Oppenheimer: Patience Needed With Associated Banc-Corp

According to a recent report from Oppenheimer, the top priorities of Associated Banc-Corp's ASBC CEO after he arrived in late '09 have been achieved with capital higher, NPAs lower and the company now making money. The next step in turning around the company involves further investments into the franchise which will keep driving expenses higher in '11. Associated Banc reported 4Q10 results of $0.04 compared with a loss of $1.41 in the year-ago quarter and $0.04 in the prior quarter. It's estimate was for earnings of $0.06, with the consensus at $0.05. Pre-tax earnings were ~$15M below Oppenheimer's estimate, reflecting higher operating expenses and loan loss provision. Loans grew by 2% during the quarter to $12.6B and were driven by a 24% Q/Q increase in residential mortgages, while C&I and home equity loans grew modestly. Partially offsetting were declines in the commercial real-estate and construction portfolios and lease financing. Management expects mid to single digit growth in average loans in 2011. Based on 3Q10 results and management's comments we are lowering our '11E and '12E EPS to $0.50 and $1.05, respectively. Within our model we are assuming TARP redemption, without an additional capital raise, midway through '11. Oppenheimer has a Perform rating on ASBC ASBC closed Thursday at $14.77