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Running head: ASSOCIATED BANK

Associated Bank:

An Historical and Financial Analysis

Dustin Gaddis

University of Wisconsin – Eau Claire

Author Note

This paper was prepared for ECON 321, Section 001, Fall 2014, taught by Doctor Carroll.

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Associated Bank:

An Historical and Financial Analysis

After a Sunday filled with NFL football and watching the Green Bay Packers, many

Wisconsinites tune in to the post-game press conference to hear some candid thoughts from the

likes of Coach Mike McCarthy and quarterback Aaron Rodgers, hoping to gain some insight into

that day’s performance. Many also recognize the two green logos on the background behind the

interviewee, that of the Green Bay Packers and Associated Bank [AB]. Founded in 1970, AB

was originally formed from three other Wisconsin banks and has continued grow until this day.

As a result of this growth, AB is now the largest bank in Wisconsin, with $26 billion in assets

and 4,400 employees to serve its one million customers in Wisconsin, Minnesota, and Illinois

(Associated Bank, 2014, Who We Are section).

Thanks to the bank’s broad service area and large number of customers, its assets have

grown from $20,532,484,000 to $23,932,159 from the period of 2006 to 2013. Additionally, its

capital has increased from $2,363,419,000 to $$3,123,882 during the same period, with

capital/asset ratios of 11.51 and 13.05, respectively. However, return on assets has fallen from

1.41% to 0.90%, return on equity from 12.41% to 7.22%, and yield on earning assets from

7.22% to 3.43%. While all three of these areas have fallen, cost of funding earning assets has

dropped from 3.15% to 0.18%, clearly showing that interest expense has lowered significantly.

This change in growth, in and of itself, over an eight-year period is not necessarily

astounding, but considering the highly destructive effects of the Great Recession, this expansion

and improvement is acceptable. As Love and Mattern (2011) have contented, the Great

Recession was caused by increasing default and foreclosures in sub-prime mortgage markets,

which had a domino effect, causing falls in other mortgage markets, corporate bonds, and

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commercial real estate (p. 401). Given these massive defaults and foreclosures, many banks

became highly vulnerable to the extent that some of them failed. These events caused worldwide

panic, promoting uncertainty and pessimism within banking and finance industries. As a result,

the Federal Reserve was forced to step in provide financial backing for certain existing banks,

increased regulation to prevent further catastrophes, and methods to stimulate the economy into

order to quell fears of an international financial meltdown.

The extent of the Great Recession, which officially began in December 2007 and ended

in June 2009, was devastating to not only AB, but to its peer group (banks with assets exceeding

$10 billion) as well. Relative to the peer group, AB did worse in some areas, but better in others.

For example, AB’s return on assets plummeted to -0.50% in 2009, while the peer group’s only

fell to -0.06% the same year; the peer group’s return on assets have also recovered at a higher

rate in the years following 2009. Secondly, in the same year, AB’s return on equity dipped down

to -4.35%, while peer group suffered a much smaller decline, down to -0.54%. For this metric,

the peer group again recovered at a faster rate than AB.

On the other hand, Associated Bank out-performed its peer group in other important

measures from 2006 to 2013. Throughout this entire period, AB has maintained a higher capital

as total assets percentage (e.g., 14.86% vs 11.25% in 2009). Furthermore, AB maintained a

surplus of about 1-3% more (as percentage of total equity capital) greater than the peer group

every year from 2006 to 2013 (e.g., 10.72% vs 9.00% in 2010).

Although there are many similarities in terms of performance between AB and the peer

group, there are a few differences that can account for the discrepancy in various metrics. First,

the peer group held two to three times the amount (e.g., 9.37% vs 2.29% in 2008) of cash and

due from depository institutions as a percentage as total assets every year from 2006 to 2013.

Second, the amount of certain other assets held by AB and the peer group were quite different.

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That is, in 2006 AB held 72.24% of assets as net leases and loans vs the peer group’s 56.17%. In

the same year, AB held 0.06% as assets as federal funds sold & reverse repurchase agreements

vs the peer group’s 5.73%. Finally, the peer group also held 7.91% as trading account assets,

while AB held 0.

Considering these disparities, AB’s performance during the Great Recession and slow

recovery afterward (relative to the peer group) can be attributed to riskier behavior, like holding

a higher amount of net leases and loans, holding a significantly smaller amount of cash and due

from depository institutions, and holding a notably smaller amount of less risky assets (i.e.,

federal funds sold). Two interesting differences between AB and the peer group—and ones that

likely contributed to its relatively sluggish performance—are loss allowance to non-current loans

and leases and other borrowed funds as a percentage of total liabilities. AB’s allowance to

noncurrent loans and leases increased from 50.57% in 2009 to 132.85% in 2013, while the peer

group’s has stayed much lower, 60.17% to 62.33%. Lastly, despite other borrowed funds being a

source of trouble for banks during the Great Recession, Associated Bank held 11.28% of other

borrowed funds as total liabilities in 2013, and the peer group only held 5.97% the same year.

Thankfully, even while engaging in riskier behavior, AB did manage to protect itself somewhat

by employing high capital/asset ratio and a surplus (as percentage of total equity capital) from

2006 to 2013.

