period after adoption. In addition,
to the extent an intangible asset is identified as having an indefinite
25
useful life, the Corporation will be required to test the intangible asset for
impairment in accordance with the provisions of SFAS No. 142 within the first
interim period. Any impairment loss will be measured as of the date of adoption
and recognized as the cumulative effect of a change in accounting principle in
the first interim period.
As of the date of adoption, the Corporation expects to have unamortized goodwill
in the amount of $92 million that will be subject to the transition provisions
of SFAS No. 141 and SFAS No. 142. Amortization expense related to this goodwill
was $4.9 million ($4.7 million after tax) and $6.6 million ($6.3 million after
tax) for the nine months ended September 30, 2001 and the year ended December
31, 2000. Due to the extensive nature and effort in adopting SFAS No. 141 and
SFAS No. 142, it is not practicable to reasonably estimate the impact of
adopting these Statements on the Corporation's financial statements at the date
of this report, including whether any transitional impairment losses will be
required to be recognized as the cumulative effect of a change in accounting
principle.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets," which supersedes both SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of" and the accounting and reporting provisions of APB Opinion No. 30,
"Reporting the Results of Operations - Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions," for the disposal of a segment of a business. SFAS No.
144 retains the fundamental provisions in SFAS No. 121 for recognizing and
measuring impairment losses on long-lived assets held for use and long-lived
assets to be disposed of by sale, while also resolving significant
implementation issues associated with SFAS No. 121. For example, SFAS No. 144
provides guidance on how a long-lived asset that is used as part of a group
should be evaluated for impairment, establishes criteria for when a long-lived
asset is held for sale, and prescribes the accounting for a long-lived asset
that will be disposed of other than by sale. SFAS No. 144 retains the basic
provisions of Opinion No. 30 on how to present discontinued operations in the
income statement but broadens that presentation to include a component of an
entity (rather than a segment of a business). Unlike SFAS No. 121, an impairment
assessment under SFAS No. 144 will never result in a write-down of goodwill.
Rather, goodwill is evaluated for impairment under SFAS No. 142, "Goodwill and
Other Intangible Assets." The Corporation is required to adopt SFAS No. 144 for
fiscal years beginning after December 15, 2001. Management does not expect the
adoption of SFAS No. 144 to have a material impact on the Corporation's
financial statements.
Subsequent Events
On October 24, 2001, the BOD declared a $0.31 per share dividend payable
November 15, 2001, to shareholders of record at the close of business on
November 1, 2001.
During the fourth quarter of 2001, the Corporation expects to close on the sale
of the deposits of the Evansville, Wisconsin branch of Associated Bank, National
Association to another financial institution. As of September 30, 2001, the
Evansville branch had total deposits of approximately $12 million.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
The Corporation has not experienced any material changes to its market risk
position since December 31, 2000, from that disclosed in the Corporation's 2000
Form 10-K Annual Report.
26
ITEM 6: Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 11, Statement regarding computation of per-share
earnings. See Note 5 of the notes to consolidated financial
statements in Part I Item I.
(b) Reports on Form 8-K:
A report on Form 8-K dated July 19, 2001, was filed under Item 5,
Other Events, and under Item 7, Financial Statements and
Exhibits, reporting Associated's announcement of earnings for the
quarter and six months ended June 30, 2001.
A report on Form 8-K dated August 1, 2001, was filed under Item
5, Other Events, and under Item 7, Financial Statements and
Exhibits, indicating Associated's announcement that a Terms
Agreement had been entered into between Associated Banc-Corp and
Credit Suisse First Boston Corporation.
27
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ASSOCIATED BANC-CORP
-----------------------------------------
(Registrant)
Date: November 14, 2001 /s/ Robert C. Gallagher
-----------------------------------------
Robert C. Gallagher
President and Chief Executive Officer
Date: November 14, 2001 /s/ Joseph B. Selner
-----------------------------------------
Joseph B. Selner
Principal Financial Officer
28