Ultimately, AB, when compared to similarly sized institutions within the bank industry,

has chosen over the period of 2006 to 2013 to hold more riskier assets (net loans and leases) and

fewer safe assets (federal funds sold). Due to this high-risk, high-return strategy, AB has faced a

slower recovery and smaller growth than its peer group after the Great Recession. However, this

bank has survived, is still growing today, and is an important part of everyday life for millions.

With lessons learned and new strategies implemented post-recession, the future is bright for AB.

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Appendix

Figure 1

Figure 2

Figure 3

$18,000,000

$19,000,000

$20,000,000

$21,000,000

$22,000,000

$23,000,000

$24,000,000

$25,000,000

2006 2007 2008 2009 2010 2011 2012 2013

AB Total Assets 2006 - 2013

$0

$500,000

$1,000,000

$1,500,000

$2,000,000

$2,500,000

$3,000,000

$3,500,000

2006 2007 2008 2009 2010 2011 2012 2013

AB Capital 2006 - 2013

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Figure 4

0

2

4

6

8

10

12

14

16

2006 2007 2008 2009 2010 2011 2012 2013

AB Capital/Asset Ratio 2006 - 2013

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Figure 5

Figure 6

% -6.00

% -4.00

-2.00 %

% 0.00

% 2.00

4.00 %

6.00 %

8.00 %

10.00 %

12.00 %

% 14.00

1

AB Return on Equity 2006 - 2013

2006 2007 2008 2009 2010 2011 2012 2013

% 0.00

1.00 %

2.00 %

3.00 %

% 4.00

5.00 %

% 6.00

7.00 %

% 8.00

2006 2007 2008 2009 2010 2011 2012 2013

AB Yield on Earning Assets 2006 - 2013

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Figure 7

AB Cost of Funding Earning Assets 2006-2013

3.50%

3.00% 2.50%

2.00%

1.50%

1.00%

0.50%

0.00%

Figure 8

% -1.00

-0.50 %

% 0.00

0.50 %

% 1.00

% 1.50

2.00 %

2006 2007 2008 2009 2010 2011 2012 2013

AB and Peer Group - Return on Assets 2006 - 2013

AB ROA Peer Group ROA

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Figure 9

Figure 10

% -6.00 % -4.00 % -2.00

0.00 % 2.00 % 4.00 % 6.00 % 8.00 %

10.00 % 12.00 % 14.00 % 16.00 %

2006 2007 2008 2 009 2010 2011 2012 2013

AB and Peer Group - Return on Equity 2006 - 2013

AB ROE Peer Group ROE

0.00 % % 2.00 % 4.00 % 6.00

8.00 % 10.00 %

% 12.00 % 14.00

16.00 %

2006 2007 2008 2009 2010 2011 2012 2013

AB and Peer Group - Equity Capital as % of Total Assets 2006 - 2013

Equity Capital as % of Total Assets - AB

Equity Capital as % of Total Assets - Peer Group

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Figure 11

Figure 12

% 0.00

2.00 %

4.00 %

6.00 %

8.00 %

10.00 %

12.00 %

2006 2007 2008 2009 2010 2011 2012 2013

AB and Peer Group - Surplus (as % Total Equity Capital

AB Surplus (as % Total Equity Capital) Peer Group Surplus (as % Total Equity Capital)

% 0.00

5.00 %

10.00 %

% 15.00

2006 2007 2008 2009 2010 2011 2012 2013

AB and Peer Group - Cash and Due from Depository Institutions ( % Total Assets )

AB Cash and and Due from Depository Institutions (% Total Assets)

Peer Group Cash and Due from Depository Institutions (% Total Assets)

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Figure 13

Figure 14

% 0.00 % 10.00 20.00 % 30.00 % 40.00 % 50.00 % % 60.00 70.00 % 80.00 %

Cash and due from depository institutions Interest-bearing balances

Securities Federal funds sold & reverse repurchase…

Net loans & leases Loan loss allowance

Trading account assets Bank premises and fixed assets

Other real estate owned Goodwill and other intangibles

All other assets

AB vs Peer Group - Asset Breakdown (2006)

Peer Group Assets (2006) AB Assets (2006)

0.00 % % 20.00

40.00 % % 60.00

80.00 % 100.00 % 120.00 % 140.00 % 160.00 %

2006 2007 2008 2009 2010 2011 2012 2013

AB vs Peer Group - Loss Allowance to Non - current Loans and Leases

AB Loss Allowance to Non-current Loans & Leases

Peer Group Loss Allowance to Non-current Loans and Leases

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Figure 15

% 0.00

% 2.00

% 4.00

% 6.00

% 8.00

% 10.00

12.00 %

% 14.00

% 16.00

2006 2007 2008 2009 2010 2011 2012 2013

AB vs Peer Group Other Borrowed Funds

AB Other Borrowed Funds Peer Group Other Borrowed Funds

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References

Associated Bank. (2014). Who we are. Retrieved from

https://www.associatedbank.com/aboutus/who-we-are

Love, N. S., & Mattern, M. (2011). The great recession: Causes, consequences, and responses.

New Political Science, 33(4), 401.

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